As filed with the Securities and Exchange Commission on March 2, 1998May 11, 1999
Registration No. [ ]
==============================================================================333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCWashington, D.C. 20549
---------------
FORM-----------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
CVS CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
---------------
Delaware 5912 05-0494040
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive
Offices)
---------------
Charles C. Conaway
Executive Vice President and
Chief Financial Officer
CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
---------------
copiesDelaware 5912 05-0494040
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code Number)
One CVS Drive
Woonsocket, RI 02895
(401) 765-1500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Charles C. Conaway
President and Chief Operating Officer
One CVS Drive
Woonsocket, RI 02895
(401) 765-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies to:
Dennis S. Hersch Dennis J. BlockDeanna L. Kirkpatrick
Davis Polk & Wardwell
Weil, Gotshal & Manges LLP
450 Lexington Avenue 767 Fifth Avenue
New York, New York 10017
New York, New York 10153
(212) 450-4000
(212) 310-8000-----------------------
Approximate Datedate of Commencementcommencement of Proposed Saleproposed sale to Public: As soon as
practicablethe public: From time
to time after the effectivenesseffective date of this Registration Statement and the
effective time (the "Effective Time") of the merger (the "Merger") of a
wholly-owned subsidiary of the Registrant with and into Arbor Drugs, Inc.
("Arbor") as described in the Agreement and Plan of Merger dated as of
February 8, 1998 as amended as of March 2, 1998.Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------box: []
CALCULATION OF REGISTRATION FEE
============================================================================================================================
Proposed Maximum
Amount of
Title of eachEach Class of Amount to be Proposed Maximum Aggregate Offering RegistrationAmount of
of Securities to be Registered Registered(1)Registered Offering Price Per Unit Price (2) Fee(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share...... 24,783,965 (2) $1,387,679,666 $409,366
============================================================================================================================Price(1) Price(1) Registration Fee(2)
------------------------------ ---------- ----------------- ------------------- -------------------
5 1/2% Exchange Notes due February $300,000,000 100% $300,000,000 $83,400
15, 2004.............................
- ----------
(1) Represents the maximum number of shares of Common Stock, par value
$.01 per share, of the Registrant ("CVS Common Stock") to be issued in
connection with the Merger in exchange for shares of Common Stock, par
value $.01 per share, of Arbor ("Arbor Common Stock"), determined on
the basis of the maximum exchange ratio that could be applicable in the
Merger (0.3660 shares of CVS Common Stock for each share of Arbor
Common Stock).
(2) Estimated solely for the purpose of calculating the amount of the
registration feefee.
(2) Calculated pursuant to Rule 457(f)(1) and Rule 457(c) of the Securities Act of
1933, as amended (the "Securities Act"), based on the average of the
high and low sales prices of Arbor Common Stock on February 27, 1998 on
the Nasdaq National Market, which was $23.375.
(3) This fee has been calculated pursuant to Rule 457(f) under the
Securities Act, as .0295 of one percent of $1,387,679,666. In
accordance with Rule 457 under the Securities Act, the fee of $278,267
paid by CVS and Arbor pursuant to Section 14(g)(1)(A) of the Securities
Exchange Act of 1934, as amended, upon the filing of their preliminary
proxy material relating to the Merger has been credited against the
registration fee payable in connection with this filing.
---------------.
-----------------------
The Registrantregistrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrantregistrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until thisthe Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
==============================================================================
CVS CORPORATION
CROSS REFERENCE SHEET
ITEM NUMBER LOCATION IN PROXY
IN FORM S-4 STATEMENT/PROSPECTUS
- ------------------------------------------------- --------------------------------------------
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus................................. Facing Page of the Registration Statement;
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Where You Can Find More Information;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Outside Front Cover Page of Prospectus;
Summary; Interests of Certain Persons
in the Merger; The Merger; Comparative
Per Share Market Price and Dividend
Information; Arbor Special Meeting;
Where You Can Find More Information**
4. Terms of the Transaction................... Outside Front Cover Page of Prospectus;
Summary; The Merger; Role of Financial
Advisor; The Merger Agreement; Arbor
Special Meeting; Comparison of
Stockholder Rights; Description of CVS
Capital Stock
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Condensed
Combined Financial Statements
6. Material Contacts with the Company Being
Acquired................................... Summary; The Merger; The Merger Agreement
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters......................... *
8. Interests of Named Experts and Counsel..... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants................................ Summary; Where You Can Find More Information
11. Incorporation of Certain Information by
Reference.................................. Where You Can Find More Information
12. Information with Respect to S-2 and S-3
Registrants................................ *
13. Incorporation of Certain Information by
Reference.................................. *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.......... *
C. INFORMATION ABOUT THE COMPANIES
BEING ACQUIRED
15. Information with Respect to S-3
Companies.................................. Summary; Where You Can Find More Information
16. Information with Respect to S-2 or S-3
Companies.................................. *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies............ *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Outside Front Cover Page of Prospectus;
Summary; Interests of Certain Persons
in the Merger; The Merger; The Merger
Agreement; Arbor Special Meeting;
Comparison of Stockholder Rights;
Description of CVS Capital Stock;
Where You Can Find More Information
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer.................... *
- ------------
* Omitted because================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Item is inapplicable or the answer thereto is negative.
** Indicates that the registrant has departed from the Item in certain
respects by virtue of the "Plain English" format of the Proxy
Statement/Prospectus.
[ARBOR DRUGS, INC. LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Arbor Drugs, Inc. will hold a special meeting of its
shareholders on March 31, 1998, at 10:00 a.m., at The Troy Marriott, 200
West Big Beaver Road, Troy, Michigan, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of February 8, 1998
(the "Merger Agreement"), among CVS Corporation, a Delaware
corporation, Arbor Drugs, Inc., a Michigan corporation, and
Red Acquisition, Inc., a Michigan corporation and wholly-
owned subsidiary of CVS Corporation. The Merger Agreement
provides, among other things, for the merger of Red
Acquisition, Inc. with and into Arbor, with Arbor surviving
the merger as a wholly-owned subsidiary of CVS;
2. To vote upon such other matters as may properly come before
the special meeting; and
3. If necessary, to approve any adjournment of the meeting
without further notice except by announcement at the meeting
being adjourned.
Arbor has fixed the close of business on March 3, 1998 as
the record date for the determination of shareholders entitled to notice of
and to vote at the special meeting or any adjournment thereof. A list of
such shareholders will be available for examination by shareholders of
record during business hours at Arbor -- 3331 West Big Beaver Road, Troy,
Michigan -- for ten days prior to the special meeting and will also be
available at the special meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE
AND ADOPT THE MERGER AGREEMENT, WHICH IS DESCRIBED IN DETAIL IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
Adoption of the Merger Agreement requires the affirmative
vote of a majority of the outstanding shares of Arbor common stock entitled
to vote at the special meeting. Please sign and promptly return the proxy
card in the enclosed envelope, whether or not you expect to attend the
special meeting. Failure to return a properly executed proxy card or to
vote at the special meeting will have the same effect as a vote against the
merger.
Eugene Applebaum March 3, 1998
Chairman of the Board, President
and Chief Executive Officer
[CVS LOGO] [ARBOR LOGO]
CVS Prospectus
Proxy Statement for Arbor Special Meeting
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of CVS Corporation and Arbor Drugs, Inc. have
unanimously approved a merger agreement that would result in Arbor becoming a
wholly-owned subsidiary of CVS Corporation. The combined company would be the
nation's largest chain drugstore company based on store count.
The Arbor Board of Directors has determined that the merger is fair to you and
is in your best interests. The Board therefore recommends that you vote to
approve the merger and the related merger agreement.
If the merger is completed, as illustrated in the table on page 1, Arbor
stockholders will receive, for each Arbor share, between 0.3182 and 0.3660 CVS
shares. The exact number of shares of CVS common stock to be received for each
share of Arbor common stock within that range will be determined by dividing $23
by the average closing price of the CVS stock on the New York Stock Exchange
during a specified period prior to the Arbor special meeting. CVS stockholders
will continue to own their existing shares after the merger.
We estimate that the shares of CVS common stock to be issued to Arbor
stockholders will represent between 9.9% and 11.2% of the outstanding CVS common
stock after the merger (not taking into account Arbor and CVS stock options).
We are asking Arbor stockholders, at Arbor's special meeting of stockholders, to
approve the merger agreement and the merger. The merger cannot be completed
unless Arbor stockholders approve it. We do not need the approval of CVS
stockholders to complete the merger. Therefore, we are not asking CVS
stockholders to vote on the merger.
Whether or not you plan to attend the Arbor special meeting, please take
the time to vote by completing and mailing the enclosed proxy card to us.
If you sign, date and mail your proxy card without indicating how you wish
to vote, your proxy will be counted as a vote in favor of the approval of
the merger agreement and the merger. If you fail to return your card, the
effect will be a vote against the merger. YOUR VOTE IS VERY IMPORTANT.
The date, time and place of the Arbor meeting is:
March 31, 1998
10:00 a.m.
The Troy Marriott
200 West Big Beaver Road
Troy, Michigan
This Proxy Statement/Prospectus provides you with detailed information about the
proposed merger. In addition, you may obtain information about our companies
from documents that we haveregistration statement filed with the
Securities and Exchange Commission.Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED May 11, 1999
PROSPECTUS
CVS Corporation
Offer to Exchange
5 1/2% Notes Due February 15, 2004
for
5 1/2% Exchange Notes Due February 15, 2004
which have been registered
under the Securities Act of 1933, as amended
$300,000,000 aggregate principal amount outstanding
We encourage youare offering to read this entire document carefully.
On behalfexchange up to $300,000,000 of our 5 1/2% Exchange Notes
due February 15, 2004 (the "new notes"), which have been registered under the
Securities Act of 1933 for our existing 5 1/2% Notes due February 15, 2004 (the
"old notes"). We are offering to issue the new notes to satisfy our obligations
contained in the registration rights agreement entered into when the old notes
were sold in transactions pursuant to Rule 144A under the Securities Act and
therefore not registered with the SEC.
The terms of the Board of Directors of Arbor, we urge younew notes are identical in all material respects to vote "FOR" approvalthe
terms of the merger agreementold notes, except that the new notes have been registered under the
Securities Act, and certain transfer restrictions and registration rights
relating to the merger.
/s/Eugene Applebaum
- --------------------------------------------
Eugene Applebaum
Chairmanold notes do not apply to the new notes.
To exchange your old notes for new notes:
o you must complete and send the letter of transmittal that accompanies
this prospectus to the Board, President and
Chief Executive Officerexchange agent, The Bank of Arbor Drugs, Inc.New York, by 5:00
p.m., New York time, on , 1999.
o If your old notes are held in book-entry form at The Depository Trust
Company ("DTC"), you must instruct DTC through your signed letter of
transmittal that you wish to exchange your old notes for new notes.
When the exchange offer closes, your DTC account will be changed to
reflect your exchange of old notes for new notes.
o You should read the section called "The Exchange Offer" for additional
information on how to exchange your old notes for new notes.
Neither the SECSecurities and Exchange Commission nor any state securities
regulators havecommission has approved or disapproved of the CVS Common
Stocknotes to be issued underin the exchange
offer or passed upon the adequacy or accuracy of this Proxy Statement/Prospectus or determined if this
Proxy Statement/Prospectus is accurate or adequate.prospectus. Any
representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated March 3, 1998, and first mailed to stockholders
on March 3, 1998.
TABLE OF CONTENTS
What Arbor Stockholders Will Receive in the Merger..........................1
QUESTIONS AND ANSWERS ABOUT THE
MERGER.................................................................2
SUMMARY.....................................................................3
The Companies...............................................................3
Reasons for the Merger......................................................3
Recommendations to Arbor Stockholders.......................................4
The Merger..................................................................4
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA.........................................................6
Comparative Per Share Data.................................................12
THE MERGER.................................................................15
General....................................................................15
Backgrounddate of the Merger...................................................15
CVS' Reasons for the Merger................................................18
Arbor's Reasons for the Merger; Recommendation of
the Arbor Board.......................................................18
Cautionary Statement and Risk Factor Concerning
Forward-Looking Statements............................................20
Accounting Treatment.......................................................21
Certain U.S. Federal Income Tax Consequences...............................21
Regulatory Matters.........................................................22
No Appraisal Rights........................................................22
Federal Securities Laws Consequences; Stock
Transfer Restriction Agreements.......................................23
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION..............................................24
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS.........................................25
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF
OPERATIONS............................................................26
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET................................................28
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
STATEMENTS............................................................29
ROLE OF FINANCIAL ADVISOR..................................................31
Opinion of Financial Advisor to Arbor......................................31
INTERESTS OF CERTAIN PERSONS IN THE
MERGER................................................................34
One Arbor Designee Will Become Director of CVS ............................34
Change in Control Agreements...............................................34
Stock Options Held by Covered Management
Employees.............................................................35
Other Arrangements Affecting Covered Management
Employee..............................................................36
Stock Options Granted to Non-Employee Directors............................37
Other Employee Benefits....................................................37
Directors' and Officers' Insurance; Indemnification
of Arbor Directors and Officers......................................37
THE MERGER AGREEMENT.......................................................38
General....................................................................38
Merger Consideration.......................................................38
Treatment of Arbor Stock Options...........................................38
Exchange of Shares.........................................................39
Certain Covenants..........................................................39
Certain Representations and Warranties.....................................41
Conditions to the Merger...................................................42
Termination of the Merger Agreement........................................42
Other Expenses.............................................................43
Amendments; Waivers........................................................43
Certain Stockholder Arrangements...........................................44
ARBOR SPECIAL MEETING......................................................45
Time and Place; Purpose....................................................45
Voting Rights; Vote Required for Approval..................................46
Proxies....................................................................46
Other Business; Adjournments...............................................47
COMPARISON OF STOCKHOLDER RIGHTS...........................................47
General....................................................................47
Comparison of Current Arbor Stockholder Rights and
Rights of CVS Stockholders Following the
Merger................................................................47
DESCRIPTION OF CVS CAPITAL STOCK...........................................52
Authorized Capital Stock...................................................52
CVS Common Stock...........................................................52
CVS Preferred Stock and CVS Preference Stock...............................52
Transfer Agent and Registrar...............................................53
Stock Exchange Listing; Delisting and Deregistration
of Arbor Common Stock.................................................53
LEGAL MATTERS..............................................................53
EXPERTS....................................................................53this prospectus is , 1999.
1
WHERE YOU CAN FIND MORE INFORMATION........................................54
LIST OF DEFINED TERMS......................................................56
LIST OF ANNEXES
Annex A...........AgreementINFORMATION
We file annual, quarterly and Plan of Merger
Annex B...........Opinion of Goldman, Sachs & Co.
Annex C...........Optionspecial reports, proxy statements and Voting Agreement
What Arbor Stockholders Will Receiveother
information with the U.S. Securities and Exchange Commission. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Merger
FormulaSEC at 1-800-SEC-0330 for determining number of CVS shares per Arbor share
Iffurther information on the
merger is completed, Arbor stockholders will receive, for each Arbor
share, between 0.3182 and 0.3660 CVS shares. The exact number of CVS shares to
be received per Arbor share within that range will be computed by dividing $23
by the average closing price of the CVSpublic reference rooms. In addition, because our common stock is listed on the
New York Stock Exchange, during 10 trading days randomly selected by lot out of the twenty
trading days ending on the fifth trading day before the special meeting of Arbor
stockholders.
The table shows the number ofreports and other information concerning CVS shares that Arbor stockholders would
receive per Arbor share in the mergercan also
be inspected at the average closing pricesoffice of CVS
common stock illustrated in the table. As illustrated in the table, there will
be no further adjustment in the number of CVS shares to be issued in the merger
if the average closing price of CVS stock is less than $62.8331 or more than
$72.2919.
Ownership of CVS by Arbor stockholders after the merger
CVS will issue between 18.9 million and 21.7 million CVS shares to Arbor
stockholders in the merger. The shares of CVS stock to be issued to Arbor
stockholders in the merger will represent between 9.9% and 11.2% of the
outstanding CVS common stock after the merger. This information is based on the
number of shares of CVS outstanding on December 31, 1997 and of Arbor
outstanding on January 31, 1998 and does not take into account stock options.
Value of CVS shares issuable in the merger based on average closing price
of CVS stock
The table below shows the approximate value of the CVS shares to be issued
per Arbor share in the merger at the average closing prices of CVS stock
illustrated in the table.
The value of CVS shares illustrated in the table is based on an assumed
average closing price of CVS stock. The actual value of CVS shares issued in the
merger will fluctuate based on the market price of the CVS stock. For your
information, the closing price on February 27, 1998 of CVS common stock was
$74.06 and of Arbor common stock was $23.50 You should obtain current market
prices for these stocks.
Dollar value of the CVS
shares to be issued per
Number of CVS shares to be Arbor share based on the
Average closing issued for each Arbor share average closing price of
price of CVS stock in the merger CVS stock
------------------ --------------------------- ------------------------
$72.2919 and above 0.3182 23.00 and above
$72.0000 0.3194 23.00
$71.5000 0.3217 23.00
$71.0000 0.3239 23.00
$70.5000 0.3262 23.00
$70.0000 0.3286 23.00
$69.5000 0.3309 23.00
$69.0000 0.3333 23.00
$68.5000 0.3358 23.00
$68.0000 0.3382 23.00
$67.5625 0.3404 23.00
$67.5000 0.3407 23.00
$67.0000 0.3433 23.00
$66.5000 0.3459 23.00
$66.0000 0.3485 23.00
$65.5000 0.3511 23.00
$65.0000 0.3538 23.00
$64.5000 0.3566 23.00
$64.0000 0.3594 23.00
$63.5000 0.3622 23.00
$63.0000 0.3651 23.00
$62.8331 and less 0.3660 23.00 and less
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Arbor and CVS proposing the merger?
How will I benefit?
A: This merger means that you will have a stake in one of the nation's leading
chain drugstore companies. The combined company will have a presence in 25
states and the District of Columbia. CVS expects the merger to contribute to
earnings (before one-time merger-related charges) in the first year of combined
operations, and expects cost savings of about $30 million annually.
We believe that the merger will allow CVS to accelerate long-term growth
and provide added stockholder value. CVS notes that achieving these earnings and
costs savings is subject to certain risks as discussed in the section
"Cautionary Statement and Risk Factor Concerning Forward-Looking
Statements" on page 19. To review the reasons for the merger in greater detail,
see pages 17 through 19.
Q: When is the Arbor Special Meeting?
A: The meeting will take place on March 31, 1998. At the meeting, Arbor
stockholders will be asked to approve the merger and the related merger
agreement. We are not asking CVS stockholders to vote on the merger.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the stockholder meeting. The
Board of Directors of Arbor unanimously recommends voting in favor of the
approval of the merger agreement and the merger.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to Arbor's Secretary before the
meeting or attend the meeting in person and vote.
Q: If my shares are held in "street name" by my
broker, will my broker vote my shares for me?
A: You cannot vote shares held in "street name"; only your broker can. If you do
not provide your broker with instructions on how to vote your shares, your
broker will not be permitted to vote them, and the effect will be a vote against
the merger.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send you written instructions for
exchanging your share certificates.
Q: Please explain what I will receive in the merger.
A: If the merger is completed, Arbor stockholders will receive between 0.3182
and 0.3660 shares of CVS common stock for each share of Arbor common stock. The
exact amount of CVS stock to be received within that range will be determined by
dividing $23 by the average closing price of the CVS common stock on the New York Stock Exchange, duringInc., 20 Broad
Street, New York, New York 10005.
This prospectus is a specified period prior topart of a registration statement filed by us with the
Arbor stockholders
meeting.
The table on page 1 illustratesSEC under the exact number of CVS shares that would be
received at different assumed average closing prices of CVS common stock. We
will not issue fractional shares of CVS common stock. Instead, Arbor
stockholders will receive a check in the amount of the net proceeds from the
sale of those shares in the market.
Q: What happens to my future dividends?
A: After the merger, we expect the initial annual dividend rate to be $0.44 per
share of CVS stock, which is equivalent to the current annual dividend payment
to CVS stockholders. The payment of dividendsSecurities Act. As allowed by CVS in the future, however,
will depend on business conditions, its financial condition and earnings, and
other factors.
Q: When do you expect the merger to be completed?
A: We are working towards completing the merger as quickly as possible. In
addition to the Arbor stockholder approval, we must also obtain regulatory
approvals. We hope to complete the merger by March 31, 1998.
Q: What are the tax consequences to Arbor stockholders of the merger?
A: The exchange of shares by Arbor stockholders will be tax-free to Arbor
stockholders for federal income tax purposes, except for taxes on cash received
for a fractional share. To review the federal income tax consequences in greater
detail, see page 20.
SUMMARY
This summary highlights selected information fromSEC rules, this Proxy
Statement/Prospectus and mayprospectus does not
contain all of the information that you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
includes important business and financial information that is not included in
this document and is an important to you. To understandpart of this prospectus, and information that
we file later with the merger fullySEC will automatically update and for a more complete
descriptionsupersede the
information in this prospectus. We incorporate by reference the documents listed
below (SEC File No. 1-1011) and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the legalExchange Act until the termination of
the offering under this prospectus.
(1) CVS' Annual Report on Form 10-K........... Year ended December 31, 1998;
(2) CVS' Quarterly Report on Form 10-Q........ Filed on May 11, 1999; and
(3) CVS' Current Reports on Form 8-K.......... Filed on February 11, 1999,
February 9, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Nancy R. Christal
Vice President, Investor Relations
CVS Corporation
670 White Plains Road, Suite 210
Scarsdale, New York, 10583
(800) 201-0938
To obtain timely delivery of copies of any such filings, you must make your
request no later than .
2
THE COMPANY
CVS Corporation is a leader in the chain drugstore industry in the United
States with approximately $15.3 billion in revenue in 1998. As of March 27,
1999, we operated 4,096 stores in 24 states in the Northeast, Mid-Atlantic,
Midwest and Southeast regions and in the District of Columbia, making us one of
the largest drugstore chains in the nation in terms of store count. Our stores
are well positioned, operating in 66 of the merger, you should read carefully this
entire documenttop 100 drugstore markets in the
country. We have the number one market share position in six of the top ten
drugstore markets. We are also among the industry leaders in terms of store
productivity and the documentsoperating profit margin.
The pharmacy business, which represented approximately 58% of our total
sales in 1998, is a primary focus of our operations. In 1998, we have referred you to. See "Where You Can
Find More Information" on page 53.
The Companies
CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
CVS isdispensed over
251 million prescriptions, making us the country's largest drugstore chain in terms of store count and the second largestUnited
States in terms of prescriptions filled and pharmacy sales. We believe that our
pharmacy operations will continue to represent a critical part of our business
and strategy due to favorable trends, including:
o an aging American population,
o greater responsibility being borne by Americans for their healthcare,
o an increasing demand for retail formats that provide easy access and
convenience,
o discovery of new and better drug therapies, and
o the need for cost effective healthcare solutions.
In addition to prescription drugs and services, we offer a broad selection
of general merchandise, presented in a well-organized fashion, in stores that
are designed to be customer-friendly, inviting and easy to shop. Merchandise
categories include, among other things, over-the-counter drugs, greeting cards,
film and photo-finishing services, beauty and cosmetics, seasonal merchandise
and convenience foods. We also offer over 1,400 products under the CVS private
label brand. Total front store sales, volume, with 3,888 stores aswhich are generally higher margin than
pharmacy sales, represented approximately 42% of December 31,
1997, and $12.7 billiontotal sales in 1997 annual revenue. In1998.
On May 29, 1997, CVS successfully
completed its acquisitionmerged with Revco D.S., Inc. in an exchange of Revco.stock
that was accounted for as a pooling of interests. The merger resulted in CVS
operatesbecoming one of the largest chain drugstore companies in 24 states and the District
of Columbia.United States based
on store count.
On March 31, 1998, CVS merged with Arbor Drugs, Inc. 3331 West Big Beaver Road
Troy, MI 48084
(248) 643-9420in an exchange of
stock that was also accounted for as a pooling of interests. Arbor is the
largestleading drugstore chain in southeastern Michigan in terms of store count and
sales volume, with over 200 stores at December 31, 1997 and $960
million in fiscal 1997 revenues.
Reasons for the Merger
Achieving a critical mass in terms of store count and locating our stores
in appropriate geographic markets are essential to competing effectively in the
chain drugstore industry as well as with alternative distribution channels such
as food/drug combos, mail order and mass merchandisers. We believe that thevolume. The Arbor merger provides us the opportunity to accomplish these objectives and to be
recognized as a leading retail growth company.
If completed, the merger will strengthen ourstrengthened CVS' position as one of the nation's
leading chain drugstore companies. Here are a few highlights of how the
combined company would look following the merger:
o The combined company will have more than 4,100 stores in 25 states and
the District of Columbia.
o It will dispense approximately 12% of all retail prescriptions in the
U.S., ranking number one on this measure.
o It will have combined annual sales of approximately $15 billion,
ranking in the top two nationally on this measure.
CVS believes that the merger meets its three criteria for a strategic
acquisition.
o CVS expects the combination to contribute to earnings (before one-
time merger-related charges) in the first year of combined
operations, and expects cost savings of about $30 million
annually. CVS expects to achieve these cost savings principally
through the closing of Arbor's headquarters, economies of scale
in advertising, distribution and other operational areas, and
spreading its investments in information technology over a
broader store base. CVS notes that achieving these earnings and
costs savings is subject to certain risks as discussed in the
section "Cautionary Statement and Risk Factor Concerning Forward-
Looking Statements" on page 19.
o The merger will bringcompanies by bringing CVS into a high-growth, contiguous
geographic market where CVS haspreviously had no existing presence and will positionpresence.
Our principal executive offices are located at One CVS Drive, Woonsocket,
Rhode Island 02895, telephone (401) 765-1500.
3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
In the company to sustain its long-term growth.
o The combination offers significant upside potential in the ability of
each organization to learn from the strengths of the other. In
addition, the merger should provide significant opportunities in our
managed care business. We also believe that the compatibility of our
companies, given their similarity in store size and format as well as
merchandising strategy, should facilitate a relatively smooth
integration of our businesses.
In approving the transaction, each of our Boards of Directors considered
the uncertainties associated with the challenges of integrating the companies
and the risks associated with achieving the expected cost savings, as discussed
in the section "Cautionary Statement and Risk Factor Concerning Forward-Looking
Statements" on page 19.
Each Board also considered that the number and value of the CVS shares
that Arbor stockholders receive in the merger will fluctuate based on changes in
CVS' stock price.
To review the reasons for the merger in greater detail, see pages 17
through 19.
Recommendations to Arbor Stockholders
The Arbor Board believes that the merger is in your best interest and
recommends that you vote FOR the proposal to approve and adopt the merger
agreement.
The Merger
The merger agreement is attached as Annex A to this Proxy
Statement/Prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
What Arbor Stockholders Will Receive (see pages 1 and 37)
As a result of the merger, as illustrated in the table on page 1, Arbor
stockholders will receive, for each share of Arbor common stock, between 0.3182
and 0.3660 shares of CVS common stock. The exact number of shares of CVS stock
to be received per Arbor share within that range will be determined by dividing
$23 by the average closing price of the CVS common stock on the New York Stock
Exchange during a specified period prior to the Arbor stockholders meeting. As
illustrated in the table on page 1, there will be no further adjustment in the
number of CVS shares to be issued in the merger if the average closing price of
CVS stock is less than $62.8331 or more than $72.2919.
CVS will not issue any fractional shares. Instead, Arbor stockholders
otherwise entitled to receive fractional shares will receive a check in the
amount of the net proceeds from the sale of those shares in the market.
Arbor stockholders should not send in their stock certificates for exchange
until instructed to do so after we complete the merger.
Ownership of CVS After the Merger
CVS will issue between 18.9 million and 21.7 million CVS shares to Arbor
stockholders in the merger. The shares of CVS common stock that CVS will issue
to Arbor stockholders in the merger will represent between 9.9% and 11.2% of the
outstanding CVS common stock after the merger. This information is based on the
number of shares of CVS outstanding on December 31, 1997 and Arbor shares
outstanding on January 31, 1998 and does not take into account stock options.
Stockholder Vote Required to Approve the Merger
The favorable vote of a majority of the outstanding shares of Arbor common
stock is required to approve and adopt the merger agreement. CVS has entered
into an Option and Voting Agreement with Mr. Eugene Applebaum, his wife and
trusts for the benefit of the members of his family (owners of approximately
24.5% of the Arbor shares), in which they have agreed to vote all their shares
in favor of the merger. We do not need approval of CVS stockholders to complete
the merger. Therefore, we are not asking CVS stockholders to vote on the merger.
Interests of Officers and Directors in the Merger
When considering the Arbor Board's recommendation that Arbor stockholders
vote in favor of the merger, you should be aware that a number of Arbor officers
and key employees, including three who are also directors, have agreements,
stock options and other benefit plans that provide them with interests in the
merger that are different from, or in addition to, yours (see page 33).
Conditions to the Merger (see page 41)
The completion of the merger depends upon meeting a number of conditions,
including the following:
(1) obtaining the approval of the stockholders of
Arbor;
(2) there being no law or court order that prohibits the merger;
(3) the relevant waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, having expired;
(4) receipt of an opinion of Arbor's counsel that the merger will be
tax-free to Arbor's stockholders; and
(5) receipt of favorable letters from the independent public accountants
of CVS and Arbor as to the availability of "pooling of interests"
accounting treatment for the Merger.
Termination of the Merger Agreement (see page 41)
Either CVS or Arbor can terminate the merger agreement if any of the
following occurs:
(1) we do not complete the merger by August 31,
1998;
(2) the stockholders of Arbor do not give the required stockholder
approval;
(3) a law or court order permanently prohibits the merger; or
(4) the Arbor Board changes, in a manner
adverse to CVS, its recommendation in favor
of the merger or Arbor enters into an
agreement for a significant business
combination or similar transaction with a
third party. However, Arbor may not
terminate for the reasons laid out in this
paragraph (4) unless Arbor has received an
offer that is superior to the merger with CVS
and CVS, within a specified time period, does
not make an offer that is as favorable
financially to Arbor's stockholders as such
superior offer.
Neither CVS nor Arbor can terminate the merger agreement if it is in
material breach of its obligations under the merger agreement.
Termination Fees and Expenses (see page 42)
Arbor must pay CVS a termination fee of $60 million in cash, if (i) the
merger agreement is terminated as described in paragraph (4) above or (ii) the
merger agreement is terminated because Arbor's stockholders do not vote in favor
of the merger and (x) Arbor's Board fails to recommend the merger or (y) a third
party has made a proposal for an alternative transaction and within twelve
months of the termination of the merger agreement any third party enters into an
agreement with Arbor for an alternative transaction.
Regulatory Approvals (see page 21)
The Hart-Scott-Rodino statute prohibits us from completing the merger until
afterdocuments we have given certain information and materials to the Antitrust Division
of the Department of Justice and the Federal Trade Commission and a required
waiting period has expired. The Department of Justice and the Federal Trade
Commission have the authority to challenge the merger on antitrust grounds
before or after the merger is completed.
Accounting Treatment (see page 20)
We expect the merger to qualify as a pooling of interests, which means thatincorporated by reference into this prospectus, we
will treat our companies as if they had always been combined for accounting
and financial reporting purposes. We have each received a letter from our
independent accounting firms that the merger should be accounted for as a
pooling of interests. In addition, the availability of this accounting treatment
is a condition to the closing of the merger.
Opinion of Financial Advisor (see pages 30 through 33)
In deciding to approve the merger, the Arbor Board considered the opinion
of its financial advisor, Goldman, Sachs & Co., as to the fairness from a
financial point of view of the exchange ratio to Arbor's stockholders based upon
and subject to certain factors and assumptions set forth therein. This opinion
is attached as Annex B to this Proxy Statement/ Prospectus. We encourage you to
read this opinion.
Material Federal Income Tax Consequences (see page 20)
We have structured the merger so that Arbor stockholders will not recognize
any gain or loss for federal income tax purposes in the merger (except for tax
payable on cash received instead of fractional shares). The merger is
conditioned on a legal opinion of Arbor's counsel as to the tax-free nature of
the merger.
No Appraisal Rights (see page 21)
Under Michigan law, Arbor stockholders do not have any right to an
appraisal of the value of their shares in connection with the merger.
Comparative Per Share Market Price Information
(see page 23)
CVS common stock is listed on the New York Stock Exchange. Arbor common
stock is listed on the Nasdaq National Market. On February 6, 1998, the last
full trading day prior to the public announcement of the proposed merger, CVS
common stock closed at $70.5625 and Arbor common stock closed at $22.6875. On
February 27, 1998, CVS closed at $74.06 and Arbor closed at $23.50.
Listing of CVS Common Stock
CVS will list the shares of its common stock to be issued in the merger on
the New York Stock Exchange.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
How We Prepared the Financial Statements
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
audited and unaudited financialmake forward-looking statements. These statements of CVS for its fiscal years 1992
through 1996 and its nine months ended September 28, 1996 and September 27, 1997
and Arbor for its fiscal years 1993 through 1997 and its three months ended
October 31, 1996 and 1997. The information is only a summary and you should read
it in conjunction with our historical financial statements (and related notes)
contained in the annual reports and other information that we have filed with
the Securities and Exchange Commission ("SEC"). See "Where You Can Find More
Information" on page 53.
Pooling of Interests Accounting Treatment
We expect that the merger will be accounted for as a "pooling of
interests," which means that for accounting and financial reporting purposes, we
will treat our companies as if they had always been combined. For a more
detailed description of pooling of interests accounting, see "The
Merger--Accounting Treatment" on page 20.
We have presented unaudited pro forma combined financial information that
reflects the pooling of interests method of accounting to give you a better
picture of what our businesses might have looked like had they always been
combined. We prepared the pro forma combined statements of operations and
balance sheet by adding or combining the historical amounts of each company.
Except for converting Arbor's financial information from the last-in, first-out
("LIFO") method of accounting for inventories to the first-in, first-out
("FIFO") method used by CVS, we did not adjust the combined amounts for
differences in the accounting methods used by the companies because we do not
believe that any such differences will be significant. The companies may have
performed differently if they had always been combined. You should not rely on
the unaudited pro forma combined financial information as being indicative of
the historical results that we would have had or the future results that we will
experience after the merger. See "Unaudited Pro Forma Condensed Combined
Financial Statements" on page 24.
Merger-Related Expenses
We estimate that merger-related fees and expenses, consisting primarily of
transaction costs for fees of investment bankers, attorneys and accountants, and
financial printing and other related charges will be approximately $19 million.
The impact of these fees and expenses has been reflected as a reduction of pro
forma combined stockholders' equity in the unaudited pro forma combined balance
sheet. These charges are not reflected in the unaudited pro forma combined
statements of operations or the unaudited pro forma combined per share data.
Integration-Related Expenses
We estimate that costs of approximately $75.0 million (after tax), will be
incurred for severance and other integration-related expenses, including the
elimination of duplicate facilities and excess capacity, organizational
realignment and related workforce reductions. We estimate that approximately
$17.4 million (after tax) of the integration-related costs will be in the form
of asset write-offs which will not require future cash outlays. The
balance, $57.6 million (after tax), will require future cash outlays. The
unaudited pro forma combined statements of operations and the unaudited pro
forma combined balance sheet do not reflect the impact of these charges because
the estimates are preliminary and therefore subject to change. We will charge
these costs to operations as a non-recurring charge in the quarter the merger
occurs. The unaudited pro forma financial information does not include any
potential cost savings from the merger.
Periods Covered
The unaudited pro forma combined statements of operations combine CVS'
results for its 1995 and 1996 fiscal years and for its twelve months ended
September 27, 1997 with Arbor's results for its 1995 and 1996 fiscal years and
for its twelve months ended October 31, 1997, giving effect to the merger as if
it had occurred on January 1, 1995. The unaudited pro forma combined balance
sheet combines CVS' balance sheet as of September 27, 1997 and Arbor's balance
sheet as of October 31, 1997, giving effect to the merger as if it had occurred
on September 27, 1997.
CVS' fiscal year ends December 31, while Arbor's fiscal year ends on July
31. As a result, the unaudited pro forma combined financial information for the
twelve months ended September 27, 1997 includes Arbor's financial statements
conformed to CVS' fiscal year.
As permitted by SEC regulations, CVS' three-month period ended December 31,
1996 has been included twice in the unaudited pro forma combined statements of
operations. CVS' net sales, operating profit and income from continuing
operations were $3.1 billion, $158.5 million and $93.5 million, respectively,
for this period. CVS paid dividends in the amount of $0.11 per common share
during this period. As further permitted, Arbor's three-month period ended
October 31, 1996 has been omitted from the unaudited pro forma combined
statements of operations. Arbor's net sales, profit from continuing operations
and income from continuing operations were $225.0 million, $9.8 million and $6.4
million, respectively, for this period. Arbor paid dividends in the amount of
$0.03 per common share during this period.
CVS Merger, Restructuring and Other Non-Recurring Charges
You should note that CVS' operating profit was reduced by $59.4 million in
fiscal 1992, $203.4 million in fiscal 1995, $12.8 million in fiscal 1996 and
$517.7 million in the nine months ended September 27, 1997 due to merger,
restructuring and other non-recurring charges. Collectively, these charges: (i)
reduced income from continuing operations by $35.1 million in fiscal 1992,
$120.0 million in fiscal 1995, $6.5 million in fiscal 1996 and $342.7 million in
the nine months ended September 27, 1997, (ii) reduced basic income per common
share from continuing operations by $0.25 in fiscal 1992, $0.73 in fiscal 1995,
$0.04 in fiscal 1996 and $2.03 in the nine months ended September 27, 1997 and
(iii) reduced diluted income per common share from continuing operations by
$0.25 in fiscal 1992, $0.73 in fiscal 1995, $0.04 in fiscal 1996 and $1.99 in
the nine months ended September 27, 1997.
Selected Historical Financial Data of CVS
(in millions, except per share amounts)
Fiscal Year Ended December 31,
-----------------------------------------------------------------
1992(1) 1993(1) 1994(1) 1995 1996
---------- --------- -------- -------- ----------
Historical Consolidated Statement of
Operations Data:
Net sales..................................... $ 5,874.2 $6,452.2 $8,762.0 $9,763.4 $10,944.8
Operating profit.............................. 281.8 284.9 376.3 230.7 540.8
Income from continuing operations............. 86.9 134.9 161.3 57.8 340.8
Income per common share from continuing
operations:
Basic...................................... 0.51 0.79 0.89 0.25 1.97
Diluted.................................... 0.50 0.78 0.88 0.25 1.92
Dividends paid per common share............... 1.48 1.52 1.52 1.52 0.44
Weighted average number of common shares
outstanding:
Basic...................................... 140.6 149.6 162.4 163.7 165.3
Diluted.................................... 141.8 150.5 163.1 164.3 173.2
Fiscal Year Ended December 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
---------- --------- -------- -------- ----------
Historical Consolidated Balance Sheet Data:
Total assets.................................. $5,247.4 $5,318.8 $6,885.3 $6,335.6 $5,693.7
Long-term obligations......................... 629.7 565.9 991.4 1,092.6 1,254.6
Total stockholders' equity.................... 2,537.3 2,757.8 3,137.1 2,392.8 2,196.4
- -------------------
(1) On May 29, 1997, CVS completed a merger with Revco D.S., Inc. ("Revco").
Prior to the merger, Revco's fiscal year ended on the Saturday closest to
May 31. In recording the business combination, which was accounted for as a
pooling of interests, Revco's consolidated financial statements were
restated to a year ended December 31, to conform with CVS' fiscal year end.
As permitted by SEC regulations, Revco's fiscal years ended May 29, 1993,
May 28, 1994 and June 3, 1995 have been combined with CVS' fiscal years
ended December 31, 1992, 1993 and 1994.
Unaudited
Nine Months Ended
------------------------------
September 28, September 27,
1996 1997
------------- -------------
Historical Consolidated Statement of Operations Data:
Net sales.......................................................................... $ 7,871.0 $ 9,401.8
Operating profit................................................................... 382.3 (3.3)
Income from continuing operations.................................................. 247.3 (73.5)
Income per common share from continuing operations:
Basic........................................................................... 1.43 (0.50)
Diluted......................................................................... 1.39 (0.50)
Dividends paid per common share.................................................... 0.33 0.33
Weighted average number of common shares outstanding:
Basic........................................................................... 165.1 169.0
Diluted......................................................................... 173.1 169.0
Unaudited
------------------------------
September 28, September 27,
1996 1997
------------- -------------
Historical Consolidated Balance Sheet Data:
Total assets....................................................................... $5,708.0 $5,357.4
Long-term obligations.............................................................. 900.3 505.1
Total stockholders' equity......................................................... 2,470.9 2,236.1
Selected Historical Financial Data of Arbor
(in millions, except per share amounts)
Fiscal Year Ended July 31,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------------------------------------------------------------------
Historical Consolidated Statement of
Operations Data: (1)
Net sales............................... $ 535.0 $ 618.6 $ 707.1 $ 826.1 $ 962.8
Operating profit........................ 10.7 24.6 35.6 41.2 52.1
Income from continuing operations....... 6.9 14.1 23.1 27.0 34.4
Income per common share from
continuing operations:
Basic................................ 0.13 0.26 0.42 0.48 0.59
Diluted.............................. 0.12 0.25 0.41 0.47 0.58
Dividends paid per common share......... 0.06 0.07 0.08 0.12 0.15
Weighted average number of common
shares outstanding:
Basic................................ 54.7 55.0 55.5 56.1 58.1
Diluted.............................. 55.4 55.4 56.2 57.6 59.2
Fiscal Year Ended July 31,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------------------------------------------------------------------
Historical Consolidated Balance Sheet Data:
Total assets............................ $ 215.6 $ 233.7 $ 246.6 $ 273.7 $ 329.7
Long-term obligations................... 18.2 23.7 22.3 20.8 16.3
Total stockholders' equity.............. 118.5 130.0 150.7 176.2 223.0
Unaudited
Three Months Ended
------------------------------
October 31, October 31,
1996 1997
------------------------------
Historical Consolidated Statement of Operations Data: (1)
Net sales.......................................................................... $ 225.0 $ 254.2
Operating profit................................................................... 9.8 11.6
Income from continuing operations.................................................. 6.4 7.8
Income per common share from continuing operations
Basic........................................................................... 0.11 0.13
Diluted......................................................................... 0.11 0.13
Dividends paid per common share.................................................... 0.03 0.04
Weighted average number of common shares outstanding
Basic........................................................................... 56.6 59.2
Diluted......................................................................... 58.2 61.5
Unaudited
------------------------------
October 31, October 31,
1996 1997
------------------------------
Historical Consolidated Balance Sheet Data:
Total assets....................................................................... $ 298.6 $ 354.2
Long-term obligations.............................................................. 20.2 23.0
Total stockholders' equity......................................................... 185.9 230.0
- -------------------
(1) Arbor's selected historical financial data has been adjusted to reflect the
3-for-2 stock splits that were effected in December 1997, December
1996 and May 1995.
Unaudited Selected Pro Forma Combined Financial Data
(in millions, except per share amounts)
Fiscal Year Ended
---------------------------------------------
December 31, September 27,
1995 1996 1997
---------------------------------------------
Pro Forma Combined Statement of
Operations Data:(1)(4)(8)(9)
Net sales....................................... $ 10,470.5 $ 11,770.9 $ 13,467.6
Operating profit(2)(3).......................... 268.6 584.8 211.4
Income from continuing operations(2)(3)......... 82.4 369.6 57.2
Income per common share from continuing
operations:(2)(3)(6)(7)
Basic........................................ 0.36 1.93 0.23
Diluted...................................... 0.36 1.89 0.23
Dividends paid per common share(6).............. 1.37 0.40 0.40
Weighted average number of common shares
outstanding:(7)
Basic........................................ 181.8 183.6 187.4
Diluted...................................... 182.6 192.0 191.0
September 27,
1997
---------------
Pro Forma Combined Balanced Sheet Data:(1)
Total assets(3)................................................................... $ 5,740.3
Long-term obligations............................................................. 528.1
Total stockholders' equity(2)(3)(5)............................................... 2,465.8
- -------------------
(1) The unaudited pro forma combined statements of operations combine CVS'
results for its 1995 and 1996 fiscal years and for its twelve months ended
September 27, 1997 with Arbor's results for its 1995 and 1996 fiscal years
and for its twelve months ended October 31, 1997, giving effect to the
merger as if it had occurred on January 1, 1995. The unaudited pro forma
combined balance sheet combines CVS' balance sheet as of September 27, 1997
and Arbor's balance sheet as of October 31, 1997, giving effect to the
merger as if it had occurred on September 27, 1997.
(2) CVS' operating profit was reduced by $203.4 million in fiscal 1995, $12.8
million in fiscal 1996 and $517.7 million in the twelve months ended
September 27, 1997 due to merger, restructuring and other non-recurring
charges. Collectively, these charges: (i) reduced pro forma combined income
from continuing operations by $120.0 million in fiscal 1995, $6.5 million
in fiscal 1996 and $342.7 million in the twelve months ended September 27,
1997, (ii) reduced pro forma combined basic income per common share from
continuing operations by $0.66 in fiscal 1995, $0.04 in 1996 and $1.83 in
the twelve months ended September 27, 1997 and (iii) reduced pro forma
combined diluted income per common share from continuing operations by
$0.66 in fiscal 1995, $0.03 in fiscal 1996 and $1.79 in the twelve months
ended September 27, 1997.
(3) Arbor's cost of sales and inventories have been restated from LIFO to FIFO
in order to conform the accounting method for the combined inventories. The
impact of the restatement was to: (i) increase pro forma combined operating
profit and increase pro forma combined total assets by $2.3 million in
fiscal 1995, $2.8 million in fiscal 1996 and $2.2 million in the twelve
months ended September 27, 1997, (ii) increase pro forma combined income
from continuing operations by $1.5 million in fiscal 1995, $1.8 million in
fiscal 1996 and $1.4 million in the twelve months ended September 27, 1997,
(iii) increase pro forma combined basic income per common share from
continuing operations by $0.01 in fiscal 1995, $0.01 in fiscal 1996 and
$0.01 in the twelve months ended September 27, 1997 and (iv) increase pro
forma combined diluted income per share from continuing operations by $0.01
in fiscal 1995, $0.01 in fiscal 1996 and $0.01 in the twelve months ended
September 27, 1997.
(4) We estimate that costs of approximately $75.0 million (after tax) will be
incurred for severance and other integration-related expenses, including
the elimination of duplicate facilities and excess capacity, organizational
realignment and related workforce reductions. We estimate that
approximately $17.4 million (after tax) of the integration-related costs
will be in the form of asset write-offs which will not require future cash
outlays. The balance, $57.6 million (after tax), will require future cash
outlays. The unaudited pro forma combined statements of operations and the
unaudited pro forma combined balance sheet do not reflect the impact of
these charges because the estimates are preliminary and therefore subject
to change. These costs will be charged to operations as a non-recurring
charge in the quarter the merger occurs.
(5) We estimate that merger-related fees and expenses, consisting primarily of
transaction costs for fees of investment bankers, attorneys and
accountants, and financial printing and other related charges, will be
approximately $19 million. The impact of these fees and expenses has been
reflected as a reduction of pro forma combined stockholders' equity in the
pro forma combined balance sheet. These charges are not reflected in the
unaudited pro forma combined statements of operations or unaudited pro
forma combined per share data.
(6) Pursuant to the terms of the Merger Agreement, Arbor stockholders will
receive between 0.3182 and 0.3660 shares of CVS common stock for each share
of Arbor common stock they hold. If Arbor stockholders were to receive
0.3182 shares of CVS common stock per Arbor share, pro forma combined basic
income per common share from continuing operations would be $0.36 in fiscal
1995, $1.94 in fiscal 1996 and $0.23 in the twelve months ended September
27, 1997 and pro forma combined diluted income per common share from
continuing operations would be $0.36 in 1995, $1.89 in 1996 and $0.23 in
the twelve months ended September 27, 1997. Pro forma combined dividends
paid per common share would be $1.37 in fiscal 1995, $0.40 in fiscal 1996
and $0.40 in the twelve months ended September 27, 1997. If Arbor
stockholders were to receive 0.3660 shares of CVS common stock per Arbor
share, pro forma combined basic income per common share from continuing
operations would be $0.36 in fiscal 1995, $1.91 in fiscal 1996 and $0.23 in
the twelve months ended September 27, 1997 and pro forma combined diluted
income per common share from continuing operations would be $0.35 in 1995,
$1.86 in 1996 and $0.22 in 1997. Pro forma combined dividends paid per
common share would be $1.35 in fiscal 1995, $0.39 in fiscal 1996 and $0.39
in the twelve months ended September 27, 1997.
(7) The calculation of basic income per common share uses the weighted average
number of common shares outstanding. The calculation of diluted income per
common share includes the effect of common share equivalents that are
dilutive.
(8) The pro forma combined financial data gives effect to the merger accounted
for as a pooling of interests, assuming that 0.3260 shares of CVS common
stock were issued for each share of Arbor common stock outstanding, based
on the closing price of CVS common stock on February 6, 1998 of $70.56,
which we used in determining the assumed exchange ratio.
(9) The pro forma combined financial data has been adjusted to reflect the
3-for-2 stock splits that were effected by Arbor in December 1997, December
1996 and May 1995.
Comparative Per Share Data
We have summarized below the per share information for our respective
companies on an historical, pro forma combined and equivalent basis. The pro
forma information gives effect to the merger accounted for as a pooling of
interests, assuming that 0.3260 shares of CVS common stock were issued for each
share of Arbor common stock outstanding, based on the closing price of CVS
common stock on February 6, 1998 of $70.56, which we used in determining the
assumed exchange ratio. You should read this information in conjunction with our
historical financial statements (and related notes) contained in the annual
reports and other information that we have filed with the SEC. See "Where You
Can Find More Information" on page 53. You should also read this information in
connection with the pro forma combined financial information set forth on page
24. You should not rely on the pro forma combined financial information as being
indicative of the historical results that we would have had or the future
results that we will experience after the merger.
Fiscal Year Ended
--------------------------------------------
September 27,
1995 1996 1997
------------ ----------- -------------
CVS (In dollars)
Historical Per Common Share:(1)(3)(7)
Income from continuing operations:
Basic........................................................... $ 0.25 $ 1.97 $ 0.04
Diluted......................................................... 0.25 1.92 0.04
Dividends paid.................................................... 1.52 0.44 0.44
Book value(6)..................................................... - - 12.99
Pro Forma Combined-Per CVS Common Share:(2)(3)(4)(5)(7)(8)
Income from continuing operations
Basic........................................................... 0.36 1.93 0.23
Diluted......................................................... 0.36 1.89 0.23
Dividends paid.................................................... 1.37 0.40 0.40
Book value(6)..................................................... - - 12.88
Arbor
Historical Per Common Share:(1)(7)(8)
Income from continuing operations:
Basic........................................................... 0.42 0.48 0.63
Diluted......................................................... 0.41 0.47 0.61
Dividends paid....................................................... 0.08 0.12 0.16
Book value(6)........................................................ - - 3.88
ProForma Combined-Per Equivalent Arbor Common Share:(2)(3)(4)(5)(7)(8)
Income from continuing operations:
Basic........................................................... 0.12 0.63 0.08
Diluted......................................................... 0.12 0.61 0.07
Dividends paid....................................................... 0.45 0.13 0.13
Book value(6)........................................................ - - 4.20
- -------------------
(1) The unaudited historical per common share data reflects CVS' results for
its 1995 and 1996 fiscal years and for its twelve months ended September
27, 1997 and Arbor's results for its 1995 and 1996 fiscal years and for its
twelve months ended October 31, 1997.
(2) The unaudited pro forma combined per share data combines CVS' results for
its 1995 and 1996 fiscal years and for its twelve months ended September
27, 1997 with Arbor's results for its 1995 and 1996 fiscal years and for
its twelve months ended October 31, 1997. CVS' fiscal year ends December
31, while Arbor's fiscal year ends on July 31. As a result, the unaudited
pro forma combined financial information for the twelve months ended
September 27, 1997 includes Arbor's financial statements conformed to CVS'
fiscal year.
(3) CVS' income from continuing operations was reduced by $120.0 million in
fiscal 1995, $6.5 million in fiscal 1996 and $342.7 million in the twelve
months ended September 27, 1997 due to merger, restructuring and other
non-recurring charges. Collectively, these charges: (i) reduced historical
basic income per common share from continuing operations by $0.73 in fiscal
1995, $0.04 in 1996 and $2.04 in the twelve months ended September 27,
1997, (ii) reduced historical diluted income per common share from
continuing operations by $0.73 in fiscal 1995, $0.04 in fiscal 1996 and
$2.00 in the twelve months ended September 27, 1997, (iii) reduced basic
income per common share from continuing operations on a pro forma combined
- per CVS common share basis by $0.66 in fiscal 1995, $0.04 in 1996 and
$1.83 in the twelve months ended September 27, 1997, (iv) reduced diluted
income per common share from continuing operations on a pro forma combined
- per CVS common share basis by $0.66 in fiscal 1995, $0.03 in 1996 and
$1.79 in the twelve months ended September 27, 1997, (v) reduced basic
income per common share from continuing operations on a pro forma combined
- per equivalent Arbor common share basis by $0.22 in fiscal 1995, $0.01 in
1996 and $0.60 in the twelve months ended September 27, 1997 and (vi)
reduced diluted income per common share from continuing operations on a pro
forma combined - per equivalent Arbor common share basis by $0.21 in fiscal
1995, $0.01 in 1996 and $0.58 in the twelve months ended September 27,
1997.
(4) Arbor's cost of sales and inventories have been restated from LIFO to FIFO
in order to conform the accounting method for the combined inventories. The
impact of the restatement was to: (i) increase historical income from
continuing operations by $1.5 million in fiscal 1995, $1.8 million in
fiscal 1996 and $1.4 million in the twelve months ended September 27, 1997,
(ii) increase historical basic income per common share from continuing
operations by $0.03 in fiscal 1995, $0.03 in fiscal 1996 and $0.02 in the
twelve months ended September 27, 1997, (iii) increase historical diluted
income per common share from continuing operations by $0.03 in fiscal 1995,
$0.03 in fiscal 1996 and $0.02 in the twelve months ended September 27,
1997, (iv) increase basic income per common share from continuing
operations on a pro forma combined - per CVS common share basis by $0.01 in
1995, $0.01 in 1996 and $0.01 in the twelve months ended September 27, 1997
and (v) increase diluted income per share from continuing operations on a
pro forma combined - per CVS common share basis by $0.01 in 1995, $0.01 in
1996 and $0.01 in the twelve months ended September 27, 1997. This change
had no impact on either basic or diluted income per common share from
continuing operations on a pro forma combined - per equivalent Arbor common
share basis.
(5) Pursuant to the terms of the Merger Agreement, Arbor stockholders will
receive between 0.3182 and 0.3660 shares of CVS common stock for each share
of Arbor common stock they hold. On a pro forma combined - per CVS common
share basis, if Arbor stockholders were to receive 0.3182 shares of CVS
common stock per Arbor share, pro forma combined basic income per common
share from continuing operations would be $0.36 in fiscal 1995, $1.94 in
fiscal 1996 and $0.23 in the twelve months ended September 27, 1997 and pro
forma combined diluted income per common share from continuing operations
would be $0.36 in fiscal 1995, $1.89 in fiscal 1996 and $0.23 in the twelve
months ended September 27, 1997. Pro forma combined dividends paid per
share would be $1.37 in fiscal 1995, $0.40 in fiscal 1996 and $0.40 in the
twelve months ended September 27, 1997. Pro forma combined book value per
common share would be $12.91 at September 27, 1997. If Arbor stockholders
were to receive 0.3660 shares of CVS common stock per Arbor share, pro
forma combined basic income per common share from continuing operations
would be $0.36 in fiscal 1995, $1.91 in fiscal 1996 and $0.23 in the twelve
months ended September 27, 1997 and pro forma combined diluted income per
common share from continuing operations would be $0.35 in fiscal 1995,
$1.86 in fiscal 1996 and $0.22 in the twelve months ended September 27,
1997. Pro forma combined dividends paid per share would be $1.35 in fiscal
1995, $0.39 in fiscal 1996 and $0.39 in the twelve months ended September
27, 1997. Pro forma combined book value per common share would be $12.72 at
September 27, 1997. On a pro forma combined - per equivalent Arbor common
share basis, if CVS stockholders were to receive 3.1426 shares of Arbor
common stock per CVS share, pro forma combined basic income per common
share from continuing operations would be $.011 in fiscal 1995, $0.62 in
fiscal 1996 and $0.07 in the twelve months ended September 27, 1997 and pro
forma combined diluted income per common share from continuing operations
would be $0.11 in fiscal 1995, $0.60 in fiscal 1996 and $0.07 in the twelve
months ended September 27, 1997. Pro forma combined dividends paid per
share would be $0.44 in fiscal 1995, $0.13 in fiscal 1996 and $0.13 in the
twelve months ended September 27, 1997. Pro forma combined book value per
common share would be $4.11 at September 27, 1997. If CVS stockholders were
to receive 2.7322 shares of Arbor common stock per CVS share, pro forma
combined basic income per common share from continuing operations would be
$0.13 in fiscal 1995, $0.70 in fiscal 1996 and $0.08 in the twelve months
ended September 27, 1997 and pro forma combined diluted income per common
share from continuing operations would be $0.13 in fiscal 1995, $0.68 in
fiscal 1996 and $0.08 in the twelve months ended September 27, 1997. Pro
forma combined dividends paid per share would be $0.49 in fiscal 1995,
$0.14 in fiscal 1996 and $0.14 in the twelve months ended September 27,
1997. Pro forma combined book value per common share would be $4.66 at
September 27, 1997.
(6) Historical book value per common share is computed by dividing
stockholders' equity for CVS and Arbor by the number of shares of common
stock outstanding at the end of each period for CVS and Arbor,
respectively. Pro forma book value per common share is computed by dividing
pro forma stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of each period.
(7) The calculation of basic income per common share uses the weighted average
number of common shares outstanding. The calculation of diluted income per
common share includes the effect of common share equivalents that are
dilutive.
(8) The comparative historical and pro forma combined per common share data has
been adjusted to reflect the 3-for-2 stock splits that were effected by
Arbor in December 1997, December 1996 and May 1995.
THE MERGER
General
CVS Corporation, a Delaware corporation ("CVS"), and Arbor Drugs, Inc., a
Michigan corporation ("Arbor"), are furnishing this Proxy Statement/Prospectus
to holders of Arbor's common stock ("Arbor Common Stock") in connection with the
solicitation of proxies by the Arbor Board at a special meeting of Arbor's
stockholders (the "Special Meeting"), and at any adjournments or postponements
thereof, and the issuance of CVS common stock ("CVS Common Stock") to Arbor
stockholders in the merger.
At the Special Meeting, holders of Arbor Common Stock will be asked to vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated as of
February 8, 1998, as amended as of March 2, 1998 (the "Merger Agreement"),
among CVS, Arbor and Red Acquisition, Inc., a Michigan corporation ("Merger
Subsidiary"), and the transactions contemplated thereby. A copy of the
Merger Agreement is attached hereto as Annex A.
The Merger Agreement provides for the merger of Merger Subsidiary, a
wholly-owned subsidiary of CVS, with and into Arbor (the "Merger"), with Arbor
surviving the Merger as a wholly-owned subsidiary of CVS. The Merger will become
effective at the time of filing of a certificate of merger with the Michigan
Department of Consumer and Industry Services or at such other time as is
specified in the certificate of merger (such time being herein referred to as
the "Effective Time"), which is expected to occur as soon as practicable after
the last of the conditions precedent to the Merger set forth in the Merger
Agreement has been satisfied or waived.
Background of the Merger
The chain drugstore industry has recently undergone rapid consolidation. A
number of competitive factors underlie this trend. First, a growing percentage
of pharmacy revenue is attributable to third-party payors (such as HMOs, managed
care plans and Medicaid), which has resulted in declining pharmacy margins. At
the same time, pharmacy and prescription drug sales have become increasingly
important relative to the overall business. Second, the chain drugstore business
has become increasingly capital intensive, requiring significant investment in
information systems and infrastructure and new forms of real estate development.
CVS and Arbor believe that achieving a critical mass in terms of store count and
locating stores in appropriate geographic markets are essential to competing
effectively in the chain drugstore industry as well as with alternative
distribution channels such as combination food/drugstores, mail order and mass
merchandisers.
In light of the foregoing, on January 23, 1997, Arbor engaged Goldman,
Sachs & Co. ("Goldman Sachs") as its financial advisor in connection with the
possible sale of all or a portion of Arbor. In addition to assisting Arbor in
its discussions with CVS as described below, Goldman Sachs, on behalf of Arbor,
also held discussions with two other large chain drugstore companies during the
term of its engagement. Neither of these discussions resulted in a proposal
being submitted for consideration by Arbor.
Also in light of the changes taking place within the chain drugstore
industry, CVS regularly explores opportunities for a suitable strategic
acquisition. By the fall of 1997, management of CVS formed a preliminary view
that a business combination between CVS and Arbor could meet CVS' three criteria
for strategic acquisitions. These criteria require that a proposed acquisition
have the potential:
o to be accretive to earnings (before one-time charges) in the first year
after closing;
o to afford leadership in new markets, positioning the company to sustain
its long-term growth; and
o to provide significant upside from the combination.
CVS was pleased with the progress that had been made in the Revco
integration and was willing to further explore the merits of a possible Arbor
transaction. To this end, CVS retained Credit Suisse First Boston Corporation
("CSFB") as CVS' financial advisor, to assist CVS in its evaluation of Arbor as
an acquisition candidate.
On December 12, 1997, Thomas Ryan, CVS' Vice Chairman and Chief Operating
Officer, called Eugene Applebaum, Chairman of the Board, President and Chief
Executive Officer of Arbor, to commence initial discussions on a possible
business combination. Messrs. Ryan and Applebaum discussed the continuing
consolidation in the chain drugstore industry, the merits of a possible
combination and the synergies that might be achievable. At the conclusion of the
call, Mr. Applebaum advised Mr. Ryan that he would give further consideration to
the matters they had discussed and respond in early January.
On January 12, 1998, representatives of Goldman Sachs contacted Mr. Ryan,
indicated that Goldman Sachs had been engaged as a financial advisor by Arbor
and discussed with Mr. Ryan the merits of a potential business combination
between CVS and Arbor. The call participants also had initial discussions on
valuation and talked about scheduling a meeting of principals.
At a CVS Board meeting on January 14, senior management of CVS updated the
CVS Board on discussions to that date and on management's view of a potential
combination with Arbor based on publicly available information, as well as
information provided in the discussions with Mr. Applebaum and Goldman Sachs.
The CVS Board authorized management to proceed in discussions with Arbor.
On January 19, CVS entered into a confidentiality and standstill agreement
with Arbor, and Goldman Sachs forwarded to CVS a confidential information
package about Arbor. On January 27, Arbor entered into a substantially similar
confidentiality agreement with CVS.
On January 23, Mr. Ryan, Charles Conaway, Chief Financial Officer of CVS,
representatives of CSFB, Mr. Applebaum, Gilbert Gerhard, Chief Financial Officer
of Arbor, and representatives of Goldman Sachs met in suburban Detroit. The
participants in the meeting reviewed certain non-public financial information
concerning Arbor and CVS, exchanged views on trends in the chain drugstore
industry and on the importance of scale in the industry as it relates to the
managed care business, and discussed possible synergies from a combination. They
also discussed organizational issues such as management of the combined company,
Mr. Applebaum's role in the combined company, plans regarding Arbor's
headquarters and matters affecting Arbor employees.
Discussions at the meeting focused on a possible transaction being
structured as a stock-for-stock merger. A stock merger transaction was
considered attractive for the following principal reasons:
o Arbor stockholders would continue to own an interest in the combined
company.
o The Merger would be tax-free to Arbor stockholders (other than taxes
payable on cash received for fractional shares).
o Pooling-of-interests accounting treatment would be available.
In the course of these discussions Mr. Ryan emphasized to the
representatives of Arbor the importance to CVS that any transaction with Arbor
meet CVS' three acquisition criteria described above. The participants concluded
by arranging for Messrs. Conaway and Gerhard to conduct further due diligence on
possible synergies.
On January 27, Mr. Conaway and Mr. Gerhard had a phone conversation in
follow-up to the discussions on January 23. This conversation had as its primary
focus due diligence on the potential synergies from the combination.
On January 28, Goldman Sachs distributed to CVS a proposed form of Merger
Agreement and Registration Rights Agreement prepared by Weil, Gotshal & Manges
LLP, special counsel to Arbor.
On January 28 and 29, Messrs. Conaway, Gerhard and other members of
management of the two companies met in Detroit. Over the course of the two days,
representatives of CVS conducted their business due diligence review of
non-public information relating to Arbor, particularly with a view to evaluating
Arbor's future growth plans, potential synergies from the combination and the
potential for the transaction to be accretive to the combined company's earnings
in the first year after closing.
On February 2, Messrs. Ryan, Conaway, Applebaum, Gerhard and
representatives of the parties' respective financial advisors, CSFB and Goldman
Sachs, met in Florida. The participants reviewed the progress that had been made
in evaluating possible synergies and exchanged further financial information. An
agreement in principle was reached, subject to the consideration and approval of
both Boards and agreement on definitive documentation, on the terms and
structure of the exchange ratio ultimately reflected in the Merger Agreement.
The exchange ratio was based on an Arbor stock price of $23 and a CVS stock
price of $675/8, the closing price of CVS stock on February 2. The participants
further agreed in principle that the exchange ratio would have a "collar" of 7%
around the agreed price which fixes the number of shares of CVS Common Stock to
be issued for each share of Arbor Common Stock within a range from 0.3182 to
0.3660. The parties also agreed in principle on organizational issues relating
to management and employees of Arbor, and on the continuation of Arbor's
charitable contributions in the metropolitan Detroit area, and discussed certain
transactional and post-closing matters affecting Mr. Applebaum, including
seating Mr. Applebaum on the CVS Board, his consulting agreement with CVS
covering services relating to real estate activities in Michigan and the Toledo
metropolitan area and other matters, and the terms of the Option and Voting
Agreement.
On February 2, Davis Polk & Wardwell,special counsel to CVS,
distributed CVS' proposed draft of the Merger Agreement to Arbor and its
counsel and financial advisors. Over the next several days, the parties,
together with their legal and financial advisors, finalized their business
and legal due diligence review. They also negotiated the terms and
conditions of the Merger Agreement and exhibits thereto, the Option and
Voting Agreement between Mr. Applebaum and the members of his family, on
the one hand, and CVS, on the other hand, the Registration Rights Agreement
to be entered into at closing between the parties to the Option and Voting
Agreement, and the Consulting Agreement, to be effective at closing, with
Mr. Applebaum.
On February 4, the Arbor Board held a telephonic meeting during which
Goldman Sachs described the substance of the discussions that had taken place
with CVS to date, and Weil, Gotshal & Manges reviewed with the directors their
fiduciary obligations to Arbor's stockholders in considering a transaction of
the type under discussion. After consideration, the Board authorized management
to continue its discussions with CVS.
On February 5, representatives of Arbor and its advisors met in Rhode
Island with representatives of CVS to conduct a due diligence review of
non-public information relating to CVS.
On February 8, the Arbor Board held a special meeting regarding the
proposed transaction. At the meeting, Weil, Gotshal & Manges again reviewed with
the directors their fiduciary obligations in considering the proposed
transaction. Weil, Gotshal & Manges then discussed in detail the terms and
provisions of the draft Merger Agreement (including the resolution of issues
that had been open between the parties at the time of the previous Board
meeting, such as the withdrawal of CVS' request for a termination right if the
price of its stock in the measurement period exceeded a specified level and a
reduction in the "break-up" fee requested by CVS to $60 million), as well as the
terms and provisions of the Option and Voting Agreement, the Registration Rights
Agreement and the Consulting Agreement. Goldman Sachs presented an analysis of
the financial terms of the proposed transaction, reviewed the discussions that
the firm had had with other potential acquirors on behalf of Arbor and rendered
a written opinion, based upon and subject to the factors and assumptions set
forth therein, as to the fairness from a financial point of view of the Exchange
Ratio to the holders of Arbor Common Stock. Honigman Miller Schwartz and Cohn,
counsel to Arbor, discussed various matters relating to the Michigan takeover
statutes. Following discussion of these matters, the Arbor Board unanimously
approved the Merger Agreement and recommended approval of the Merger Agreement
and the Merger by Arbor's stockholders.
The CVS Board also held a special meeting on February 8 regarding the
proposed transaction. At the meeting, Mr. Stanley Goldstein, Chairman of
the Board and the Chief Executive Officer of CVS, and Messrs. Ryan and
Conaway reviewed the possible combination with Arbor and the principal
terms of the proposed transaction; representatives of CSFB, CVS' financial
advisor, reviewed for the CVS Board the financial terms of the proposed
transaction; and Davis Polk & Wardwell outlined the legal terms of the
proposed transaction. Based on the foregoing, the CVS Board unanimously
approved entering into the Merger Agreement, the Option and Voting
Agreement and the other agreements and transactions contemplated thereby.
The definitive Merger Agreement and related documents were finalized later
on February 8, and the Merger Agreement and Option and Voting Agreement were
signed by the respective parties thereto. A joint press release announcing the
proposed Merger was issued on February 9.
CVS' Reasons for the Merger
The chain drugstore industry has recently undergone rapid consolidation.
See "--Background of the Merger" above. In this environment, CVS management
believes that achieving a critical mass of stores in appropriate geographic
markets is essential to competing effectively in the chain drugstore industry as
well as with alternative distribution channels. A merger with Arbor presents an
opportunity to acquire a high-quality company in an industry where, due to rapid
consolidation, there is a diminishing number of suitable acquisition candidates.
The Arbor acquisition meets CVS' three criteria for strategic acquisitions: it
is expected to be accretive to earnings (before one-time merger-related charges)
in the first year after closing; it provides CVS with a leading presence in
Michigan (the nation's fourth largest drug retail market), where CVS currently
has no presence; and it provides upside potential for both parties (for example,
CVS believes that CVS' expertise in cosmetics and the depth of CVS' private
market label can be applied to Arbor stores, and that Arbor's expertise in
photofinishing and in seasonal and general merchandise can be applied to CVS
stores). CVS management also believes that upside potential exists in the
ability for each organization to learn from applying the strengths of the other.
CVS management believes that both CVS and Arbor have similar business
philosophies focusing on good real estate, good people and taking care of the
customer. CVS also believes that the compatibility between the parties in
philosophies, culture, store size and format and merchandise strategy should
facilitate a relatively smooth integration of the companies.
Arbor's Reasons for the Merger; Recommendation of the Arbor Board
The Arbor Board unanimously recommends that the Arbor stockholders vote
"FOR" the approval and adoption of the Merger Agreement and the Merger.
In approving, and recommending that Arbor stockholders approve, the Merger
Agreement and the Merger, the Arbor Board considered the following material
factors:
(i) current industry, economic and market conditions, including, in
particular, the recent consolidation trend within the retail drugstore
business, and the benefits of scale in dealing with both suppliers and
third-party payors;
(ii) Arbor's desire to consolidate to keep pace with the larger
drugstore chains, including Walgreen's, Rite Aid, Eckerd and CVS itself;
(iii) the strategic fit between Arbor and CVS, including the opportunity
for significant synergies and cost savings and the fact that the combined
company would be the largest retail drugstore chain in the country based on
store count and prescriptions dispensed;
(iv) the fact that, based on the closing price of CVS Common Stock on
February 2, 1998, the value of the shares of CVS Common Stock to be
received for each share of Arbor Common Stock in the Merger represented a
premium of approximately 25.4% over the closing price of Arbor Common Stock
on January 2, 1998, the thirtieth day prior to the February 2 meeting at
which the parties agreed in principle on the terms and structure of the
exchange ratio ultimately reflected in the Merger Agreement (see
"--Background of the Merger");
(v) the potential for appreciation in the value of CVS Common Stock as a
result of the Merger, and the ability of Arbor stockholders to have a
significant equity participation in the combined company, including in any
such appreciation, through the ownership of a minimum of approximately 9.9%
and a maximum of approximately 11.2% of the shares of CVS Common Stock to
be outstanding immediately following the Merger (not taking into account
stock options);
(vi) the fact that any decrease prior to the Effective Time in the value
of the shares of CVS Common Stock to be received for each share of Arbor
Common Stock in the Merger will be limited to a certain extent by the
operation of the "collar" feature of the Exchange Ratio (as defined herein
under "The Merger Agreement--Merger Consideration");
(vii) the analysis prepared by Goldman Sachs and the written opinion of
Goldman Sachs presented at the meeting of the Arbor Board to the effect
that, as of the date of such opinion and based upon and subject to the
factors and assumptions set forth therein, the Exchange Ratio is fair from
a financial point of view to the holders of Arbor Common Stock (the full
text of the written opinion of Goldman Sachs, dated February 8, 1998, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with Goldman Sachs' opinion, is attached as
Annex B hereto and is incorporated herein by reference; see "Role of
Financial Advisor--Opinion of Financial Advisor to Arbor");
(viii) the views expressed by Arbor's management and Goldman Sachs that
there appeared to be a very limited number of parties, other than CVS, with
which Arbor would be a good strategic fit, and the fact that discussions
with two such parties contacted by Goldman Sachs on Arbor's behalf did not
result in proposals being submitted for Arbor's consideration (see
"--Background of the Merger");
(ix) the fact that Arbor and CVS have leading market positions in
contiguous states, but with no overlap within Michigan, where all Arbor's
stores are located;
(x) the advice of Arbor's independent accountants that the Merger should
be accounted for as a pooling of interests under generally accepted
accounting principles;
(xi) the ability to consummate the Merger as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended;
(xii) the provisions of the Merger Agreement that permit Arbor, under
certain circumstances, to furnish information to and participate in
discussions or negotiations with third parties, and to terminate the Merger
Agreement to enter into a definitive agreement with a third party
concerning a transaction that constitutes a Superior Proposal (as defined
herein under "The Merger Agreement--Certain Covenants--No Solicitation by
Arbor") upon the payment of a $60 million termination fee (see "The Merger
Agreement--Termination of the Merger Agreement");
(xiii) the other provisions of the Merger Agreement, including the
required approval of the stockholders of Arbor and the protection of the
severance and other benefits afforded to Arbor's employees (see "The Merger
Agreement--Certain Covenants--Certain Employee Benefits Matters");
(xiv) the business, assets, financial condition, results of operations
and cash flow of Arbor, CVS and the combined company, on both an historical
and a prospective basis;
(xv) the current and historical trading prices and values of CVS Common
Stock and Arbor Common Stock and the current historical trading multiples
of other comparable companies;
(xvi) the challenges of combining the businesses of two major
corporations of this size and the attendant risk of not achieving the
expected cost savings, synergies or improvement in earnings (as discussed
under "--Cautionary Statement and Risk Factor Concerning Forward-Looking
Statements") and of diverting management focus and resources from other
strategic opportunities and operational matters for an extended period of
time;
(xvii) the willingness of Mr. Applebaum and the other Applebaum
Stockholders to enter into the Option and Voting Agreement; and
(xviii) the interests of the officers and directors of Arbor in the
Merger, including the matters described under "Interests of Certain Persons
in the Merger."
In view of the wide variety of factors considered by the Arbor Board in
connection with its evaluation of the Merger and the complexity of such matters,
the Arbor Board did not consider it practicable to, nor did it attempt to,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. In addition, the Arbor Board did not
undertake to make any specific determination as to whether any particular factor
(or any aspect of any particular factor) was favorable or unfavorable to its
ultimate determination. Rather, it conducted a discussion of the factors
described above, including asking questions of Arbor's management and legal,
financial and accounting advisors, and reached a general consensus that the
Merger was in the best interests of Arbor and its stockholders. In considering
the factors described above, individual members of the Arbor Board may have
given different weight to different factors.
For information concerning certain interests of members of the Arbor Board,
see "Interests of Certain Persons in the Merger."
Cautionary Statement and Risk Factor Concerning Forward-Looking Statements
We have made forward-looking statements in this document that are subject to risks and
uncertainties. Forward-looking statements include the information concerningconcerning:
o our future results of operations,operating performance, including sales and earnings per
common share growth and cost savings and synergies following the Revco
and Arbor mergers;
o our ability to elevate the performance level of CVS afterRevco stores following
the Effective Time, set forth under "QuestionsRevco merger;
o our belief that we have sufficient cash flows to support working
capital needs, capital expenditures and Answers About the Merger,"
"Summary," "--Backgrounddebt service requirements;
o our belief that we can continue to improve operating performance by
relocating existing stores to freestanding locations;
o our belief that we can continue to reduce selling, general and
administrative expenses as a percentage of net sales;
o our belief that we can continue to reduce inventory levels; and
o our belief that we will incur only minimal business disruption as a
result of the Merger," "--CVS' Reasons for the
Merger,"--Arbor's Reasons for the Merger; Recommendation of the Arbor Board,"
"Role of Financial Advisor" and those preceded by, followed by orYear 2000 issue.
In addition, statements that otherwise include the words "believes," "expects,"
"anticipates," "intends," "estimates" or other similar expressions.expressions are
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and
in the documents which are incorporated by reference
and in our other public
filings, press releases and discussions with Company management, could affect the future results of CVS and Arbor, and of CVS after the Effective Time,Company and could cause those results to
differ materially from those expressed in our forward-looking statements: materially adversestatements.
What Factors Could Affect the Outcome of Our Forward-Looking Statements?
Industry and Market Factors
o changes in economic conditions generally or in the markets served by our companies; a significant delay in the
expected closing of the Merger; material changes in inflation;CVS;
o future federal and/or state regulatory and legislative actions
(including accounting standards and taxation requirements) affecting
our companies'CVS and/or the chain-drug industry;
o consumer preferences and spending patterns;
o competition from other drugstore chains,chains; from alternative distribution
channels such as supermarkets, membership clubs, other retailers and mail order companies
and internet companies (e-commerce) and from other third-partythird party plans; and
o the continued efforts of HMOs,health maintenance organizations, managed
care organizations, PBMpharmacy benefit management companies and other
third-partythird party payors to reduce prescription drug costs.
The forward-looking statements referred to above are also subject to
uncertainties and assumptions relating to the operations and results of
operations of CVS following the Merger, including: risks relating to CVS'4
Operating Factors
o our ability to combine the businesses of two major corporations (while at the same
time completing theCVS, Revco integration) and maintainArbor while
maintaining current operating performance levels during the
integration periodperiod(s) and the challenges inherent in diverting CVS'the
Company's management focus and resources from other strategic
opportunities and from operational matters for an extended period of
time during the
integration process; CVS'time;
o our ability to implement new computer systems and technologies;
o our ability to continue to secure suitable new store locations on
favorable lease terms as it seekswe seek to open new stores and relocate a
portion of itsour existing store base from strip shopping centers to free-standingfreestanding locations;
relationships with suppliers; CVS'o the creditworthiness of the purchasers of former businesses whose
store leases are guaranteed by CVS;
o fluctuations in the cost and availability of inventory and our ability
to purchase inventory onmaintain favorable terms;supplier arrangements and CVS'relationships;
o our ability to attract, hire and retain suitable pharmacists and
management personnel.
Accounting Treatment
CVS has received from KPMG Peat Marwick LLP, its independent accounting
firm, a letter dated February 8, 1998 and addressed to CVS to the effect that,
as of such date, based on such firm's best judgment regarding the application of
generally accepted accounting principles ("GAAP")personnel;
o our ability and the published rulesability of our key business partners to replace,
modify or upgrade computer systems in ways that adequately address the
Year 2000 issue. Given the numerous and regulationssignificant uncertainties
involved, there can be no assurances that Year 2000 related estimates
and anticipated results will be achieved as actual results could
differ materially;
o our ability to establish effective advertising, marketing and
promotional programs (including pricing strategies) in the different
geographic markets in which we operate; and
o our relationships with suppliers.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the SEC relative to matters of accountingnew notes.
The new notes will be exchanged for business
combinations, no conditions exist which would preclude CVS from accounting for
the Merger as a pooling of interests. Arbor has received from Coopers & Lybrand
L.L.P., its independent accounting firm, a letter dated February 8, 1998 and
addressed to the Boards of Directors of CVS and Arbor, to the effect that such
firm believes that no conditions exist that would preclude Arbor from being a
party to a merger accounted for as a pooling of interests in conformity with
GAAP,old notes as described in Accounting Principles Board Opinion No. 16 Business
Combinations, and related published interpretationsthis prospectus
upon our receipt of old notes in like principal amount. We will cancel all of
the American Institute of
Certified Public Accountants and Financial Accounting Standards Board, and
published rules and regulationsold notes surrendered in exchange for the new notes.
Our net proceeds from the sale of the SEC. The receiptold notes were approximately $297
million, after deduction of favorable letters
from these accounting firms datedthe initial purchasers' discounts and commissions
and other expenses of the offering. We used such net proceeds to repay
outstanding commercial paper.
5
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Our selected consolidated financial and operating data as of and for the
closing dateyears ended December 31, 1996, 1997 and 1998 has been derived from our
consolidated financial statements, which have been audited by KPMG LLP,
independent accountants. Historical results should not be taken as necessarily
indicative of the Mergerresults that may be expected for any future period. You should
read this selected consolidated financial and operating data in conjunction with
our Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
our Quarterly Report on Form 10-Q for the quarterly period ended March 27, 1999.
The selected consolidated financial and operating data as toof and for the
availabilitythree months ended March 27, 1998 and March 28, 1999 and for the years ended
December 31, 1994 and 1995 has been derived from our unaudited consolidated
financial statements. In the opinion of poolingmanagement, the consolidated financial
statements include all adjustments necessary for a fair presentation of interests accounting treatment is a condition to the
closing of the Merger.
Under the pooling of interests accounting method, the assets and
liabilities of Arbor will be carried forward to CVS at their historical recorded
bases. Results of operations of CVS will include the
results of both CVSoperations, financial position, and Arborcash flows for those periods. The
results for the three months ended March 27, 1999 are not necessarily indicative
of results that may be expected for the entire fiscal year in which the Merger occurs. The reported
balance sheet amounts and results of operations of the separate companies for
prior periods will be combined, reclassified and conformed, as appropriate, to
reflect the combined financial position and results of operations for CVS. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
Certain U.S. Federal Income Tax Consequences
Tax Opinion. The consummation of the Merger is conditioned upon the receipt
of an opinion of Weil, Gotshal & Manges LLP, tax counsel for Arbor, to the
effect that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). In
rendering such an opinion, Weil, Gotshal & Manges will rely upon representations
contained in letters from CVS and Arbor to be delivered for purposes of the
opinion and upon the assumption that the Merger will be consummated in
accordance with the provisions of the Merger Agreement.
Certain Consequences of Reorganization Status. Provided that the Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code,
for U.S. federal income tax purposes: (i) no gain or loss will be recognized by
the stockholders of Arbor upon the receipt of CVS Common Stock, except with
respect to cash received in lieu of fractional shares of CVS Common Stock, in
exchange for Arbor Common Stock in the Merger; (ii) the aggregate adjusted tax
basis of the shares of CVS Common Stock received by a stockholder of Arbor will
be the same as the aggregated adjusted tax basis in the shares of Arbor Common
Stock surrendered in exchange therefor (reduced by the amount of such tax basis
allocable to any fractional share interest in CVS Common Stock for which cash is
received); (iii) the holding period of the shares of CVS Common Stock received
by a stockholder of Arbor will include the holding period of the shares of Arbor
Common Stock surrendered in exchange therefor, provided that such shares of
Arbor Common Stock are held as capital assets at the Effective Time; and (iv) a
stockholder of Arbor who receives cash in lieu of a fractional share of CVS
Common Stock would generally recognize gain or loss equal to the difference, if
any, between the amount of cash received and such stockholder's adjusted tax
basis in the fractional share interest.
The foregoing discussion is intended only as a summary of the material U.S.
federal income tax consequences of the Merger and does not purport to be a
complete analysis or description of all potential tax effects of the Merger. It
is assumed that the shares of Arbor Common Stock are held as "capital assets"
within the meaning of section 1221 of the Code (i.e., property held for
investment). In addition, the discussion does not address all of the tax
consequences that may be relevant to particular taxpayers in light of their
personal investment circumstances or to taxpayers subject to special treatment
under the Code (for example, insurance companies, other financial institutions,
dealers in securities, taxpayers who hold Arbor Common Stock as part of a
"straddle," "hedge" or "conversion transaction" or who have a "functional
currency" other than the United States dollar, tax-exempt organizations, foreign
entities and stockholders who obtained their Arbor Common Stock through exercise
of a stock option or otherwise as compensation).
No information is provided herein with respect to the tax consequences, if
any, of the Merger under applicable foreign, state, local and other tax laws.
The foregoing discussion is based upon the provisions of the Code, applicable
Treasury regulations thereunder, Internal Revenue Service rulings and judicial
decisions, as in effect as of the date of this Proxy Statement/Prospectus, all
of which are subject to change at any time, possibly with retroactive effect. No
rulings have or will be sought from the Internal Revenue Service concerning the
tax consequences of the Merger.
EACH STOCKHOLDER OF ARBOR IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER
UNDER U.S. FEDERAL, STATE, LOCAL OR ANY OTHER APPLICABLE TAX LAWS.
Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. CVS
and Arbor have filed the required notification and report forms under the HSR
Act with the FTC and the Antitrust Division, and the applicable waiting period
is scheduled to expire at midnight on March 15, 1998. The Department of Justice
and the Federal Trade Commission have the authority to challenge the merger on
antitrust grounds before or after the merger is completed. Each state which may
be affected by the Merger may also review the Merger under applicable state
antitrust laws.
Arbor's pharmacists and pharmacy technicians are required to be licensed by
or registered with, as applicable, the Michigan board of pharmacy. Arbor's
stores and Arbor's distribution center are also registered with the Federal Drug
Enforcement Administration. Many of Arbor's stores sell alcoholic beverages
and/or lottery tickets and are subject to various state and local licensing
requirements as a result. By virtue of these license and registration
requirements, certain governmental consents and approvals or certain other
related actions may be required in connection with the Merger. While there can
be no assurance that such consents, approvals or other actions, if needed, could
be obtained or could be obtained without expense, delay or certain conditions
being imposed by the appropriate regulators, we do not believe that any license
or registration material to the business of the combined company will be
adversely affected as a result of the Merger.
No Appraisal Rights
Holders of Arbor Common Stock are not entitled to dissenters' appraisal
rights under Michigan law in connection with the Merger because the shares of
CVS Common Stock that such holders will be entitled to receive in the Merger
will be listed on the New York Stock Exchange ("NYSE") at the Effective Time.
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
This Proxy Statement/Prospectus does not cover any resales of the CVS
Common Stock to be received by the stockholders of Arbor upon consummation of
the Merger, and no person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
All shares of CVS Common Stock received by Arbor stockholders in the Merger
will be freely transferable, except that shares of CVS Common Stock received by
persons who are deemed to be "affiliates" of Arbor under the Securities Act of
1933, as amended (the "1933 Act"), at the time of the Special Meeting may be
resold by them only in transactions permitted by Rule 145 or as otherwise
permitted under the 1933 Act. Persons who may be deemed to be affiliates of
Arbor for such purposes generally include individuals or entities that control,
are controlled by or are under common control with Arbor and may include
directors (some of whom are executive officers) and principal stockholders of
Arbor. The Merger Agreement requires Arbor to use its reasonable best efforts to
cause each of such affiliates to execute a written agreement to the effect that
such persons will not offer or sell or otherwise dispose of any of the shares of
CVS Common Stock issued to such persons in the Merger in violation of the 1933
Act or the rules and regulations promulgated by the SEC thereunder.
In addition, each of the affiliates of CVS and Arbor as of the date of the
Merger Agreement has executed a written agreement prohibiting such affiliate
from selling, transferring or otherwise disposing of, or acquiring or selling
any options or other securities relating to securities of CVS or Arbor that
would be intended to reduce such affiliate's risk relative to, any shares of CVS
Common Stock or Arbor Common Stock beneficially owned by such affiliate during
the period commencing 30 days prior to the Effective Time and ending at such
time as financial results covering at least 30 days of combined operations of
CVS and Arbor have been publicly released by CVS after the Merger (which release
is required of CVS pursuant to the covenant described under "The Merger
Agreement--Certain Covenants--Certain Other Covenants").
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
CVS Common Stock is listed on the NYSE, and Arbor Common Stock is listed on
the Nasdaq National Market (the "NNM"). The CVS ticker symbol on the NYSE is
CVS. The Arbor ticker symbol on the NNM is ARBR.
The tables below set forth, for the calendar quarters indicated, the
reported high and low sale prices of CVS Common Stock as reported on the NYSE
Composite Transaction Tape and Arbor Common Stock as reported on the NNM, in
each case based on published financial sources, and the dividends declared on
such stock.year.
CVS Common Stock Arbor Common Stock(1)
----------------------------- ------------------------------
Market Price Cash Market Price Cash
----------------- Dividends ------------------ Dividends
High Low Declared High Low Declared
------- ------- --------- ------- ------ ---------
1995
First Quarter.................................. $ 37.50 $ 30.63 $ 0.38 $ 7.33 $ 6.00 $ 0.02
Second Quarter................................. 39.88 33.63 0.38 7.78 6.74 0.02
Third Quarter.................................. 37.25 32.75 0.38 8.83 7.11 0.02
Fourth Quarter................................. 37.13 28.63 0.38 10.33 7.56 0.03
1996
First Quarter.................................. $ 36.38 $ 27.25 $ 0.11 $ 10.33 $ 8.67 $ 0.03
Second Quarter................................. 44.50 35.25 0.11 9.33 8.11 0.03
Third Quarter(2)............................... 46.00 36.63 0.11 9.67 7.94 0.03
Fourth Quarter................................. 44.75 36.38 0.11 12.78 9.11 0.04
1997
First Quarter.................................. $ 48.00 $ 39.00 $ 0.11 $ 13.17 $11.33 $ 0.04
Second Quarter................................. 53.75 44.25 0.11 14.08 10.92 0.04
Third Quarter.................................. 60.00 50.88 0.11 16.79 13.00 0.04
Fourth Quarter................................. 70.00 51.00 0.11 19.50 14.92 0.06
1998
First Quarter (through FebruaryYears Ended December 31, Three Months Ended
------------------------------------------------------------ ---------------------
March 28, March 27,
1998)...... $ 75.00 $ 60.88 $ 0.11 $ 24.00 $17.13 $ --
- -------------------
(1) The Arbor stock prices reflected in the table have been adjusted to give
retroactive effect to the 3-for-2 stock splits that were effected by Arbor
in December 1997, December 1996 and May 1995.
(2) On October 12, 1996, CVS completed the distribution of 100% of the common
stock of Footstar, Inc. ("Footstar") to CVS' stockholders. The CVS stock
prices shown in the table are actual CVS trading prices and do not reflect
any adjustment for the when-issued price of Footstar prior to October 16,
1996 (the date on which Footstar common stock commenced trading regular way
on the NYSE).
On February 6, 1998, the last full trading day prior to the public
announcement of the proposed Merger, the closing price of CVS Common Stock on
the NYSE Composite Transaction Tape was $70.5625 per share and the closing price
of Arbor Common Stock on the NNM was $22.6875 per share. Certain of the prices
set forth in the above table may reflect the impact of speculation regarding a
transaction involving Arbor. On February 27, 1998, the most recent practicable
date prior to the printing of this Proxy Statement/Prospectus, the closing price
of CVS Common Stock on the NYSE Composite Transaction Tape was $74.06 per share
and the closing price of Arbor Common Stock on the NNM was $23.50 per share.
ARBOR STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING
ANY DECISION WITH RESPECT TO THE MERGER.
The Merger Agreement permits Arbor to pay, prior to the Effective Time,
cash dividends not in excess of $.06 per share per calendar quarter. On February
19, 1998, the Arbor Board declared a cash dividend of $.06 per Arbor share that
will be paid on April 2, 1998 to holders of record of Arbor shares on March 12,
1998.
CVS expects that the initial annualized dividend rate paid to holders of
CVS Common Stock after completion of the Merger will be $0.44 per share. This is
equal to the current annual dividend payment to CVS stockholders. The payment of
dividends by CVS in the future, however, will depend on business conditions,
CVS' financial condition and earnings and other factors.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
We are providing the following information to aid you in your analysis
of the financial aspects of the merger. We derived this information from
the audited and unaudited financial statements of CVS for its fiscal years
1995 and 1996 and its nine months ended September 28, 1996 and September
27, 1997 and of Arbor for its fiscal years 1995 and 1996 and its three
months ended October 31, 1996 and 1997. The information is only a summary
and you should read it in conjunction with our historical financial
statements (and related notes) contained in the annual reports and other
information that we have filed with the SEC. See "Where You Can Find More
Information."
We have presented unaudited pro forma combined financial information
that reflects the pooling of interests method of accounting to give you a
better picture of what our businesses might have looked like had they
always been combined. We prepared the pro forma combined statements of
operations and balance sheet by adding or combining the historical amounts
of each company. Except for converting Arbor's financial information from
the LIFO method of accounting for inventories to the FIFO method used by
CVS, we did not adjust the combined amounts for differences in the
accounting methods used by the companies because we do not believe that any
such differences will be significant.
The unaudited pro forma combined statements of operations combine CVS'
results for its 1995 and 1996 fiscal years and for its twelve months ended
September 27, 1997 with Arbor's results for its 1995 and 1996 fiscal years
and for its twelve months ended October 31, 1997, giving effect to the
merger as if it had occurred on January 1, 1995. The unaudited pro forma
balance sheet combines CVS' balance sheet as of September 27, 1997 and
Arbor's balance sheet as of October 31, 1997, giving effect to the merger
as if it had occurred on September 27, 1997.
CVS' fiscal year ends December 31, while Arbor's fiscal year ends on
July 31. As a result, the unaudited pro forma combined financial
information for the twelve months ended September 27, 1997 includes Arbor's
financial statements conformed to CVS' fiscal year.
As permitted by SEC regulations, CVS' three-month period ended
December 31, 1996 has been included twice in the unaudited pro forma
combined statements of operations. CVS' net sales, profit from continuing
operations and income from continuing operations were $3.1 billion, $158.5
million and $93.5 million, respectively, for this period. CVS paid
dividends in the amount of $0.11 per common share during this period. As
further permitted, Arbor's three-month period ended October 31, 1996 has
been omitted from the unaudited pro forma combined statements of
operations. Arbor's net sales, profit from continuing operations and
income from continuing operations were $225.0 million, $9.8 million and
$6.4 million, respectively, for this period. Arbor paid dividends in the
amount of $0.03 per common share during this period.
The unaudited pro forma combined financial information is for
illustrative purposes. The companies may have performed differently if
they had always been combined. You should not rely on the pro forma
combined information as being indicative of the historical results that we
would have had or the future results that we will experience after the
merger.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1996 AND TWELVE MONTHS ENDED
SEPTEMBER 27, 1997 FOR CVS AND FISCAL YEARS ENDED JULY 31, 1995 AND 1996
AND TWELVE MONTHS ENDED OCTOBER 31, 1997 FOR ARBOR
(in millions, except per share amounts)
CVS Arbor(4) Pro Forma Combined(1)(2)(3)(4)
-------------------------------- ------------------------- ------------------------------------1994 1995 1996 1997 1995 1996 1997 1995 1996 1997
-------- --------- --------- ------ ------ ------ --------- --------- ----------1998 1998 1999
---- ---- ---- ---- ---- ---- ----
Statement of Operations:(5)
Net sales ................... $9,763.4 $10,944.8 $12,475.6 $707.1 $826.1 $992.0 $10,470.5 $11,770.9 $13,467.6
Cost of sales ............... 7,016.5 7,892.7 9,095.4 519.4 609.1 735.2 7,535.9 8,501.8 9,830.6
-------- --------- --------- ------ ------ ------ --------- --------- ---------sales.............................. $ 9,469.1 $ 10,513.1 $ 11,831.6 $ 13,749.6 $ 15,273.6 $ 3,601.5 $ 4,240.5
Gross profit ................ 2,746.9 3,052.1 3,380.2 187.7 217.0 256.8 2,934.6 3,269.1 3,637.0margin(1)........................ 2,707.3 2,960.0 3,300.9 3,718.3 4,129.2 1,006.9 1,169.4
Selling, general and
administrative expense ... 2,350.7 2,498.5 2,782.2 149.8 173.0 200.7 2,500.5 2,671.5 2,982.9& administrative...... 2,290.5 2,522.8 2,696.2 3,014.2 3,198.7 768.0 876.2
Merger, restructuring and other
non-recurring
charges .................. 165.5 12.8 442.7 -- --nonrecurring charges................ -- 165.5 12.8 442.7 -------- --------- --------- ------ ------ ------ --------- --------- ---------
Operating profit ............ 230.7 540.8 155.3 37.9 44.0 56.1 268.6 584.8 211.4
Non-operating charges
(income):
Interest expense, net .... 114.5 75.7 53.9 0.6 0.2 0.1 115.1 75.9 54.0
Gain on sale of securities -- (121.4) (19.3)158.3 -- --
-- -- (121.4) (19.3)
Other -- (5.6) -- -- -- -- -- (5.6) --
-------- --------- --------- ------ ------ ------ --------- --------- ---------Operating profit(2).................... 416.8 271.7 591.9 261.4 772.2 238.9 293.2
Interest expenses, net................. 86.6 114.0 69.9 44.1 60.9 11.2 14.3
Income tax provision................... 144.3 74.3 271.0 140.8 314.9 95.7 114.3
Earnings from continuing operations
before income taxes ............. 116.2 592.1 120.7 37.3 43.8 56.0 153.5 635.9 176.7
Income taxes ................ 58.4 251.3 100.7 12.7 15.0 18.8 71.1 266.3 119.5
-------- --------- --------- ------ ------ ------ --------- --------- ---------
Incomeextraordinary item(3)........ $ 185.9 $ 83.4 $ 372.4 $ 76.5 $ 396.4 $ 132.0 $ 164.6
Per Common Share Data:
Earnings from continuing operations
............... 57.8 340.8 20.0 24.6 28.8 37.2 82.4 369.6 57.2
Preferred stockbefore extraordinary item:(3)
Basic............................... $ 0.47 $ 0.18 $ 0.98 $ 0.17 $ 0.99 $ 0.34 $ 0.41
Diluted............................. 0.47 0.18 0.95 0.16 0.98 0.33 0.40
Cash dividends netper common share........ 0.7600 0.7600 0.2200 0.2200 0.2250 0.0550 0.0575
Other Operating Data:
Ratio of tax
benefits ................. 17.0 14.5 13.9earnings to fixed charges(4).. 2.68x 1.67x 3.96x 2.02x 3.98x 5.13x 5.39x
Pharmacy sales as a percentage of
total sales(6)...................... -- -- 51.6% 54.7% 57.6% 56.4% 58.7%
Total same store sales(6).............. -- 17.0 14.5 13.9
-------- --------- --------- ------ ------ ------ --------- --------- ---------
Income from continuing
operations available to
common stockholders ...... 40.8 326.3 6.1 24.6 28.8 37.2 65.4 355.1 43.3
======== ========= ========= ====== ====== ====== ========= ========= =========
Income per common share
from continuing
operations:
Basic .................... 0.25 1.97 0.04 0.42 0.48 0.63 0.36 1.93 0.23
======== ========= ========= ====== ====== ====== ========= ========= =========
Diluted .................. 0.25 1.92 0.04 0.41 0.47 0.61 0.36 1.89 0.23
======== ========= ========= ====== ====== ====== ========= ========= =========
Dividends paid per
common share ............. 1.52 0.44 0.44 0.09 0.12 0.16 1.37 0.40 0.40
======== ========= ========= ====== ====== ====== ========= ========= =========
Weighted average number-- 8.9% 9.7% 10.8% 7.4% 13.4%
Pharmacy same store sales(6)........... -- -- 13.5% 16.5% 16.5% 14.5% 20.4%
Third party sales as percentage of
common shares
outstanding:
Basic ..................... 163.7 165.3 168.3 55.5 56.1 58.7 181.8 183.6 187.4
======== ========= ========= ====== ====== ====== ========= ========= =========
Diluted pharmacy sales(6)................... 164.3 173.2 171.2 56.2 57.6 60.6 182.6 192.0 191.0
======== ========= ========= ====== ====== ====== ========= ========= =========-- -- 79.8% 80.8% 83.7% 82.8% 85.3%
Number of stores (at end of period).... 3,617 3,715 4,204 4,094 4,122 4,064 4,096
Balance Sheet Data: (At End of Period)
Working capital........................ $ 1,552.7 $ 1,429.6 $ 1,540.3 $ 981.5 $ 1,165.9 $ 1,086.5 $ 1,508.6
Total assets........................... 7,202.9 6,614.4 6,014.9 5,978.9 6,736.2 6,176.2 6,907.0
Total long-term debt................... 1,012.3 1,056.3 1,204.8 290.4 275.7 290.1 575.5
Total shareholders equity.............. 3,341.4 2,567.4 2,413.8 2,614.6 3,110.6 2,743.0 3,264.2
6
- -------------------
(1) Arbor's cost of sales and inventories have been restated from LIFO to FIFO
in order to conformGross margin includes the accounting method for the combined inventories. The
impactpre-tax effect of the restatement was to:following non-recurring
charges: (i) reduce pro forma combined costin 1998, $10.0 million ($5.9 million after-tax) related to the
markdown of sales by $2.3non-compatible Arbor merchandise and (ii) in 1997, $75.0
million ($49.9 million after-tax) related to the markdown of non-compatible
Revco merchandise.
(2) Operating profit includes the pre-tax effect of the charges discussed in
fiscalNote (1) above and the following merger, restructuring and other
non-recurring charges: (i) in 1998, $158.3 million ($107.8 million
after-tax) related to the merger of CVS and Arbor, (ii) in 1997, $411.7
million ($273.7 million after-tax) related to the merger of CVS and Revco
and $31.0 million ($19.1 million after-tax) related to the restructuring of
Big B, Inc., (iii) in 1996, $12.8 million ($6.5 million after-tax) related
to the write-off of costs incurred in connection with the failed merger of
Rite Aid Corporation and Revco and (iv) in 1995, $2.8$165.5 million in fiscal 1996($97.7
million after-tax) related to the Company's strategic restructuring program
and $2.2the early adoption of SFAS No. 121, and $49.5 million in($29.1 million
after-tax) related to the twelve months ended September 27, 1997, (ii) increase pro
forma combined incomeCompany changing its policy from capitalizing
internally developed software costs to expensing the costs as incurred,
outsourcing certain technology functions and retaining certain employees
until their respective job functions were transitioned.
(3) Earnings from continuing operations by $1.5 million in fiscal
1995, $1.8 million in fiscal 1996before extraordinary item and $1.4 million in the twelve months
ended September 27, 1997, (iii) increase pro forma combined basic incomeearnings
per common share from continuing operations by $0.01before extraordinary item
includes the after-tax effect of the charges discussed in 1995, $0.01 inNotes (1) and (2)
above and a $121.4 million ($72.1 million after-tax) gain realized during
1996 and $0.01 inupon the twelve months ended September 27, 1997 and (iv) increase
pro forma combined diluted income per sharesale of certain equity securities received from the sale of
Marshalls.
(4) For purposes of computing our ratio of earnings to fixed charges, earnings
consist of earnings from continuing operations before income taxes and
extraordinary item and fixed charges (excluding capitalized interest).
Fixed charges consist of interest, capitalized interest and one-third of
rental expense, which is deemed representative of the interest factor.
(5) Prior to the mergers, Arbor's fiscal year ended on July 31 and Revco's
fiscal year ended on the Saturday closest to May 31. In recording the
business combinations, Arbor's and Revco's historical stand-alone
consolidated financial statements have been restated to a December 31
year-end, to conform to CVS' fiscal year-end. As permitted by $0.01 inthe rules and
regulations of the Securities and Exchange Commission, Arbor's fiscal year
ended July 31, 1995 $0.01 inand Revco's fiscal year ended June 3, 1995 have been
combined with CVS' fiscal year ended December 31, 1994.
(6) Comparable data is unavailable for certain periods prior to 1996 due to the
Company's mergers and $0.01acquisitions subsequent to such periods.
7
DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of February 11, 1999
between CVS and The Bank of New York as trustee. The following summary
highlights certain material terms of the indenture. Because this is a summary,
it does not contain all of the information that is included in the twelve months ended September
27, 1997.
(2) CVS' income from continuing operations was reducedindenture.
You should read the entire indenture, including the definitions of certain terms
used below. The indenture is subject to and governed by $120.0 millionthe Trust Indenture Act
of 1939, as amended. We have filed a copy of the indenture as an exhibit to the
registration statement of which this prospectus forms a part. See "Where You Can
Find More Information."
The terms of the new notes are identical in fiscal 1995, $6.5 million in 1996 and $342.7 million in the twelve months
ended September 27, 1997 due to merger, restructuring and other
non-recurring charges. Collectively, these charges: (i) reduced pro forma
combined basic income per common share from continuing operations by $0.66
in fiscal 1995, $0.04 in fiscal 1996 and $1.83 in the twelve months ended
September 27, 1997 and (ii) reduced pro forma combined diluted income per
common share from continuing operations by $0.66 in fiscal 1995, $0.03 in
fiscal 1996 and $1.79 in the twelve months ended September 27, 1997.
(3) Pursuantall material respects to the
terms of the Merger Agreement, Arbor stockholders will
receive between 0.3182old notes, except for certain transfer restrictions and
0.3660 shares of CVS Common Stock for each share
of Arbor Common Stock they hold. If Arbor stockholders were to receive
0.3182 shares of CVS Common Stock per Arbor share, pro forma combined basic
income per common share from continuing operations would be $0.36 in fiscal
1995, $1.94 in fiscal 1996 and $0.23 in the twelve months ended September
27, 1997 and pro forma combined diluted income per common share from
continuing operations would be $0.36 in fiscal 1995, $1.89 in fiscal 1996
and $0.23 in the twelve months ended September 27, 1997. Pro forma combined
dividends paid per share would be $1.37 in fiscal 1995, $0.40 in fiscal
1996 and $0.40 in the twelve months ended September 27, 1997. If Arbor
stockholders were to receive 0.3660 shares of CVS Common Stock per Arbor
share, pro forma combined basic income per common share from continuing
operations would be $0.36 in fiscal 1995, $1.91 in fiscal 1996 and $0.23 in
the twelve months ended September 27, 1997 and pro forma combined diluted
income per common share from continuing operations would be $0.35 in fiscal
1995, $1.86 in fiscal 1996 and $0.22 in the twelve months ended September
27, 1997. Pro forma combined dividends paid per share would be $1.35 in
fiscal 1995, $0.39 in fiscal 1996 and $0.39 in the twelve months ended
September 27, 1997.
(4) The comparative historical and pro forma combined per common share data has
been adjusted to reflect the 3-for-2 stock splits that were effected by
Arbor in December 1997, December 1996 and May 1995.
See accompanying notes to unaudited pro forma
condensed combined financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 27, 1997
(in millions of dollars)
Historical
------------------- Pro Forma Pro Forma
CVS Arbor Adjustments Combined
---------- -------- ------------- -----------
Assets
Cash and cash equivalents ............. $ 151.9 $ 26.6 -- $ 178.5
Investments ........................... -- 6.4 -- 6.4
Accounts receivable, net .............. 346.8 29.2 -- 376.0
Inventories ........................... 2,499.8 154.9 28.7(1) 2,683.4
Prepaid expenses & other current assets 328.8 4.9 333.7
---------- -------- ------- ----------
Total current assets ............... 3,327.3 222.0 28.7 3,578.0
Property and equipment, net ........... 955.7 111.3 -- 1,067.0
Deferred charges and other assets ..... 254.8 20.9 -- 275.7
Goodwill, net ......................... 819.6 -- -- 819.6
---------- -------- ------- ----------
Total assets ....................... $ 5,357.4 $ 354.2 $ 28.7 $ 5,740.3
========== ======== ======= ==========
Liabilities
Accounts payable ...................... $ 1,167.2 $ 76.3 -- $ 1,243.5
Accrued expenses ...................... 1,449.0 24.9 29.0(2)(4) 1,502.9
---------- -------- ------- ----------
Total current liabilities .......... 2,616.2 101.2 29.0 2,746.4
Long term obligations ................. 505.1 23.0 -- 528.1
Total stockholders' equity ............ 2,236.1 230.0 (0.3)(1)(2)(3)(4) 2,465.8
---------- -------- ------- ----------
Total liabilities and stockholders'
equity ........................... $ 5,357.4 $ 354.2 $ 28.7 $ 5,740.3
========== ======== ======= ==========
- --------------------
(1) Arbor's inventories have been restated from LIFO to FIFO in order to
conform the accounting method for the combined inventories.
(2) The tax effect of the change from LIFO to FIFO is reflected in accrued
expenses.
(3) Common stock was increased by $0.2 million to record the CVS Common Stock
that will be issued in the merger and was decreased by $0.4 million to
record the Arbor Common Stock that will be retired as a result of the
merger. Additional paid-in capital was adjusted for the effect of this pro
forma adjustment.
(4) Accrued expenses and retained earnings were adjusted by $19.0 million for
merger-related fees and expenses.
See accompanying notes to unaudited pro forma condensed combined
financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma combined statements of operations combine CVS'
results for its 1995 and 1996 fiscal years and for its twelve months ended
September 27, 1997 with Arbor's results for its 1995 and 1996 fiscal years and
for its twelve months ended October 31, 1997. The unaudited pro forma balance
sheet combines CVS' balance sheet as of September 27, 1997 and Arbor's balance
sheet as of October 31, 1997.
CVS' fiscal year ends December 31, while Arbor's fiscal year ends on July
31. As a result, the unaudited pro forma financial information for the twelve
months ended September 27, 1997 includes Arbor's financial statements conformed
to CVS' fiscal year.
Except for converting Arbor's financial information from the LIFO method of
accounting for inventories to the FIFO method used by CVS, no adjustments have
been made in these unaudited pro forma condensed combined financial statements
to conform the accounting policies of the combining companies. The nature and
extent of other such adjustments, if any, are not expected to be significant.
The calculation of pro forma basic income per common share uses the
weighted average number of common shares outstanding. The calculation of pro
forma diluted income per common share includes the effect of common share
equivalents that are dilutive.
Note 2. Pro Forma Number of Shares Outstanding
The number of shares of CVS Common Stock that will be issued in the merger
in exchange for the outstanding shares of Arbor Common Stock assumes an Exchange
Ratio of 0.3260 shares of CVS Common Stock, based on an assumed average closing
price of CVS Common Stock of $70.56, which was the closing price of CVS Common
Stock on February 6, 1998. The following table sets forth the pro forma number
of shares to be outstanding after completion of the Merger based on the number
of shares of CVS Common Stock outstanding as of September 27, 1997:
Millions
-----------
Number of shares of Arbor Common Stock outstanding
as of October 31, 1997.............................................. 59.3
Exchange Ratio........................................................ 0.3260
---------
Number of shares of CVS Common Stock issued in the Merger............. 19.3
Number of shares of CVS Common Stock outstanding as of
September 27, 1997................................................. 172.2
---------
Number of shares of CVS Common Stock outstanding after
completion of the Merger........................................... 191.5
=========
Note 3. Merger-Related and Integration-Related Expenses
We estimate that merger-related fees and expenses, consisting primarily of
transaction costs for fees of investment bankers, attorneys and accountants, and
financial printing and other related charges, will be approximately $19 million.
The impact of these fees and expenses has been reflected as a reduction of pro
forma stockholders' equity. These charges are not reflected in the pro forma
statements of operations or the pro forma combined per share data.
We estimate that costs of approximately $75.0 million (after tax) will be
incurred for severance and other integration-related expenses, including the
elimination of duplicate facilities and excess capacity, organizational
realignment and related workforce reductions. It is anticipated that
approximately $17.4 million (after tax) relates to asset write-offs (non-cash
charges), while the remainder relates to cash charges. The pro forma statements
of operations and the pro forma balance sheet do not reflect the impact of these
charges because the estimates are preliminary and therefore subject to change.
These costs will be charged to operations as a non-recurring charge in the
quarter the merger occurs.
Note 4. Dividends
The pro forma combined dividends paid per common share are not necessarily
indicative of dividends to be paid to holders of CVS Common Stock in future
periods. It is the current intention of the CVS Board to declare quarterly cash
dividends following the merger initially in the amount of $0.11 per share of CVS
Common Stock. Future dividends will be determined by the CVS Board in light of
the earnings and financial condition of CVS and its subsidiaries and other
factors. See "Comparative Per Share Market Price and Dividend Information."
ROLE OF FINANCIAL ADVISOR
Opinion of Financial Advisor to Arbor
On February 8, 1998, Goldman Sachs delivered its written opinion (the
"Goldman Sachs Opinion") to the Arbor Board to the effect that, as of such date,
and based upon and subject to the factors and assumptions set forth therein, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to the holders of Arbor Common Stock.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION DATED FEBRUARY 8, 1998, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE GOLDMAN SACHS OPINION, IS ATTACHED AS ANNEX B
TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
GOLDMAN SACHS OPINION REFERRED TO HEREIN WAS PROVIDED FOR THE INFORMATION AND
ASSISTANCE OF THE ARBOR BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE
MERGER. SUCH OPINION ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO ARBOR STOCKHOLDERS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF ARBOR COMMON STOCK AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE ARBOR SPECIAL MEETING. THE SUMMARY OF THE GOLDMAN SACHS
OPINION SET FORTH HEREIN IS QUALIFIED BY THE FULL TEXT OF SUCH OPINION, AND
ARBOR STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE GOLDMAN SACHS OPINION IN
ITS ENTIRETY.
In connection with its written opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement; (ii) Annual Reports to Stockholders and Annual
Reports on Form 10-K of Arbor for the five fiscal years ended July 31, 1997;
(iii) Annual Reports to Stockholders and Annual Reports on Form 10-K of CVS, and
its predecessor corporation, Melville Corporation, for the five years ended
December 31, 1996; (iv) the Proxy Statement/Prospectus dated as of April 21,
1997,registration rights relating to the annual meeting of stockholders of CVS held in connection
withold notes. If we do not complete the
merger of CVS and Revco; (v) certain interim reports to the
stockholders and Quarterly Reports on Form 10-Q of Arbor and CVS; (vi) certain
other communications from Arbor and CVS to their respective stockholders; and
(vii) certain internal financial analyses and forecasts of Arbor and CVS
preparedexchange offer by their respective managements. Goldman Sachs also held discussions
with members of the senior management of Arbor and CVS regarding the strategic
rationale for, and potential benefits of, the Merger and the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price and
trading activity for Arbor Common Stock and CVS Common Stock, compared certain
financial and stock market information for Arbor and CVS with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the drug retailing industry specifically and in other industries generally and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of its opinion. In addition, Goldman Sachs has not
made an independent evaluation or appraisal of the assets and liabilities of
Arbor or CVS or any of their subsidiaries and has not been furnished with any
such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing the Goldman Sachs Opinion.
1. Historical Stock Price Analysis. Goldman Sachs reviewed historical
stock trading prices for Arbor Common Stock and CVS Common Stock on a daily
basis for the period from February 6, 1997 to February 6, 1998 and on a
monthly basis for the period from January 31, 1993 to January 31, 1998. In
addition, Goldman Sachs reviewed the average exchange ratio of the closing
prices of Arbor Common Stock to the closing prices of CVS Common Stock for
the 30-day, 180-day, 360-day and three-year periods prior to January 31,
1998, which resulted in average exchange ratios of 0.3030, 0.2846, 0.2766
and 0.2548, respectively.
2. Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Arbor to corresponding financial
information of four publicly traded companies in the retail drug industry:
CVS, Longs Drugstores Corporation, Rite Aid Corporation ("Rite Aid") and
Walgreen Co. (collectively, the "Selected Companies"). Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples for Arbor were calculated using a price of $23.00 per share. The
multiples and ratios used for Arbor were based on information provided by
its management and the multiples for each of the Selected Companies were
based on the most recent publicly available information. With respect to
the Selected Companies, Goldman Sachs considered (i) price as a multiple of
EPS as estimated for the 1998 ("1998E P/E Multiple") andSeptember 19, 1999, ("1999E P/E
Multiple") calendar years based on calendarized median Institutional
Brokers Estimate System ("IBES") earnings estimates ("IBES Estimates") as
of February 6, 1998; (ii) levered market capitalization (i.e., market value
of common equity plus principal value of debt less cash) as a multiple of
the latest twelve months ("LTM") sales ("Levered Multiple for LTM Sales"),
as a multiple of LTM earnings before interest, taxes, depreciation,
amortization and LIFO charge ("EBITDAL") ("Levered Multiple for LTM
EBITDAL") and as a multiple of EBIT ("Levered Multiple for LTM EBIT"),
(iii) five-year IBES projected growth estimates and (iv) price-to-earnings
as estimated for the 1998 calendar year as a multiple of IBES long-term
growth rate ("1998E P/E/IBES LT Growth Rate Multiple"). Goldman Sachs'
analyses indicated (a) 1998E P/E Multiple for the Selected Companies that
ranged from 19.2x to 32.9x compared to 30.6x for Arbor; (b) 1999E P/E
Multiple for the Selected Companies that ranged from 16.9x to 27.1x
compared to 25.2x for Arbor; (c) Levered Multiple for LTM Sales for the
Selected Companies that ranged from 0.4x to 1.2x compared to 1.4x for
Arbor; (d) Levered Multiple for LTM EBITDAL for the Selected Companies that
ranged from 8.2x to 18.6x compared to 18.6x for Arbor; (e) Levered Multiple
for LTM EBIT for the Selected Companies that ranged from 12.2x to 23.6x
compared to 25.1x for Arbor; (f) five-year IBES projected growth estimates
for the Selected Companies that ranged from 9.0% to 20.0% and (g) 1998E
P/E/IBES LT Growth Rate Multiples for the Selected Companies that ranged
from 1.4x to 2.2x.
3. Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to the following selected transactions (the "Selected
Transactions") in the retail drugstore industry since 1994: Perry Drugs
Stores, Inc./Rite Aid, Revco/Rite Aid (terminated), Fay's Incorporated/J.C.
Penney Company, Inc. ("J.C. Penney"), Big B, Inc./Revco, Thrifty Payless,
Inc./Rite Aid, Eckerd Corporation/J.C. Penney, Revco/CVS and Duane Reade,
Inc./DLJ Merchant Banking Partners II, L.P. Goldman Sachs' analysis,
assuming a price of $23.00 per share of Arbor Common Stock, indicated that
for the Selected Transactions, (i) levered consideration as a multiple of
LTM Sales ranged from 0.3x to 0.87x, as compared to 1.5x for the levered
consideration to be received in the Merger; (ii) levered consideration as a
multiple of LTM EBITDAL ranged from 8.8x to 11.7x, as compared to 20.8x for
the levered consideration to be received in the Merger; (iii) levered
consideration as a multiple of LTM EBIT ranged from 12.8x to 19.3x, as
compared to 27.2x for the levered consideration to be received in the
Merger; (iv) levered consideration as a multiple of LTM Net Income ranged
from 20.7x to 37.9x, as compared to 39.7x for the levered consideration to
be received in the Merger; and (v) the premiums paid based on the stock
price 30 days prior to announcement ranged from 15.8% to 61.8%, as compared
to 25.4% to be paid in the Merger.
4. Contribution Analysis. Goldman Sachs reviewed certain historical and
projected financial information (including, among other things, revenues,
EBITDAL, EBIT and net income) of Arbor, CVS and the pro forma combined
entity resulting from the Merger based on projections provided by the
managements of Arbor and CVS. The analysis indicated that (i) in the LTM,
Arbor would have contributed 7.2% to combined revenues, 7.0% to combined
EBITDAL, 7.0% to combined EBIT and 9.2% to combined net income, (ii) in
calendar year 1998, Arbor would contribute 7.7% to combined revenues, 7.5%
to combined EBITDAL, 7.8% to combined EBIT and 9.5% to combined net income,
(iii) in calendar year 1999, Arbor would contribute 8.0% to combined
revenues, 8.0% to combined EBITDAL, 8.2% to combined EBIT and 9.9% to
combined net income. The analysis indicated that Arbor stockholders would
contribute 10.5% of the equity market value of the combined company as of
the date of announcement of the Merger.
5. Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger. Using earnings estimates prepared by
Arbor and CVS management for the years 1998 and 1999 and assuming that the
transaction would be accounted for as a pooling of interests, Goldman Sachs
compared the EPS of CVS Common Stock on a stand-alone basis to the EPS of
the common stock of the combined company. Goldman Sachs performed its
analysis for a range of pretax synergies and, based on pretax synergies
estimated by Arbor and CVS management at $30.0 million in each of 1998 and
1999, the Merger would be accretive to CVS stockholders on an EPS basis in
1998 and 1999.
6. Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis for Arbor based upon projected financial performance for
1998 through 2002 prepared and provided by Arbor management. Using these
projections, Goldman Sachs calculated a net present value of Arbor using
discount rates ranging from 9.0% to 13.0% and terminal multiples based on
estimated 2003 Net Income ranging from 20.0x to 30.0x. Such analysis
resulted in implied per share values for Arbor that ranged from $17.51 to
$31.21.
The foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering Goldman Sachs' analyses as a whole, could
create an incomplete view of the process underlying Goldman Sachs' opinion. In
arriving at the fairness determination, Goldman Sachs considered the results of
all such analyses and did not draw any specific conclusions from or with regard
to any one method of analysis. No company or transaction used in the above
analyses as a comparison is identical to Arbor or CVS or the contemplated
transaction. The analyses were prepared solely for purposes of Goldman Sachs
providing its opinion to the Arbor Board as to the fairness from a financial
point of view of the Exchange Ratio to the holders of the Arbor Common Stock,
and do not purport to be appraisals or to necessarily reflect the prices at
which businesses or securities actually may be sold or may trade in the future.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, Goldman Sachs does not assume any
responsibility if future results are different from those projected.
As described above, Goldman Sachs' opinion to the Arbor Board was one of
many factors taken into consideration by the Arbor Board in making its
determination to approve the Merger Agreement. See "The Merger--Arbor's Reasons
for the Merger; Recommendation of the Arbor Board."
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Arbor, having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the Merger
Agreement.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Arbor and/or CVS for its own account and for the account of
customers.
Pursuant to a letter agreement dated January 20, 1997 and executed by Arbor
on January 23, 1997 (the "Engagement Letter"), Arbor engaged Goldman Sachs to
act as its financial advisor in connection with the possible sale of all or a
portion of Arbor. Pursuant to the terms of the Engagement Letter, Arbor has
agreed to pay Goldman Sachs, upon the purchase of 50% or more of the Arbor
Common Stock in one or a series of transactions, a transaction fee of 0.55% of
the aggregate consideration paid in such transaction or transactions up to
$23.50 per share plus 1.5% of any aggregate consideration in excess of $23.50
per share. In addition, Arbor has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Arbor management and of the Arbor Board may be deemed to
have interests in the Mergerold notes that are different from, or in addition to, the
interests of Arbor stockholders generally. The Arbor Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby. These interests are
described below.
One Arbor Designee Will Become Director of CVS
CVS has agreed that on the day immediately following the closing date
of the Merger, Eugene Applebaum, Chairman of the Board, President and Chief
Executive Officer of Arbor, will become a member of the CVS Board.
Change in Control Agreements
As of December 9, 1996, Arbor entered into change in control agreements
(the "Change in Control Agreements") with 22 of its officers and key employees
(the "Covered Management Employees"). The Arbor Board approved these Change in
Control Agreements in an effort to induce these key employees to remain with
Arbor and to reinforce and encourage their continued attention and dedication to
Arbor, given the uncertainties affecting the drugstore business and the growing
number of consolidations in the industry. There are three forms of the Change in
Control Agreements, which are substantially the same other than with respect to
job description and salary and except for the differences noted below.
The Change in Control Agreements provide each Covered Management Employee
with certain benefits if he or she is terminated by Arbor or a successor of
Arbor, other than for cause (as defined in the Change in Control Agreements), or
if the Covered Management Employee terminates his or her employment with Arbor
or such successor for "Good Reason" within 180 days before, or within two years
following, a "Change in Control" of Arbor (which is deemed to have occurred for
purposes of the Change in Control Agreements upon the approval of the Arbor
Board of the Merger Agreement (the "Arbor Board Approval")). "Good Reason" is
defined to include the assignment of duties or responsibilities materially
inconsistent with those assigned to the officer prior to the Change in Control,
a reduction in the officer's total compensation below the average of the two
most recent calendar year compensation amounts or of welfare benefits available
to the officer prior to the Change in Control, or relocation of the officer's
principal place of employment to a location more than 35 miles from the
officer's principal place of employment prior to the Change in Control.
Upon any of the above-described termination events, Arbor or the successor
of Arbor would be obligated to continue the Covered Management Employee's
participation in Arbor's or its successor's medical, dental, hospitalization,
disability and life insurance plans, programs or arrangements, as if he or she
remained an employee, until the earlier of the end of the two-year period, in
the case of officers, or the one-year period, in the case of all other Covered
Management Employees, commencing with the month immediately following the month
in which the date of termination of employment occurs or the date or dates he or
she receives equivalent coverage and benefits under the plans, programs and/or
arrangements of a subsequent employer. In addition, each of the Covered
Management Employees, other than Eugene Applebaum and Markus M. Ernst, would be
entitled to receive a lump sum payment, within five days following termination
of such person's employment, equal to two times, in the case of officers, or one
times, in the case of all other Covered Management Employees, such person's
annual base salary as of the date of termination of employment. Finally, each
Covered Management Employee would also receive an additional amount of after-tax
compensation equal to any excise tax payable by the employee as a result of his
or her receipt of "excess parachute payments" relating to the Change in Control
within the meaning of Section 280G of the Code.
The following table sets forth the names, positions and estimated cash
amounts payable under the Change in Control Agreements for the Covered
Management Employees who are the five most highly compensated executive
officers of Arbor (the "Named Officers"), upon such termination of
employment, based on compensation levels as of the date of this Proxy
Statement/ Prospectus.
Cash Amount
Name Position Payable
- ------------------ ---------------------------------------- ------------
Eugene Applebaum President and Chief Executive Officer $ 0
Markus M. Ernst Executive Vice President and Chief
Operating Officer $ 0
Gilbert C. Gerhard Senior Vice President Finance and
Administration, Chief Financial Officer $ 360,000
Eric Bolokofsky Senior Vice President Merchandising $ 300,000
Donald M. Stutrud Senior Vice President Store Operations $ 300,000
The Covered Management Employees will be eligible to receive, under
the Change in Control Agreements, upon such termination of employment,
aggregate lump sum payments equal to $4,277,000, based on compensation
levels as of the date of this Proxy Statement/Prospectus.
Stock Options Held by Covered Management Employees
The following summarizes additional benefits relating to stock options
which each of the Covered Management Employees will be entitled to receive upon
a change in control. A more detailed description of the benefits under certain
of the plans described may be found in Arbor's 1997 Proxy Statement under the
section titled "Executive Compensation"; copies or descriptions of such plans
have been filed as exhibits to Arbor's 1997 Annual Report on Form 10-K.
Each of the Covered Management Employees is a participant in the Amended
and Restated Arbor Drugs, Inc. Stock Option Plan (the "1993 Stock Option Plan")
or the Arbor Drugs, Inc. 1996 Stock Option Plan (the "1996 Stock Option Plan"),
or both, and has been granted stock options thereunder. Under the 1993 Stock
Option Plan, all options granted as of or after February 11, 1994 will vest in
full upon a change in control, which will be deemed to have occurred upon
consummation of the Merger. Under the 1996 Stock Option Plan, all options
granted vest in full upon a change in control, which is deemed to have occurred
at the time of the Arbor Board Approval.
As described under "The Merger Agreement--Treatment of Arbor Stock
Options" below, outstanding options to purchase Arbor Common Stock under
the 1993 Stock Option Plan and the 1996 Stock Option Plan will be converted
into options to purchase CVS Common Stock. The following table sets forth
with respect to the Named Officers (i) the number of shares of Arbor Common
Stock subject to stock options held by such persons as of February 8, 1998
that are vested or will vest as a result of the Merger, (ii) the weighted
average exercise price for such Arbor stock options held by such persons
and (iii) the estimated aggregate value of such stock options (before
deduction for applicable withholding taxes), assuming that such options are
converted into options to purchase CVS Common Stock, based on the price of
CVS Common Stock at the close of business on February 6, 1998 of $70.5625
and determined by subtracting the aggregate exercise price from the total
value of the shares subject to such stock options.
Stock Options
(including those that Weighted Maximum
vest upon a Average Exercise Aggregate Value
change in control) Price Per Share of Stock Options
----------------- --------------- ----------------
Mr. Applebaum............... 3,476,250 $ 8.9983 $ 58,496,913
Mr. Ernst................... 913,500 $ 9.7523 $ 14,683,187
Mr. Gerhard................. 352,150 $ 8.9123 $ 5,956,051
Mr. Bolokofsky.............. 355,725 $ 8.8977 $ 6,021,760
Mr. Stutrud................. 352,350 $ 8.9112 $ 5,959,865
The Covered Management Employees, including the Named Officers, hold in the
aggregate Arbor stock options having a maximum value of $119,246,223, determined
as described in the preceding paragraph.
Options granted under the 1993 Stock Option Plan and the 1996 Stock Option
Plan that are held by other employees of Arbor will be treated in the same
manner discussed above for the Covered Management Employees.
Other Arrangements Affecting Covered Management Employee
In light of the extensive industry and company knowledge, experience and
expertise of Mr. Applebaum, and to facilitate a smooth integration of the
companies, CVS has entered into a consulting agreement (the "Consulting
Agreement") with Mr. Applebaum, which will commence upon consummation of the
Merger and terminate at the earlier of five years after the Merger or the
permanent incapacity or death of Mr. Applebaum. The Consulting Agreement
provides that Mr. Applebaum will provide consulting services to CVS at the
request of either the Chief Executive Officer or Chief Operating Officer of CVS
with respect to transitional issues, Michigan and Toledo metropolitan area real
estate matters, and other mutually agreeable matters. Mr. Applebaum will be
entitled to receive $450,000 per year over the term of the Consulting Agreement.
In consideration of his role with respect to real estate matters in Michigan and
the Toledo metropolitan area, Mr. Applebaum will receive an additional payment
of $25,000 upon the opening, relocation or acquisition of each store opened,
relocated or acquired by CVS in Michigan or the Toledo metropolitan area during
the term of the Consulting Agreement. Pursuant to the Consulting Agreement and
at the time of the consummation of the Merger, Mr. Applebaum will also receive
an option to purchase 25,000 shares of CVS Common Stock at the closing sale
price of CVS Common Stock on the date of the consummation of the Merger. This
option will be immediately exercisable and will expire five years from the date
of the grant. Upon Mr. Applebaum's exercise of the option, CVS will effect the
registration of the underlying shares for sale to Mr. Applebaum. Additionally,
during the term of the Consulting Agreement, CVS will provide office space, a
secretary and support services comparable to those currently provided by Arbor
to Mr. Applebaum and a U.S. automobile comparable to the one currently used by
Mr. Applebaum, and CVS will reimburse Mr. Applebaum for all reasonable business
expenses incurred by him in connection with carrying out the business of CVS.
The Consulting Agreement will not limit any of the benefits Mr. Applebaum will
be entitled to receive under his Change in Control Agreement (see "Interest of
Certain Persons in the Merger--Change in Control Agreements") or as a director
of CVS. CVS will honor the provisions of Mr. Applebaum's Change in Control
Agreement, including the existing tax provisions thereof, which provisions will
cover payments to be made and benefits to be made available by Arbor and CVS.
Pursuant to the Consulting Agreement, CVS will fully pay for the health
insurance benefits available to Mr. Applebaum and his spouse under his Change in
Control Agreement for the first two years after consummation of the Merger.
Thereafter, CVS will provide such health insurance benefits to Mr. Applebaum and
his spouse until their death, but Mr. Applebaum and his spouse will be
responsible for the costs of maintaining such coverage. CVS has agreed to
indemnify and hold Mr. Applebaum harmless against all cost, expense, liability
and loss relating to the Consulting Agreement and the services provided by Mr.
Applebaum to CVS, to the same extent as CVS indemnifies its other directors and
senior executive officers.
Stock Options Granted to Non-Employee Directors
All of the directors of Arbor who are not employees of Arbor have been
granted stock options under the 1996 Stock Option Plan. Upon a change in control
(which is deemed to have occurred for purposes of the 1996 Stock Option Plan
upon the Arbor Board Approval), all of the options granted under the 1996 Stock
Option Plan will become immediately exercisable in full. The non-employee
directors hold in the aggregate 78,750 options to purchase Arbor Common Stock
having a weighted average exercise price per share of $8.6855. As described
under "The Merger Agreement--Treatment of Arbor Stock Options" below,
outstanding options to purchase Arbor Common Stock under the 1996 Stock Option
Plan will be converted at the Effective Time into options to purchase CVS Common
Stock. Assuming that such options are so converted, based on the price of CVS
Common Stock at the close of business on February 6, 1998 of $70.5625, the
estimated maximum aggregate value of such options is approximately $1,349,696,
determined in the same manner as described under "--Stock Options Held by
Covered Management Employees" above.
Other Employee Benefits
In the Merger Agreement, CVS has agreed that, following the Effective
Time, it will honor all obligations under employment or severance
agreements of Arbor and its subsidiaries and pay all benefits accrued
through the Effective Time under employee benefit plans, programs, policies
and arrangements of Arbor and its Subsidiaries in accordance with the terms
thereof. In addition, CVS has agreed to provide all employees of Arbor who
continue to be employed by Arbor as of the Effective Time (the "Continuing
Employees") for a period of not less than one year following the Effective
Time (or such earlier time as employment terminates) with compensation and
benefits no less favorable in the aggregate than the compensation and
benefits provided to similarly situated CVS employees at the Effective
Time. In addition, for a period of one year following the Effective Time,
CVS has agreed to establish and maintain a plan to provide severance and
termination benefits to all non-union employees of Arbor and its
subsidiaries. CVS has also agreed that if Continuing Employees are
included in any medical, dental or health plan other than the plans they
participated in as of the Effective Time, those plans will not include pre-
existing condition exclusions, except as included in the similar Arbor
plan, and CVS will give Continuing Employees credit for any co-payments and
deductibles applied or made by such employees under Arbor's plans during
the calendar year of the change. CVS will recognize service with Arbor for
purposes of eligibility, vesting, eligibility for retirement and benefit
accrual under CVS' benefit plans.
At the Effective Time, the Arbor Employee Stock Purchase Plan will be
terminated, with the effect that the then-current offering period under such
plan will be terminated effective as of the Effective Time. Also as of the
Effective Time, the Arbor 401(k) Plan will be amended to prohibit further
allocations to the Arbor Stock Fund and to permit participants to transfer
amounts in their Arbor Stock Fund Account to any other investment fund available
under the Arbor 401(k) Plan. As soon as practicable after the Effective Time,
the Continuing Employees will become participants in the CVS 401(k) Plan, and
the Arbor 401(k) Plan will be merged with the CVS 401(k) Plan.
Certain additional information with respect to executive compensation and
related employee benefits, and other information concerning Arbor's executive
officers and directors, is set forth in the 1997 Arbor Proxy Statement under the
sections titled "Beneficial Ownership of Common Stock," "Information Concerning
Meetings of the Board of Directors and Board Committees and Director
Compensation" and "Executive Compensation" and is incorporated herein by
reference.
Directors' and Officers' Insurance; Indemnification of Arbor Directors and
Officers
The Merger Agreement provides that after the Effective Time, CVS will cause
Arbor to indemnify (including the payment of reasonable fees and expenses of
legal counsel) each person who was a director or officer of Arbor or its
subsidiaries at or prior to the date of the Merger Agreement to the fullest
extent permitted by law for damages and liabilities arising out of facts and
circumstances occurring at or prior to the Effective Time. The Merger Agreement
also provides that, for a period of six years after the Effective Time, CVS will
maintain in effect Arbor's existing policies of directors' and officers'
liability insurance as in effect on February 8, 1998 (provided that CVS may
substitute policies with reputable and financially sound carriers having at
least the same coverage and amounts and containing terms and conditions that are
no less advantageous to the covered persons) with respect to facts or
circumstances occurring at or prior to the Effective Time; provided that if the
aggregate annual premium for such insurance during such six-year period exceeds
200% of the aggregate annual premium paid by Arbor as of February 8, 1998 for
such insurance, then CVS will cause Arbor to provide the most advantageous
directors' and officers' insurance coverage then available for an annual premium
equal to such 200% of the February 8, 1998 premiums.
THE MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the complete text of the Merger Agreement, which is incorporated
herein by reference and attached hereto as Annex A.
General
The Merger Agreement contemplates the Merger of Merger Subsidiary with and
into Arbor, with Arbor surviving the Merger as a wholly-owned subsidiary of CVS.
The Merger will become effective at the time specified in the certificate of
merger to be filed with the Michigan Department of Consumer and Industry
Services. It is anticipated that such filing will be made immediately upon the
closing of the Merger, which closing will occur no later than the second
business day after the last of the conditions precedent to the Merger set forth
in the Merger Agreement has been satisfied or waived, unless CVS and Arbor agree
upon a different date.
Merger Consideration
The Merger Agreement provides that each share of Arbor Common Stock
outstanding immediately prior to the Effective Time (except as described in the
next sentence) will, at the Effective Time, be converted into the right to
receive that number (the "Exchange Ratio") of fully paid and non-assessable
shares of CVS Common Stock equal to the number obtained by dividing $23 by the
average closing price of CVS Common Stock on the NYSE during ten trading days
randomly selected by lot out of the twenty trading days ending on the fifth
trading day preceding the date of the Special Meeting; provided that the
Exchange Ratio will not be greater than 0.3660 or less than 0.3182. Any shares
of Arbor Common Stock owned by CVS or any subsidiary of CVS will, at the
Effective Time, be canceled and retired and will cease to exist, and no payment
will be made for such shares.
Treatment of Arbor Stock Options
Pursuant to the Merger Agreement, each outstanding option granted by Arbor
to purchase shares of Arbor Common Stock under the 1993 Stock Option Plan and
1996 Stock Option Plan will be adjusted to provide that at the Effective Time,
such Arbor stock option, to the extent outstanding immediately prior to the
Effective Time, will be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Arbor stock option (after
giving effect to existing provisions that provide for the automatic acceleration
of vesting upon consummation of a change of control of Arbor), the same number
of shares of CVS Common Stock as the holder of such Arbor stock option would
have been entitled to receive pursuant to the Merger had such holder exercised
such Arbor stock option in full immediately prior to the Effective Time
(assuming for this purpose that such option were then exercisable), at a price
per share of CVS Common Stock equal to (A) the aggregate exercise price for the
shares of Arbor Common Stock otherwise purchasable pursuant to such Arbor stock
option divided by (B) the aggregate number of shares of CVS Common Stock deemed
purchasable pursuant to such Arbor stock option; provided that after aggregating
all the shares subject to Arbor stock options of a holder, any fractional share
of CVS Common Stock resulting from such calculation will be rounded down to the
nearest whole share, and a cash payment will be made to the holder for this
fractional share. For additional information on Arbor stock options, see
"Interests of Certain Persons in the Merger."
Exchange of Shares
Prior to the Effective Time, CVS will appoint an exchange agent reasonably
acceptable to Arbor (the "Exchange Agent") for the purpose of exchanging
certificates representing shares of Arbor Common Stock for certificates
representing shares of CVS Common Stock (and cash in lieu of fractional shares
as described below). CVS will deposit certificates representing shares of CVS
Common Stock with the Exchange Agent for conversion of shares as described above
under "--Merger Consideration." Promptly after the Effective Time, CVS or the
Exchange Agent will send each holder of Arbor Common Stock a letter of
transmittal for use in the exchange and instructions explaining how to surrender
certificates to the Exchange Agent. Holders of Arbor Common Stock that surrender
their certificates to the Exchange Agent, together with a properly completed
letter of transmittal, will receive CVS Common Stock certificates representing
such number of shares as described under "--Merger Consideration." Holders of
unexchanged shares of Arbor Common Stock will not be entitled to receive any
dividends or other distributions payable by CVS after the Effective Time until
their certificates are surrendered. Upon surrender, however, subject to
applicable laws, such holders will receive accumulated dividends and
distributions payable on the related shares of CVS Common Stock subsequent to
the Effective Time, without interest, together with cash in lieu of fractional
shares (paid as described in the following paragraph).
No fractional shares of CVS Common Stock will be issued in the Merger.
Instead, Arbor stockholders that would otherwise be entitled to receive
fractional shares will receive a check in the amount of the net proceeds from
the sale of those shares in the market.
Certain Covenants
Interim Operations of Arbor. From February 8, 1998 (the date of execution
of the Merger Agreement) until the Effective Time, Arbor and its subsidiaries
are required to conduct their business in the ordinary course consistent with
past practice and to use their best efforts to preserve intact their business
organizations and relationships with customers, suppliers, creditors and
business partners and to use their reasonable efforts to keep available the
services of their present officers and employees. Without limiting the
foregoing, during this period, each of Arbor and its subsidiaries is subject to
restrictions on (subject to certain limited exceptions) among other things:
amending its organizational documents; entering into any merger, liquidation or
other significant transaction; acquiring any businesses, stores or material
assets (other than acquisitions of not more than ten drugstores and of
inventory); selling or otherwise disposing of assets (other than inventory) or
selling or closing any stores except pursuant to existing commitments; declaring
dividends with respect to its capital stock in excess of $.06 per share per
calendar quarter or redeeming or repurchasing its capital stock; issuing or
selling equity securities or options or other securities convertible into or
exercisable for equity securities; closing or taking certain other actions with
respect to its headquarters or distribution centers; entering into leases or
purchasing real estate, except pursuant to existing disclosed commitments, in
connection with certain permitted investments or acquisitions or in the ordinary
course of business consistent with past practice; making capital expenditures
(other than certain committed projects, items disclosed to CVS and expenditures
made in connection with permitted acquisitions or openings of stores in the
ordinary course of business) in excess of $1 million per project or item or $5
million in the aggregate; taking certain actions with respect to tax matters;
incurring indebtedness; making any changes in its accounting policies;
increasing employee compensation or severance benefits; and taking any other
action that would make any representation or warranty of Arbor inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
Interim Operations of CVS. From February 8, 1998 until the Effective Time,
CVS and its subsidiaries also are required to conduct their business in the
ordinary course consistent with past practice and to use their best efforts to
preserve intact their business organizations and relationships with customers,
suppliers, creditors and business partners and to use their reasonable efforts
to keep available the services of their present officers and employees. Without
limiting the foregoing, during this period, each of CVS and its subsidiaries is
subject to restrictions on (subject to certain limited exceptions), among other
things: amending its organizational documents (except to the extent necessary if
CVS determines to adopt a shareholder rights plan or increase its authorized
capital stock); entering into any merger, liquidation or other significant
transaction; issuing or selling equity securities or options or other securities
convertible into or exercisable for equity securities, other than options or
other stock-based awards to employees or directors; declaring dividends with
respect to its capital stock (except for regular quarterly cash dividends on CVS
Common Stock and required cash dividends on CVS ESOP Preference Stock and except
for changes in capital structure that would be reflected in an appropriate
adjustment to the Exchange Ratio) or redeeming or repurchasing capital stock;
incurring indebtedness; making any changes in its accounting policies; and
taking any other action that would make any representation or warranty of CVS
inaccurate in any material respect at, or as of any time prior to, the Effective
Time.
No Solicitation by Arbor. Arbor has covenanted in the Merger Agreement that
it will not, and that it will cause its subsidiaries, agents and affiliates over
which it exercises control not to, directly or indirectly, take any action to
solicit, initiate, encourage or facilitate the making of any Acquisition
Proposal (as defined below) or any inquiry with respect thereto or engage in
discussions or negotiations with any person with respect thereto, or disclose
any non-public information relating to Arbor or any subsidiary of Arbor or
afford access to the properties, books or records of Arbor or any subsidiary of
Arbor to any person that has made or is considering making any Acquisition
Proposal. Notwithstanding the foregoing, CVS has agreed that Arbor may furnish
non-public information to, and enter into discussions or negotiations with, any
person in connection with an unsolicited bona fide Acquisition Proposal received
from such person so long as prior to doing so, (i) the Arbor Board by a majority
vote determines in its good faith judgment that it is necessary to do so to
comply with its fiduciary duty to stockholders, after receiving the advice of
outside legal counsel and (ii) Arbor receives from such person an executed
confidentiality agreement with terms no less favorable to Arbor than those
contained in the existing confidentiality agreement between CVS and Arbor. Arbor
must notify CVS promptly of the receipt of any Acquisition Proposal, any
indication that any person is considering making an Acquisition Proposal or any
request for nonpublic information relating to Arbor or any subsidiary of Arbor
or for access to the properties, books or records of Arbor or any subsidiary of
Arbor by any person that may be considering making, or has made, an Acquisition
Proposal. "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Arbor or any subsidiary of Arbor or the acquisition of any equity interest in,
or a substantial portion of the assets of, Arbor or any subsidiary of Arbor,
other than the transactions contemplated by the Merger Agreement and other than
an offer for a bona fide de minimis equity interest, or for an amount of assets
not material to Arbor and its subsidiaries taken as a whole, that Arbor has no
reason to believe would lead to a change of control of Arbor (or to the
acquisition of a substantial portion of the assets of Arbor and its
subsidiaries). Arbor has agreed to terminate discussions, if any, regarding any
Acquisition Proposal that were pending prior to February 8, 1998.
Arbor Board's Covenant to Recommend. The Arbor Board has agreed to
recommend the approval and adoption of the Merger Agreement to Arbor's
stockholders. Notwithstanding the foregoing, the Arbor Board is permitted not to
make such recommendation or to withdraw or modify in a manner adverse to CVS
such recommendation if (i) Arbor and its subsidiaries, agents and affiliates
over which it exercises control have complied
with their obligations under the no-solicitation covenant described above under "--No Solicitation by Arbor,"
(ii)registration rights agreement will be entitled,
subject to certain exceptions, to liquidated damages in an unsolicited bona fide Superior Proposalamount equal to a
rate of 0.5% per year on the notes until the consummation of the exchange offer.
General
The notes:
o are our unsecured senior obligations
o mature on February 15, 2004
o bear interest at the rate of 5 1/2% per year from February 11, 1999,
or from the most recent interest payment date to which interest has
been paid or provided for.
We will pay interest on February 15 and August 15 every year, beginning
August 15, 1999, to the person in whose name such note, or any predecessor note
is registered at the close of business on the February 1 or August 1,
respectively, preceding such interest payment date.
Interest on the notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
We will pay principal, any premium, and interest on the notes at the office
we maintain in New York City for such purposes, which is currently the corporate
trust office of the trustee. You may exchange your notes or register any
transfer of notes at that office as well.
We do not intend to list the notes on a national securities exchange.
The indenture does not contain any provisions that would limit our ability
to incur indebtedness or require the maintenance of financial ratios or
specified levels of net worth or liquidity, nor does it contain covenants or
other provisions designed to afford holders of the notes protection in the event
of a highly leveraged transaction, change in credit rating or other similar
occurrence. However, the provisions of the indenture do:
(i) provide that, subject to certain exceptions, neither CVS nor any
Restricted Subsidiary (as defined below) will subject its property or
assets to any mortgage or other encumbrance unless the notes are
secured equally and ratably with such other indebtedness thereby
secured, and
(ii) contain certain limitations on the entry into certain sale and
leaseback arrangements by CVS and its Restricted Subsidiaries.
In addition, the indenture does not contain any provisions which would require
us to repurchase or redeem or otherwise modify the terms of any of the notes
upon a change in control or other events involving us which may adversely affect
the creditworthiness of the notes.
8
We may, without the consent of the holders of the notes, issue additional
notes under the indenture having the same terms in all respects as the notes or
in all respects except for the payment of interest on the notes:
(1) scheduled and paid prior to date of issuance of such notes or
(2) payable on the first interest payment date following such date of
issuance.
The notes offered hereby and any additional notes would be treated as a single
class for all purposes under the indenture and will vote together as one class
on all matters with respect to the notes.
Optional Redemption
We may at any time, at our option, redeem all or any portion of the notes,
at a redemption price equal to the greater of:
(1) 100% of their principal amount or
(2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the date of redemption on a
semiannual basis, assuming a 360-day year consisting of twelve 30-day months, at
the applicable Treasury Yield plus 0.125%, plus any accrued interest.
We define the "Treasury Yield" as, in connection with any redemption date,
the annual rate equal to the semiannual equivalent yield to maturity of the
comparable Treasury issue, assuming a price for the comparable Treasury issue
(expressed as a percentage of its principal amount) equal to the applicable
comparable Treasury price for such redemption date.
The "comparable Treasury issue" is pendingthe United States Treasury security
selected by an independent investment banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes.
The "independent investment banker" will be Credit Suisse First Boston
Corporation or, if such firm is unwilling or unable to select the applicable
comparable Treasury issue, an independent investment banking institution of
national standing appointed by the trustee.
The "comparable Treasury price" means, in connection with any redemption
date applicable to the notes,
(1) the average of the applicable Reference Treasury Dealer Quotations
for such redemption date, after excluding the highest and lowest such
applicable Reference Treasury Dealer Quotations, or
(2) if the trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Quotations.
The "reference Treasury dealer" will be Credit Suisse First Boston
Corporation; provided however, that if the foregoing shall cease to be a primary
United States Government securities dealer in New York City (a "primary Treasury
dealer"), the Company shall substitute another primary Treasury dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
reference Treasury dealer and any redemption date for the notes, the average, as
determined by the trustee, of the bid and asked prices for the Comparable
Treasury Issue for the notes, expressed in each case as a percentage of its
principal amount, quoted in writing to the trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third business day preceding
such redemption date.
9
Holders of the notes to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption.
Certain Covenants
Restrictions on Secured Funded Debt. The indenture provides that CVS will
not, nor will it permit any Restricted Subsidiary to, incur, issue, assume,
guarantee or create any Secured Debt, without effectively providing concurrently
with the incurrence, issuance, assumption, guaranty or creation of any such
Secured Debt that the notes (together with, if CVS shall so determine, any other
Indebtedness of CVS or such Restricted Subsidiary then existing or thereafter
created which is not subordinated to the notes) will be secured equally and
ratably with (or prior to) such Secured Debt, unless, after giving effect
thereto, the sum of the aggregate amount of all outstanding Secured Debt of CVS
and its Restricted Subsidiaries together with all Attributable Debt in respect
of sale and leaseback transactions relating to a Principal Property (with the
exception of Attributable Debt which is excluded pursuant to clauses (1) to (8)
described under "Limitations on Sale/Leaseback Transactions" below), would not
exceed 15% of Consolidated Net Tangible Assets.
This restriction will not apply to, and there will be excluded from Secured
Debt in any computation under this restriction and under "Limitation on
Sale/Leaseback Transactions" below, Indebtedness, secured by:
(1) Liens on property, shares of capital stock or Indebtedness of
any corporation existing at the time such corporation becomes a
Subsidiary;
(2) Liens on property, shares of capital stock or Indebtedness
existing at the time of acquisition thereof or incurred within 360
days of the time of acquisition thereof (including, without
limitation, acquisition through merger or consolidation) by CVS or any
Restricted Subsidiary;
(3) Liens on property, shares of capital stock or Indebtedness
thereafter acquired (or constructed) by CVS or any Restricted
Subsidiary and created prior to, at the time of, or within 360 days
(or thereafter if such Lien is created pursuant to a binding
commitment entered into prior to, at the time of or within 360 days)
after such acquisition (including, without limitation, acquisition
through merger or consolidation) (or the completion of such
construction or commencement of commercial operation of such property,
whichever is later) to secure or provide for the payment of all or any
part of the purchase price (or the construction price) thereof;
(4) Liens in favor of CVS or any Restricted Subsidiary;
(5) Liens in favor of the United States of America, any State
thereof or the District of Columbia or any foreign government, or any
agency, department or other instrumentality thereof, to secure
partial, progress, advance or other payments pursuant to any contract
or provisions of any statute;
(6) Liens incurred or assumed in connection with the issuance of
revenue bonds the interest on which is exempt from Federal income
taxation pursuant to Section 103(b) of the Internal Revenue Code;
(7) Liens securing the performance of any contract or undertaking
not directly or indirectly in connection with the borrowing of money,
the obtaining of advances or credit or the securing of Indebtedness,
if made and continuing in the ordinary course of business;
(8) Liens incurred (no matter when created) in connection with
CVS's or a Restricted Subsidiary's engaging in leveraged or
single-investor lease transactions; provided, however, that the
instrument creating or evidencing any borrowings secured by such Lien
will provide that such borrowings are payable solely out of the income
and proceeds of the property subject to such Lien and are not a
general obligation of CVS or such Restricted Subsidiary;
10
(9) Liens in favor of a governmental agency to qualify CVS or any
Restricted Subsidiary to do business, maintain self insurance or
obtain other benefits, or Liens under workers' compensation laws,
unemployment insurance laws or similar legislation,
(10) good faith deposits in connection with bids, tenders,
contracts or deposits to secure public or statutory obligations of CVS
or any Restricted Subsidiary, or deposits of cash or obligations of
the United States of America to secure surety and appeal bonds to
which CVS or any Restricted Subsidiary is a party or in lieu of such
bonds, or pledges or deposits for similar purposes in the ordinary
course of business,
(11) Liens imposed by law, such as laborers' or other employees',
carriers', warehousemen's, mechanics', materialmen's and vendors'
Liens,
(12) Liens arising out of judgments or awards against CVS or any
Restricted Subsidiary with respect to which CVS or such Restricted
Subsidiary at the time shall be prosecuting an appeal or proceedings
for review or Liens arising out of individual final judgments or
awards in amounts of less than $100,000; provided that the aggregate
amount of all such individual final judgments or awards shall not at
any one time exceed $1,000,000,
(13) Liens for taxes, assessments, governmental charges or levies
not yet subject to penalties for nonpayment or the amount or validity
of which is being in good faith contested by appropriate proceedings
by CVS or any Restricted Subsidiary, as the case may be,
(14) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions or Liens as to the use of
real properties, which Liens, exceptions, encumbrances, easements,
reservations, rights and restrictions do not, in the opinion of CVS,
in the aggregate materially detract from the value of said properties
or materially impair their use in the operation of the business of CVS
and its Restricted Subsidiaries;
(15) Liens incurred to finance all or any portion of the cost of
construction, alteration or repair of any Principal Property or
improvements thereto created prior to or within 360 days (or
thereafter if such Lien is created pursuant to a binding commitment to
lend entered into prior to, at the time of, or within 360 days) after
completion of such construction, alteration or repair;
(16) Liens existing on the date of the indenture;
(17) Liens created in connection with a project financed with,
and created to secure, a Nonrecourse Obligation; or
(18) any extension, renewal, refunding or replacement of the
foregoing, provided that (i) such extension, renewal, refunding or
replacement Lien shall be limited to all or a part of the same
property that secured the Lien extended, renewed, refunded or replaced
(plus improvements on such property) and (ii) the Funded Debt secured
by such Lien at such time is not increased.
"Attributable Debt" means, in connection with any sale and leaseback
transaction under which either the Company or any Restricted Subsidiary is at
the time liable as lessee for a term of more than 12 months and at any date as
of which the amount thereof is to be determined, the lesser of (A) total net
obligations of the lessee for rental payments during the remaining term of the
lease discounted from the respective due dates thereof to such determination
date at a rate per annum equivalent to the greater of (1) the weighted average
Yield to Maturity (as defined in the indenture) of the notes, such average being
weighted by the principal amount of the notes and (2) the interest rate inherent
in such lease (as determined in good faith by the Company), both to be
compounded semi-annually or (B) the sale price for the assets so sold and leased
multiplied by a fraction the numerator of which is the
11
remaining portion of the base term of the lease included in such transaction and
the denominator of which is the base term of the lease.
"Consolidated Net Tangible Assets" means, at any date, the total assets
appearing on the most recent consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of the fiscal quarter of the Company
ending not more than 135 days prior to such date, prepared in accordance with
U.S. generally accepted accounting principles, less (i) all current liabilities
(due within one year) as shown on such balance sheet, (ii) investments in and
advances to Unrestricted Subsidiaries and (iii) Intangible Assets and
liabilities relating thereto.
"Funded Debt" means (i) any Indebtedness of the Arbor BoardCompany or a Restricted
Subsidiary maturing more than 12 months after the time of computation thereof,
(ii) guarantees of Funded Debt or of dividends of others (except guarantees in
connection with the sale or discount of accounts receivable, trade acceptances
and other paper arising in the ordinary course of business), (iii) in the case
of any Restricted Subsidiary, all preferred stock having mandatory redemption
provisions of such Restricted Subsidiary as reflected on such Restricted
Subsidiary's balance sheet prepared in accordance with U.S. generally accepted
accounting principles, and (iv) all Capital Lease Obligations (as defined in the
indenture).
"Indebtedness" means, at any date, without duplication, all obligations for
borrowed money of the Company or a Restricted Subsidiary.
"Intangible Assets" means, at any date, the value, as shown on or reflected
in the most recent consolidated balance sheet of the Company and its Restricted
Subsidiaries as at the end of the fiscal quarter of the Company ending not more
than 135 days prior to such date, prepared in accordance with generally accepted
accounting principles, of: (i) all trade names, trademarks, licenses, patents,
copyrights, service marks, goodwill and other like intangibles; (ii)
organizational and development costs; (iii) deferred charges (other than prepaid
items, such as insurance, taxes, interest, commissions, rents, pensions,
compensation and similar items and tangible assets being amortized); and (iv)
unamortized debt discount and expense, less unamortized premium.
"Liens" means such pledges, mortgages, security interests and other liens
on any Principal Property of the Company or a Restricted Subsidiary which secure
Secured Debt.
"Nonrecourse Obligation" means indebtedness or lease payment obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a majority vote determinesproject
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Subsidiary other than the assets which were
acquired with the proceeds of such transaction or the project financed with the
proceeds of such transaction (and the proceeds thereof).
"Principal Property" means real and tangible property owned and operated
now or hereafter by the Company or any Restricted Subsidiary constituting a part
of any store, warehouse or, distribution center located within the United States
of America or its territories or possessions (excluding current assets, motor
vehicles, mobile materials-handling equipment and other rolling stock, cash
registers and other point-of-sale recording devices and related equipment and
data processing and other office equipment), the net book value of which
(including leasehold improvements and store fixtures constituting a part of such
store, warehouse or distribution center) as of the date on which the
determination is being made is more than 1.0% of Consolidated Net Tangible
Assets. As of the date of this offering circular, none of the Company's stores
constitutes a Principal Property.
"Restricted Subsidiary" means each Subsidiary other than Unrestricted
Subsidiaries.
"Secured Debt" means Funded Debt which is secured by any pledge of, or
mortgage, security interest or other lien on any (i) Principal Property (whether
owned on the date of the indenture or thereafter acquired or created), (ii)
12
shares of stock owned by the Company or a Subsidiary in its good
faith judgment that it is necessary to so withdrawa Restricted Subsidiary
or modify its recommendation
to comply with its fiduciary duty to stockholders, after receiving the advice(iii) Indebtedness of outside legal counsel. "Superior Proposal"a Restricted Subsidiary.
"Subsidiary" means any bona fide Acquisition
Proposal forcorporation of which at least a majority of the
outstanding sharesstock, which under ordinary circumstances (not dependent upon the
happening of Arbor Common Stock
on termsa contingency) has voting power to elect a majority of the board of
directors of such corporation (or similar management body), is owned directly or
indirectly by the Company or by one or more Subsidiaries of the Company, or by
the Company and one or more Subsidiaries.
"Unrestricted Subsidiary" means Subsidiaries designated as Unrestricted
Subsidiaries from time to time by the Board of Directors of the Company;
provided, however, that the Arbor Board determines in its good faith judgment (based onof Directors of the written adviceCompany (i) will not
designate as an Unrestricted Subsidiary any Subsidiary of the Company that owns
any Principal Property or any stock of a financial advisorRestricted Subsidiary, (ii) will not
continue the designation of nationally recognized reputation,
taking into account all the terms and conditionsany Subsidiary of the Acquisition Proposal,
includingCompany as an Unrestricted
Subsidiary at any break-up fees, expense reimbursement provisionstime that such Subsidiary owns any Principal Property, and
conditions(iii) will not, nor will it cause or permit any Restricted Subsidiary to,
consummation) are more favorable and provide greater valuetransfer or otherwise dispose of any Principal Property to all Arbor's
stockholders than the Merger Agreement and the Merger takenany Unrestricted
Subsidiary (unless such Unrestricted Subsidiary will in connection therewith be
redesignated as a whole.
Reasonable Best Efforts Covenant. Each party has agreed to use its
reasonable best efforts to take all actionsRestricted Subsidiary and do all things necessary or
advisable under applicable laws and regulations to consummate the Merger and the
transactions contemplated by the Merger Agreement. In furtherance thereof, each
party has (i) filed a Notification and Report Form pursuant to the HSR Act with
respect thereto, (ii) agreed to provide as promptly as practicable any additional information and documentary material that may be requested pursuant
to the HSR Act and (iii) agreed to take all other actions necessary to cause the
expiration or termination of the applicable waiting period under the HSR Act as
soon as practicable. Each party has also agreed to cooperate in all respects
with the other and to keep the other informed and involved in all material
respects in its dealings with any government regulatorpledge, mortgage, security
interest or other personlien arising in connection with obtaining regulatory approval.
Certain Employee Benefits Matters.any Indebtedness of such
Unrestricted Subsidiary so redesignated does not extend to such Principal
Property (unless the existence of such pledge, mortgage, security interest or
other lien would otherwise be permitted under the indenture)).
Limitation on Sale/Leaseback Transactions. The Merger Agreementindenture provides that CVSthe
Company will honornot, nor will it permit any Restricted Subsidiary to, enter into
any arrangement with any person providing for the leasing by the Company or any
Restricted Subsidiary of any Principal Property of the Company or any Restricted
Subsidiary (which lease is required by GAAP to be capitalized on the balance
sheet of such lessee), which Principal Property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person (a "sale
and leaseback transaction") unless, after giving effect thereto, the aggregate
amount of all obligations under existing employment and severance agreements of
Arbor and its subsidiaries and will pay all benefits accrued through the
Effective Time under benefit plans and arrangements of Arbor and its
subsidiaries. In addition, CVS has agreed to certain employee benefits matters
and arrangementsAttributable Debt with respect to Continuing Employeesall such sale and leaseback
transactions plus all Secured Debt (with the exception of Indebtedness secured
by Liens which is excluded pursuant to clauses (1) to (18) described under
"Interests"Restrictions on Secured Debt" above) would not exceed 15% of Certain Persons in the Merger--Other Employee Benefits."
IndemnificationConsolidated Net
Tangible Assets.
This covenant will not apply to, and Insurance of Arbor Directors and Officers. Pursuant to
the Merger Agreement, (i) CVS has agreed that, after the Effective Time, itthere will cause Arbor and its subsidiaries to indemnify directors and officers of Arbor
and its subsidiaries against certain liabilities, (ii) CVS will pay certain
reasonable expenses and legal fees of the indemnified parties and (iii) CVS will
maintain in effect for six years after the Effective Time certain directors' and
officers' liability insurance coverage for Arbor directors and officers, all as
more fully described under "Interests of Certain Persons in the
Merger--Directors' and Officers' Insurance; Indemnification of Arbor Directors
and Officers."
Certain Other Covenants. The Merger Agreement contains certain mutual
covenants of the parties, including covenants relating to: actions to be taken
so as not to jeopardize the intended tax or accounting treatment of the Merger;
preparation and distribution of this Proxy Statement/Prospectus; public
announcements; notification of certain matters; access to information;
co-operation in connection with certain governmental filings and in obtaining
any necessary governmental or other third-party consents or approvals; and
confidential treatment of non-public information.
The Merger Agreement also contains certain covenants of CVS, including
covenants requiring CVS to: use its best efforts to list the CVS Common
Stock to be issued in the Merger on the NYSE on or prior to the closing
date, subject to official notice of issuance; take the necessary corporate
action so that Eugene Applebaum will become a director of CVS effective on
the day immediately following the closing date of the Merger; maintain a
charitable commitment in the state of Michigan for a five-year period after
the Effective Time in an amount not required to exceed $600,000 annually
under the supervision of a committee of the CVS Board or any individual
designated by such committee; and as promptly as practicable following the
Effective Time, andexcluded from
Attributable Debt in any event no later than 40 days after the end of the
calendar month in which the Effective Time occurs, publicly release the
financial results of CVS and Arbor covering a 30-day period following the
Effective Time.
Under the Merger Agreement, Arbor has agreed to provide CVS with
registration rightscomputation under this restriction or under
"Restrictions on Secured Debt" above, Attributable Debt with respect to any shares of Arbor Common Stock acquiredsale
and leaseback transaction if:
(1) the Company or a Restricted Subsidiary is permitted to create
Funded Debt secured by CVSa Lien pursuant to clauses (1) to (18)
inclusive described under "Restrictions on Secured Funded Debt" above
on the Option and Voting Agreement.
Certain Representations and Warranties
The Merger Agreement contains substantially reciprocal representations and
warranties made by CVS and Arbor to each other as to, among other things: due
organization and good standing; capitalization; ownership of subsidiaries;
corporate authorization to enter into the contemplated transactions;
governmental approvals required in connection with the contemplated
transactions; absence of any breach of organizational documents and certain
material agreements as a result of the contemplated transactions; financial
statements; filings with the SEC; information provided by it for inclusion in
this Proxy Statement/Prospectus; absence of certain material changes since a
specified balance sheet date; absence of undisclosed material liabilities;
employee matters; tax matters; compliance with laws; litigation; absence of
certain defaults; sufficiency of assets; real property; environmental matters;
acts relating to accounting treatment of the Merger; the Arbor stockholder vote
required to approve the contemplated transactions; finders fees; and the receipt
of accountant's letters regarding accounting treatment of the Merger. In
addition, Arbor represents and warrants to CVS as to certain other matters,
including transactions with affiliates, the receipt of an opinion of its
financial advisor and the inapplicability of Michigan anti-takeover statutes.
The representations and warranties in the Merger Agreement do not survive the
Effective Time.
Conditions to the Merger
Conditions to Each Party's Obligations to Effect the Merger. The
obligations of CVS, Arbor and Merger Subsidiary to consummate the Merger are
subject to the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of the following conditions: (i) the obtaining of
approval of the stockholders of Arbor; (ii) the expiration of the applicable
waiting period under the HSR Act; (iii) the absence of any law, judgment,
injunction, order or decree prohibiting or enjoining the consummation of the
Merger; (iv) the absence of any suit, action or proceeding by any governmental
entity (A) seeking to restrain or prohibit the consummation of the Merger or any
of the other transactions contemplated by the Merger Agreement, or seeking to
obtain from CVS or Arbor any damages the amount of which would be reasonably
likely to have a material adverse effect on Arbor and CVS, taken as a whole, or
(B) seeking to prohibit or limit the ownership or operation by CVS, Arbor or any
of their respective subsidiaries of, or to compel CVS, Arbor or any of their
respective subsidiaries to dispose of or hold separate, any material portion of
the business or assets of CVS, Arbor or any of their respective subsidiaries, as
a result of the Merger or any of the other transactions contemplated by the
Merger Agreement; (v) CVS' registration statement on Form S-4 with respect to
the shares of CVS Common StockPrincipal Property to be issuedleased, in the Merger having become
effective under the 1933 Act and not being subject to any stop order or related
proceedings by the SEC; (vi) the shares of CVS Common Stock to be issued in the
Merger having been listed on the NYSE, subject to official notice of issuance;
and (vii) Arbor and CVS each having received a favorable letter from their
respective accountants as to "pooling of interests" accounting treatment for the
Merger.
Conditions to the Obligations of CVS. The obligations of CVS and Merger
Subsidiary to effect the Merger are further subject to all the following
conditions: (i) the performance in all material respects by Arbor of its
obligations and the compliance by Arbor in all material respects with its
covenants under the Merger Agreement at or prior to the Effective Time; and (ii)
the representations and warranties of Arbor contained in the Merger Agreement
being true and correct in all material respects at and as of the Effective Time
(except for representations and warranties that address matters only as of a
particular date, which must be true and correct in all material respects as of
such date).
Conditions to the Obligations of Arbor. The obligation of Arbor to effect
the Merger is further subject to all the following conditions: (i) the
performance in all material respects by CVS of its obligations and the
compliance by CVS in all material respects with its covenants under the Merger
Agreement at or prior to the Effective Time; (ii) the representations and
warranties of CVS contained in the Merger Agreement being true and correct in
all material respects at and as of the Effective Time (except for
representations and warranties that address matters only as of a particular
date, which must be true and correct in all material respects as of such date);
and (iii) Arbor having received the legal opinion of Weil, Gotshal & Manges LLP
substantially to the effect that none of Arbor's stockholders will recognize
gain or loss for U.S. federal income tax purposes on their exchange of Arbor
Common Stock solely for CVS Common Stock pursuant to the Merger (other than in
respect of any cash received in lieu of fractional shares).
Termination of the Merger Agreement
Right to Terminate. The Merger Agreement may be terminated at any time
prior to the Effective Time by mutual written consent of Arbor and CVS.
(a) The Merger Agreement may be terminated by either Arbor or CVS (i) if
the Merger has not been consummated by August 31, 1998; (ii) if the stockholders
of Arbor fail to give the necessary approval at a duly held meeting or any
adjournment thereof; or (iii) so long as the party seeking to terminate has
complied in all material respects with its obligations under the covenant
described above under "--Certain Covenants--Reasonable Best Efforts Covenant,"
if consummation of the Merger would violate or be prohibited by any law or
regulation or if any injunction, judgment, order or decree enjoining Arbor or
CVS from consummating the Merger is entered and such injunction, judgment, order
or decree shall become final and nonappealable.
(b) The Merger Agreement may be terminated by CVS if the Arbor Board shall
have failed to recommend or shall have withdrawn or modified or changed in a
manner adverse to CVS its approval or recommendation of the Merger Agreement or
the Merger or shall have recommended a Superior Proposal, or Arbor shall have
entered into a definitive agreement in respect of an Acquisition Proposal with a
person other than CVS or its subsidiaries (or the Arbor Board shall have
resolved to do any of the foregoing).
(c) The Merger Agreement may be terminated by Arbor if (i) the Arbor Board
authorizes Arbor to enter into a binding written agreement concerning a Superior
Proposal and Arbor notifies CVS in writing that it intends to enter into such an
agreement, attaching the most current version of the agreement to the notice;
(ii) CVS does not make an offer, within 48 hours after receiving the notice,
that the Arbor Board determines, in good faith after consultation with its
financial advisors, is at least as favorable from a financial point of view to
the Arbor stockholders as the Superior Proposal; and (iii) Arbor has paid CVS
the termination fee described below.
The right to terminate the Merger Agreement will not be available to any
party that is in material breach of its obligations under the Merger Agreement
or whose failure to fulfill its obligations or to comply with its covenants
under the Merger Agreement has been the cause of, or resulted in, the failure to
satisfy any conditions to the obligations of either party.
If the Merger Agreement is validly terminated, the Agreement will become
void (except for the provisions relating to expenses) without any liability on
the part of any party unless such party is in willful material breach thereof.
The confidentiality agreements entered into between CVS and Arbor and Arbor's
obligations to register under the 1933 Act the Arbor Common Stock that may be
acquired by CVS under the Option and Voting Agreement will continue in effect
notwithstanding termination of the Merger Agreement.
Termination Fees Payable by Arbor. Arbor has agreed to pay CVS an amount equal to $60,000,000 if (i) CVS terminates the
Merger AgreementAttributable Debt with respect to such sale and leaseback transaction,
without equally and ratably securing the notes;
(2) the property leased pursuant to paragraph (b) under "--Rightsuch arrangement is sold for
a price at least equal to Terminate" above; (ii) Arbor terminatessuch property's fair market value (as
determined by the Merger AgreementChief Executive Officer, the President, the Chief
Financial Officer, the Treasurer or the Controller of the Company) and
the Company or a Restricted Subsidiary, within 360 days after the sale
or transfer shall have been made by the Company or a Restricted
Subsidiary, shall apply the proceeds thereof to the retirement of
Indebtedness or Funded Debt of the Company or any Restricted
Subsidiary (other than Indebtedness or Funded Debt owned by the
Company or any Restricted Subsidiary); provided, however, that no
retirement referred to in this clause (2) may be effected by payment
at maturity or pursuant to paragraph (c) under "--Right to Terminate" above;any mandatory sinking fund payment
provision of Indebtedness or (iii) either CVSFunded Debt;
(3) the Company or Arbor terminatesa Restricted Subsidiary applies the Merger Agreementnet
proceeds of the sale or transfer of the Principal Property leased
pursuant to paragraph (a)(ii) under "--Rightsuch transaction to Terminate" above where (A) Arbor has not
complied with its obligationthe purchase of assets (and the cost
of construction thereof) within 360 days prior or subsequent to recommend approvalsuch
sale or transfer;
13
(4) the effective date of any such arrangement or the purchaser's
commitment therefor is within 36 months prior or subsequent to the
acquisition of the Merger Agreement to
its stockholdersPrincipal Property (including, without limitation,
acquisition by merger or (B) Arbor has received an Acquisition Proposal prior toconsolidation) or the Special Meetingcompletion of
construction and enters into a definitive agreement in respectcommencement of an
Acquisition Proposal within twelve months after termination of the Merger
Agreement.
Other Expenses
Except as described above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such costs or expenses. We estimate that Merger-related
fees and expenses, consisting primarily of transaction costs for fees and
expenses of investment bankers, attorneys and accountants and financial printing
and other related charges, will total approximately $19 million assuming the
Merger is completed.
Amendments; Waivers
Any provision of the Merger Agreement may be amended or waived prior to the
Effective Time if the amendment or waiver is in writing and signed, in the case
of an amendment, by Arbor and CVS or,operation thereof (which, in the case
of a waiver,retail store, is the date of opening to the public), whichever is
later;
(5) the lease in such sale and leaseback transaction is for a
term, including renewals, of not more than three years;
(6) the sale and leaseback transaction is entered into between
the Company and a Restricted Subsidiary or between Restricted
Subsidiaries;
(7) the lease secures or relates to industrial revenue or
pollution control bonds or
(8) the lease payment is created in connection with a project
financed with, and such obligation constitutes, a Nonrecourse
Obligation.
Merger, Consolidation and Disposition of Assets
The indenture provides that the Company shall not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially as
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation with or merger with or into a Restricted
Subsidiary or a sale, conveyance, transfer, lease or other disposition to a
Subsidiary) or permit any Person to merge with or into the Company unless:
(a) either
(i) the Company shall be the continuing Person or
(ii) the Person (if other than the Company) formed by such
consolidation or into which the party
against whom the waiverCompany is to be effective; providedmerged or that after the approvalacquired or
leased such property and assets of the Merger Agreement by the stockholders of Arbor, thereCompany shall be made no
amendment that by law requires further approval by stockholders withouta corporation
organized and validly existing under the further approval of such stockholders.
Certain Stockholder Arrangements
Option and Voting Agreement. As an inducement and a condition to CVS
entering into the Merger Agreement, Eugene Applebaum, his wife, Marcia
Applebaum, and certain trusts for the benefit of their children (collectively,
the "Applebaum Stockholders") entered into an Option and Voting Agreement with
CVS dated as of February 8, 1998 (the "Option and Voting Agreement"). The
Applebaum Stockholders own approximately 24.5%laws of the outstanding Arbor Common
Stock. The following summaryUnited States of
America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the trustee, all of
the Optionobligations of the Company under the notes and Voting Agreement is qualified in
its entirety by referencethe indenture, and
the Company shall have delivered to the complete texttrustee an opinion of counsel
stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all
conditions precedent provided for in the indenture relating to such
transaction have been complied with and that such supplemental
indenture constitutes the legal valid and binding obligation of the
Option and Voting
Agreement, which is incorporated by reference herein and attached hereto as
Annex C.
Pursuant to the Option and Voting Agreement, the Applebaum Stockholders
have granted CVS an irrevocable option (the "Option") to purchase all shares of
Arbor Common Stock ownedCompany or subsequently acquired by the Applebaum Stockholders
at an exercise price of $23 per share other than 600,000 shares of Arbor Common
Stock (the "Applebaum Stockholder Shares"). The Option may be exercised by CVS
in whole but not in part within one year after termination of the Merger
Agreement in the event that the Merger Agreement is terminated in the
circumstances described in (i), (ii) or (iii)(A) under "--Termination of the
Merger Agreement--Termination Fees Payable by Arbor" above. CVS may pay for the
Applebaum Stockholder Shares in cash or shares of CVS Common Stock, provided
that if CVS chooses to deliver CVS Common Stock, CVS must concurrently enter
into a registration rights agreement with the Applebaum Stockholders in respect
of the CVS Common Stock so delivered (as described under "--Registration Rights
Agreement"). The Option will terminate upon the earlier to occur of (i) the
Effective Time and (ii) the termination of the Merger Agreementsuch successor enforceable against such entity in
accordance with its terms, except ifsubject to customary exceptions; and
(b) the Merger Agreement is terminatedCompany shall have delivered to the trustee an officers'
certificate to the effect that immediately after giving effect to such
transaction, no Default (as defined in the circumstances describedindenture) shall have occurred
and be continuing and an opinion of counsel as to the matters set forth in
paragraph (a) above.
The indenture does not restrict, or require us to redeem or permit holders
to cause a redemption of notes in the event of,
(i), a consolidation, merger, sale of assets or other similar transaction
that may adversely affect the creditworthiness of CVS or its successor or
combined entity,
(ii) a change in control of CVS or
(iii)(A) under "--Termination a highly leveraged transaction involving CVS, whether or not
involving a change in control.
14
Accordingly, the holders of the Merger Agreement--Termination Fees Payablenotes would not have protection in the event of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving CVS that may adversely affect the holders of notes. The
existing protective covenants applicable to the notes would continue to apply to
CVS, or its successor, in the event of such a transaction initiated or supported
by Arbor" above.
The Applebaum Stockholders have also agreed, among other things,CVS, the management of CVS, or any affiliate of CVS or its management, but
may not prevent such a transaction from taking place.
Events of Default, Waiver and Notice
"Event of Default" is defined in the indenture to votebe if:
(a) the Applebaum Stockholder SharesCompany defaults in favorthe payment of all or any part of the
approval and adoptionprincipal of the Mergernotes when the same becomes due and payable at maturity,
upon acceleration, redemption or mandatory repurchase, including as a
sinking fund installment, or otherwise;
(b) the Company defaults in the payment of any interest on the notes
when the same becomes due and payable, and such default continues for a
period of 30 days;
(c) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the indenture and such default or
breach continues for a period of 60 consecutive days after written notice
thereof has been given to the Company by the trustee or to the Company and
the Merger Agreement.
The Option and Voting Agreement provides thattrustee by the Applebaum Stockholders
will not, among other things, directlyholders of 25% or indirectly: (i) offer for sale, sell,
transfer, tender, pledge, encumber (other than by operation of law), assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or allmore in aggregate principal amount of
the Applebaum Stockholder Sharesnotes;
(d) certain events of bankruptcy or any interest therein; (ii) except as
contemplated by the Option and Voting Agreement, grant any proxies or powers of
attorney, deposit the Applebaum Stockholder Shares into a voting trust or enter
into a voting agreementinsolvency with respect to the
Applebaum Stockholder Shares;Company;
(e) an event of default as defined in any one or (iii)more indentures or
instruments evidencing or under which the Company has at the date of the
indenture or shall thereafter have outstanding an aggregate of at least
$25,000,000 aggregate principal amount of indebtedness for borrowed money,
shall happen and be continuing and such indebtedness shall have been
accelerated so that the same shall be or become due and payable prior to
the date on which the same would otherwise have become due and payable, and
such acceleration shall not be rescinded or annulled within ten days after
notice thereof shall have been given to the Company by the trustee (if such
event be known to it), or to the Company and the trustee by the holders of
at least 25% in aggregate principal amount of the notes at the time
outstanding; provided that if such event of default under such indentures
or instruments shall be remedied or cured by the Company or waived by the
holders of such indebtedness, then the Event of Default under the indenture
by reason thereof shall be deemed likewise to have been thereupon remedied,
cured or waived without further action upon the part of either the trustee
or any of the holders; or
(f) failure by the Company to make any payment at maturity, including
any applicable grace period, in respect of at least $25,000,000 aggregate
principal amount of indebtedness for borrowed money and such failure shall
have continued for a period of ten days after notice thereof shall have
been given to the Company by the trustee (if such event be known to it), or
to the Company and the trustee by the holders of at least 25% in aggregate
principal amount of the notes at the time outstanding; provided that if
such failure shall be remedied or cured by the Company or waived by the
holders of such indebtedness, then the Event of Default under the indenture
by reason thereof shall be deemed likewise to have been thereupon remedied,
cured or waived without further action upon the part of either the trustee
or any of the holders.
o If an Event of Default occurs and is continuing, then, and in each and
every such case, either the trustee or the holders of not less than
25% in aggregate principal amount of the notes then outstanding by
notice in writing to the Company (and to the trustee if given by
holders), may declare the entire principal amount of all notes, and
the interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become
immediately due and payable.
15
o If an Event of Default described in clause (d) occurs and is
continuing, then the principal amount of all the notes then
outstanding and interest accrued thereon, if any, shall be and become
immediately due and payable, without any notice or other action by any
holder or the trustee to the full extent permitted by applicable law.
Subject to provisions in the indenture for the indemnification of the
trustee and certain other limitations, the holders of at least a majority in
aggregate principal amount of the outstanding notes may direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee by the indenture;
provided that the trustee may refuse to follow any direction that conflicts with
law or the indenture, that may involve the trustee in personal liability, or
that the trustee determines in good faith may be unduly prejudicial to the
rights of holders not joining in the giving of such direction; and provided
further that the trustee may take any other action it deems proper that would makeis not
inconsistent with any representation or warrantydirections received from holders of notes pursuant to this
paragraph.
Subject to various provisions in the indenture, the holders of at least a
majority in principal amount of the Applebaum Stockholders containedoutstanding notes, by notice to the trustee,
may waive an existing Default or Event of Default and its consequences, except a
Default in the Optionpayment of principal of or interest on any note as specified in
clauses (a) or (b) of the first paragraph of this section or in respect of a
covenant or provision of the indenture which cannot be modified or amended
without the consent of the holder of each outstanding note affected. Upon any
such waiver, such Default shall cease to exist, and Voting Agreement untrueany Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of the
indenture; but no such waiver shall extend to any subsequent or incorrectother Default or
would result in a breach by the Applebaum StockholdersEvent of their
obligations thereunderDefault or a breach by Arborimpair any right consequent thereto.
The indenture provides that no holder of its obligations under the Merger
Agreement. In addition, the Applebaum Stockholders have agreed not to take any actionsnotes may institute any
proceeding, judicial or otherwise, with respect to solicitationthe indenture or the notes,
or for the appointment of offers to acquire Arbora receiver or a portion of
its business on substantiallytrustee, or for any other remedy under
the same terms as described under "--Certain
Covenants--No Solicitation by Arbor" above. CVSindenture, unless:
(1) such holder has agreed to indemnify each
Applebaum Stockholder against certain liabilities.
Registration Rights Agreement. CVS has agreed in the Merger Agreement to
enter into a Registration Rights Agreement, effective as of the Effective Time,
with the Applebaum Stockholders. The following summary of the Registration
Rights Agreement is qualified in its entirety by referencepreviously given to the complete texttrustee written notice of
the Registration Rights Agreement, which is incorporated by reference herein
and attached hereto as Exhibit B to the Merger Agreement (Annex A hereto).
Under the Registration Rights Agreement, the Applebaum Stockholders are
entitled to request, on not more than three occasions within two years after the
Effective Time, that CVS effect the registration (the "Demand Registration")
under the 1933 Acta continuing Event of the CVS Common Stock received by the Applebaum
Stockholders pursuant to the Merger, the Option Agreement or any option granted
by CVS to any Applebaum Stockholder (the "Registrable Securities") for sale for
such Applebaum Stockholders' account, so long as the aggregate market value of
the Registrable Securities to be registered pursuant to such Demand Registration
is at least $100 million. The Applebaum Stockholders may make no more than one
request for a Demand Registration in any six-month period. CVS may sell
securities for its own account under such Demand Registration subject to certain
limitations. The Applebaum Stockholders have the right to sell derivative
securities related to the CVS Common Stock in connection with any Demand
Registration.
CVS is required to use its reasonable best efforts, among other things, to
cause a registration statement to become effective, to keep such registration
statement effective for 30 days or, if earlier, until all of the Registrable
Securities proposed to be sold in the Demand Registration have been disposed of,
and to assist the Applebaum Stockholders in marketing the Registrable Securities
in connection with up to three underwritten offerings. Subject to certain
limitations, CVS is entitled to delay the filing or effectiveness of the
foregoing registrations in the case of certain material events or matters
affecting CVS.
The Applebaum Stockholders have indicated their current intent to request
that their first Demand Registration be filed promptly after Effective Time so
as to permit public sales of Registrable Securities as soon as practicable after
CVS publicly releases the financial results of CVS and Arbor covering a 30-day
period following the Effective Time.
The Registration Rights Agreement also grants the Applebaum Stockholders
certain piggyback registration rights in the event that CVS proposes to register
any of its equity securities under the 1933 Act for sale for its own account
(other than pursuant to a Demand Registration or on Forms S-4 or S-8) within two
years after the Effective Time.
An Applebaum Stockholder will cease to have registration rights with
respect to Registrable Securities if (i) such Registrable Securities have been
sold or otherwise disposed of pursuant to an effective registration statement,
(ii) all Registrable Securities held by an Applebaum Stockholder can be sold in
a single transaction pursuant to Rule 144 or Rule 145 under the 1933 Act or
(iii) such Registrable Securities have been otherwise sold, transferred or
disposed of by such Applebaum Stockholder to any person that is not an Applebaum
Stockholder.
CVS is required to pay customary expenses in connection with such
registrations. The Applebaum Stockholders will pay, among other expenses,
underwriting discounts and commissions, selling or placement agent or broker
fees and commissions relating to Registrable Securities sold by them, and
transfer taxes, if any, in connection with the sale of any Registrable
Securities.
ARBOR SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies fromDefault;
(2) the holders of Arbor Common Stock by the Arbor
Board for use at the Special Meeting. This Proxy Statement/Prospectus and
accompanying formleast 25% in aggregate principal amount of
proxy are first being mailedoutstanding notes shall have made written request to the Arbor stockholders ontrustee to
institute proceedings in respect of such Event of Default in its own
name as trustee under the indenture;
(3) such holder or about March 3, 1998.
Timeholders have offered to the trustee indemnity
reasonably satisfactory to the trustee against any costs, liabilities
or expenses to be incurred in compliance with such request;
(4) the trustee for 60 days after its receipt of such notice, request
and Place; Purpose
The Special Meeting will be held at the Troy Marriott, 200 West Big Beaver
Road, Troy, Michigan, on March 31, 1998, starting at 10:00 a.m., local time. At
the Special Meeting, the stockholdersoffer of Arbor will be askedindemnity has failed to considerinstitute any such proceeding;
and
vote upon (i) the approval and adoption of the Merger Agreement and the Merger
(the "Merger Proposal"), (ii) the approval of any adjournment of the Special
Meeting, and (iii)(5) during such other matters as may properly come before the Special
Meeting.
Voting Rights; Vote Required for Approval
The Arbor Board has fixed the close of business on March 3, 1998
(the "Arbor Record Date") as the record date for Arbor stockholders entitled to
notice of and to vote at the Special Meeting.
The only class of Arbor capital stock entitled to notice of and to vote at
the Special Meeting is the Arbor Common Stock. Only holders of record of shares
of Arbor Common Stock on the Arbor Record Date are entitled to notice of and to
vote at the Special Meeting. Each holder of record, as of the Arbor Record Date,
of Arbor Common Stock is entitled to cast one vote per share.
On the Arbor Record Date, there were approximately 59,365,975 shares of
Arbor Common Stock outstanding and entitled to vote at the Special Meeting, held
by approximately 13,500 stockholders of record.
The presence, in person or by proxy, of60-day period, the holders of a majority in aggregate
principal amount of the outstanding sharesnotes have not given the trustee a
direction that is inconsistent with such written request. A holder may
not use the indenture to prejudice the rights of Arbor Common Stock entitledanother holder or to
vote is necessaryobtain a preference or priority over such other holder.
Information
Whether or not required by the rules and regulations of the SEC, we have
agreed that, so long as any notes are outstanding, we will furnish to constitute a quorum at the
Special Meeting. The affirmative vote, in persontrustee, within 15 days after we are or by proxy, ofwould have been required to file with
the SEC, and to furnish to the holders of a majority of the shares of Arbor Common Stock
outstanding on the Arbor Record Date isnotes thereafter:
(i) all quarterly and annual financial information that would be
required to approve and adopt the Merger
Proposal.
The directors and officers of Arbor beneficially own approximately 30% of
the outstanding Arbor Common Stock. This includes the shares of Arbor Common
Stock beneficially owned by Mr. Eugene Applebaum (approximately 24% of the Arbor
Common Stock). The Applebaum Stockholders have agreed to vote the Applebaum
Stockholder Sharesbe contained in favor of the approval and adoption of the Merger and the
Merger Agreement.
Proxies
All shares of Arbor Common Stock represented by properly executed proxies
received prior to or at the Special Meeting, and not revoked, will be voted in
accordancea filing with the instructions indicated inSEC on Forms 10-Q and
10-K if we were required to file such proxies. If no instructions
are indicated onForms, including a properly executed returned proxy, such proxies will be voted
FOR the approval"Management's
16
Discussion and Analysis of the Merger Proposal.
A properly executed proxy marked "ABSTAIN" with respect to any
proposal will be counted as present for purposesFinancial Condition and Results of
determining whether
there is a quorumOperations" and, for purposes of determining the aggregate voting
power and number of shares represented and entitled to vote at the Special
Meeting with respect to the Merger Proposal. Accordingly, sinceannual information only, a report
thereon by our certified independent accountants, and
(ii) all current reports that would be required to be filed with the
affirmative vote described above isSEC on Form 8-K if we were required for approvalto file such reports.
In addition, whether or not required by the rules and regulations of the
Merger
Proposal, a proxy marked "ABSTAIN"SEC, at any time after we file an registration statement with respect to an
exchange offer or a registration statement permitting resales of the notes, we
will file a copy of all such proposalinformation and reports with the SEC for public
availability and make such information available to securities analysts and
prospective investors upon request.
In addition, we have agreed that, for so long as any notes remain
outstanding, we will have
the effect of a vote against such proposal. Under NNM rules brokers who
hold shares in street name for customers have the authority to vote on
certain "routine" proposals, when they have not received instructions from
beneficial owners. Under NNM rules, such brokers are precluded from
exercising their voting discretion with respectfurnish to the approvalholders and adoption of non-routine mattersto securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any such as the Merger Proposal, and thus,
absent specific instructions from the beneficial owner of such shares,
brokers are not empowered to vote such shares with respectrequest
should be directed to the approval
and adoption of the Merger Proposal (i.e., "broker non-votes"). Since the
affirmative vote described above is required for approval of the Merger
Proposal, a "broker non-vote" with respectaddress referred to such proposal will have the
effect of a vote against the Merger Proposal. Accordingly, any failure to
vote will have the effect of a vote against the Merger Proposal.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of Arbor a signed notice of revocation or a
later-dated signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by Arbor. In addition to
solicitation by mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to beneficial
owners; and Arbor will, upon request, reimburse such brokerage houses and
custodians for their reasonable expenses in so doing. Arbor has retained D.F.
King to aid in the solicitation of proxies and to verify certain records related
to the solicitations. D.F. King will receive customary fees, and expense
reimbursement, for such services. To the extent necessary in order to ensure
sufficient representation at its Meeting, Arbor may request by telephone or
telegram the return of proxy cards. The extent to which this will be necessary
depends entirely upon how promptly proxy cards are returned. Stockholders are
urged to send in their proxies without delay.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF
STOCK CERTIFICATES FOR ARBOR COMMON STOCK WILL BE MAILED BY CVS TO FORMER
ARBOR STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE
MERGER.
Other Business; Adjournments
The Arbor Board is not currently aware of any business to be acted upon at
the Special Meeting other than as described herein. If, however, other matters
are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. Adjournments may be made
for the purpose of, among other things, soliciting additional proxies. Any
adjournment may be made from time to time by approval of the holders of a
majority of the shares present in person or by proxy at the Special Meeting
(whether or not a quorum exists) without further notice other than by an
announcement made at the Special Meeting. Arbor currently does not intend to
seek an adjournment of its Meeting.
COMPARISON OF STOCKHOLDER RIGHTS
General
The rights of Arbor stockholders are currently governed by the Michigan
Business Corporation Act (the "Michigan Law") and the articles of incorporation
and bylaws of Arbor (the "Arbor Charter" and the "Arbor Bylaws," respectively).
The rights of CVS stockholders are currently governed by the Delaware General
Corporation Law (the "Delaware Law") and the certificate of incorporation and
bylaws of CVS (the "CVS Charter" and the "CVS Bylaws," respectively).
Accordingly, upon consummation of the Merger, the rights of Arbor stockholders
who become CVS stockholders in the Merger will be governed by the Delaware Law,
the CVS Charter and the CVS Bylaws. The following is a summary of the principal
differences between the current rights of Arbor stockholders and those of CVS
stockholders.
The following summary is not intended to be complete and is qualified in
its entirety by reference to the Michigan Law, the Delaware Law, the Arbor
Charter, the Arbor Bylaws, the CVS Charter and the CVS Bylaws. Copies of the
Arbor Charter, the Arbor Bylaws, the CVS Charter and the CVS Bylaws are
incorporated by reference herein and will be sent to holders of shares of Arbor
Common Stock upon request. Seeunder "Where You Can Find More
Information."
ComparisonWe will be required to file with the trustee annually, within four months
of Current Arbor Stockholder Rightsthe end of each fiscal year, a certificate as to the compliance with all
conditions and Rightscovenants of CVS Stockholders
Following the Mergerindenture.
Discharge and Defeasance of Notes and Covenants
The CVS Charterindenture provides that the Company may terminate its obligations under
the notes and the CVS Bylawsindenture if:
(i) all notes previously authenticated and delivered, with certain
exceptions, have been delivered to the trustee for cancellation and the Company
has paid all sums payable by it under the indenture; or
(ii) (a) the notes mature within one year or all of them are not being amendedto be called
for redemption within one year under arrangements satisfactory to the
trustee for giving the notice of redemption,
(b) the Company irrevocably deposits in connectiontrust with the Merger.
The rightstrustee, as
trust funds solely for the benefit of Arbor stockholdersthe holders of the notes for
that purpose, money or U.S. Government Obligations or a combination
thereof sufficient (unless such funds consist solely of money, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the trustee), without consideration of any reinvestment, to pay the
principal of and interest on the notes to maturity or redemption, as
the case may be, and to pay all other sums payable by it under the
Michigan Lawindenture, and
(c) the Company delivers to the trustee an officers' certificate and
an opinion of counsel, in each case stating that all conditions
precedent provided for in the indenture relating to the satisfaction
and discharge of the indenture have been complied with.
With respect to the foregoing clause (i), only the Company's obligations to
compensate and indemnify the trustee under the indenture shall survive. With
respect to the foregoing clause (ii), only the Company's obligations to execute
and deliver the notes for authentication, to set the terms of the notes, to
maintain an office or agency in respect of the notes, to have moneys held for
payment in trust, to register the transfer or exchange of the notes, to deliver
the notes for replacement or to be canceled, to compensate and indemnify the
trustee and to appoint a successor trustee, and its right to recover excess
money held by the trustee shall survive until the notes are no longer
outstanding. Thereafter, only the Company's obligations to compensate and
indemnify the trustee, and its right to recover excess money held by the trustee
shall survive.
The indenture provides that the Company:
17
(i) will be deemed to have paid and will be discharged from any and
all obligations in respect of the notes, and the Arbor
Charter and Arbor Bylaws priorprovisions of the
indenture will, except as noted below, no longer be in effect with
respect to the Merger are substantiallynotes ("legal defeasance") and
(ii) may omit to comply with any other specific covenant relating to
the samenotes provided for in a Board Resolution or supplemental indenture
which may by its terms be defeased pursuant to the indenture, and such
omission shall be deemed not to be an Event of Default under clause
(c) of the first paragraph of "--Events of Default" ("covenant
defeasance");
provided that the following conditions shall have been satisfied:
(a) the Company has irrevocably deposited in trust with the trustee
as trust funds solely for the benefit of the holders of the notes, for
payment of the principal of and interest on the notes, money or U.S.
Government Obligations or a combination thereof sufficient (unless
such funds consist solely of money, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the trustee) without
consideration of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments in respect
thereof payable by the trustee, to pay and discharge the principal of
and accrued interest on the outstanding notes to maturity or earlier
redemption (irrevocably provided for under arrangements satisfactory
to the trustee), as the rightscase may be;
(b) such deposit will not result in a breach or violation of, CVS stockholders (including Arbor stockholders who become CVS
stockholdersor
constitute a default under, the indenture or any other material
agreement or instrument to which the Company is a party or by which it
is bound;
(c) no Default with respect to the notes shall have occurred and be
continuing on the date of such deposit;
(d) the Company shall have delivered to the trustee an opinion of
counsel that (1) the holders of the notes will not recognize income,
gain or loss for Federal income tax purposes as a result of the
Merger)Company's exercise of its option under this provision of the Delaware Lawindenture
and the CVS
Charter and CVS Bylaws, with the following principal exceptions.
Authorized Capital Stock. The authorized capital stock of Arbor consists of
100,000,000 shares of Arbor Common Stock and 2,000,000 shares of preferred
stock. The authorized capital of CVS is set forth under "Description of CVS
Capital Stock--Authorized Capital Stock."
Board of Directors. The Arbor Bylaws provide that the number of directors will be not less than threesubject to Federal income tax on the same amount and not more than fifteen, as determined by the
Arbor Board. The Arbor Board currently consists of six directors. The CVS
Charter and the CVS Bylaws provide that the number of directors will be not less
than three nor more than eighteen, as determined by CVS' Board of Directors.
CVS' Board of Directors currently consists of thirteen directors.
Special Meetings of Stockholders. Under the Arbor Bylaws, the Board of
Directors, the Chairman of the Board or stockholders holding, in
the aggregate,
over 50% ofsame manner and at the voting power ofsame times as would have been the issuedcase if
such deposit and outstanding shares of capital
stock of Arbor may call a special meeting at any time. Under the Michigan Law, a
court may order a special meeting upon the application ofdefeasance had not occurred and (2) the holders of
not
less than ten percentthe notes have a valid security interest in the trust funds, and
(e) the Company has delivered to the trustee an officers' certificate
and an opinion of counsel, in each case stating that all conditions
precedent provided for in the indenture relating to the defeasance
contemplated have been complied with.
In the case of legal defeasance under clause (i) above, the opinion of counsel
referred to in clause (d)(1) above may be replaced by a ruling directed to the
trustee received from the Internal Revenue Service to the same effect.
Subsequent to legal defeasance under clause (i) above, the Company's obligations
to execute and deliver the notes for authentication, to maintain an office or
agency in respect of the outstanding sharesnotes, to have moneys held for payment in trust, to
register the transfer or exchange of Arbor entitledthe notes, to vote atdeliver the special meeting,notes for
good cause shown. Underreplacement or to be canceled, to compensate and indemnify the CVS Charter, special meetings
of stockholders may be calledtrustee and to
appoint a successor trustee, and its right to recover excess money held by the
Board of Directors,trustee shall survive until the Chairman ofnotes are no longer outstanding. After the Board of Directors or the President (or the Vice Chairman in the absence of a
President) and may not be called by any other person.
Stockholder Action by Written Consent. The Arbor Charter permits its
stockholders to act by written consent whenever any action is required or
permitted to be taken by a vote at a stockholder meeting; provided that any such
written consent must be signed by the holders ofnotes
are no longer outstanding, stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares of stock of Arbor entitled to
vote thereon were present and voted; and provided further that the proposed
action has been previously approved by the Arbor Board. The CVS Charter permits
its stockholders to act by written consent whenever any action is required or
permitted to be taken by a vote at a stockholder meeting; provided that any such
written consent must be signed by the holders of all outstanding shares entitled
to vote thereon.
Amendment of Corporate Charter and Bylaws. Generally under the Michigan
Law, any amendment of the Arbor Charter, other than those relating to certain
immaterial procedural matters, requires the affirmative vote of a majority of
the outstanding shares entitled to vote thereon. Amendment of the Arbor Bylaws
generally requires the affirmative vote of either a majority of the Board of
Directors then in office or a majority of the outstanding shares present and
voting. Generally, any amendment of the CVS Charter requires approval by a
majority of the CVS' Board of Directors and the holders of at least a majority
of the voting power of the issued and outstanding stock of CVS entitled to vote
thereon. Any amendment of the CVS Bylaws requires the approval of a majority of
the CVS' Board of Directors or the holders of at least a majority of the voting
power of the issued and outstanding stock of CVS. Notwithstanding the foregoing,
the approval of CVS stockholders holding more than two-thirds of the voting
power of the then outstanding shares of CVS ESOP Preference Stock (as defined
below), voting separately as a series, is required if the amendment of the CVS
Charter would alter or change the powers, preferences or special rights of the
shares of CVS ESOP Preference Stock so as to affect them adversely.
Voting Rights. The Arbor Common Stock is the only class of Arbor capital
stock entitled to vote generally on all matters submitted to Arbor stockholders,
including the election of directors and the Merger and other transactions
contemplated by the Merger Agreement. Each share of Arbor Common Stock is
entitled to one vote on all matters submitted to Arbor stockholders.
The outstanding voting securities of CVS are the shares of CVS Common Stock
and shares of CVS Preference Stock, par value $1 per share ("CVS ESOP Preference
Stock"). Under the Delaware Law and the CVS Charter, each share of CVS Common
Stock is entitled to one vote on all matters submitted to CVS stockholders.
Under the CVS Charter, the holders of CVS ESOP Preference Stock are entitled to
vote on all matters submitted to a vote of holders of CVS Common Stock, voting
together with the CVS Common Stock as a single class. Each share of CVS ESOP
Preference Stock is entitled to the number of votes equal to the number of
shares of CVS Common Stock into which such share of CVS ESOP Preference Stock
could be converted on the record date for the applicable meeting (which is
currently 1.2 votes, subject to adjustment in the case of certain dilutive
events).
Dividendslegal defeasance under clause (i)
above, only the Company's obligations to compensate and Repurchase of Stock. Underindemnify the Michigan Law, subjecttrustee
and its right to restrictionrecover excess money held by the articlestrustee shall survive.
Modification and Waiver
The indenture provides that the Company and the trustee may amend or
supplement the indenture or the notes without notice to or the consent of incorporation, a corporation may pay dividendsany
holder:
18
(1) to its stockholders unless after such a distribution the corporation would not be
able to pay its debts as they become duecure any ambiguity, defect or inconsistency in the usual course of business, or the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed to satisfy the dissolution rights of
stockholders whose preferential rights are superior to those receiving the
distribution. The Arbor Charter does not provide for dividend restrictions
beyond those imposed by the Michigan Law. Under the Delaware Law, a corporation
generally is permitted to declare and pay dividends out of surplus or out of net
profits for the current and/or preceding fiscal year,indenture;
provided that such dividends willamendments or supplements shall not reduce capital belowmaterially and
adversely affect the aggregate amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. The CVS Bylaws provide that
dividends may be declared and paid outinterests of the surplusholders;
(2) to comply with the provisions of the corporation at such
times and to such extent as the CVS Board may determine.
Under the Michigan Law,indenture in connection with
a corporation may generally acquire its own shares
subject to restrictions imposed by its articles of incorporation. The Arbor
Charter does not impose any such restrictions. Under the Delaware Law, a
corporation may generally redeemconsolidation or repurchase shares of its stock if such
redemption or repurchase will not impair the capitalmerger of the corporation.
Exculpation of Directors. Both the Michigan Law and the Delaware Law
have provisions relating to exculpation of directors. Each state's law
authorizes corporations to adopt charter provisions providing that no
director shall be personally liable to the corporation or any of its
stockholders for monetary damages, with respect to the Delaware Law, for
breaches of fiduciary duty and, with respect to the Michigan Law, for any
action taken or any failure to take any action except in each case where
such exculpation is expressly prohibited. The Arbor Charter limits the
liability of the Arbor directors to the fullest extent of the Michigan law.
The Michigan law prohibits exculpation for (i) the amount of a financial
benefit received by a director to which the director is not entitled, (ii)
intentional infliction of harm on the corporationCompany or the stockholders,
(iii) unlawful payments of dividends, unlawful loans to the directors,
officers or employees of the corporation or one of its subsidiaries and
unlawful distributions to stockholders during or after dissolution of the
corporation without paying or providing as required for the debts,
obligations and liabilities of the corporation (in each instance, only to
the extent the payment or distribution exceeds the amount that could be
paid lawfully) or (iv) an intentional criminal act. The Delaware Law
prohibits exculpation (i) for a breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or knowing violation of law,
(iii) for unlawful payments of dividends or (iv) for any transaction from
which the director derived an improper personal benefit. The CVS Charter
limits the liability of the CVS directors for monetary damages for breach
of fiduciary duty to the fullest extent permitted by the Delaware Law.
Indemnification of Directors, Officers and Others. Both the Michigan Law
and the Delaware Law generally permit indemnification of directors and officers
for damages and expenses incurred by them by reason of their position with the
corporation, if the director or officer has acted in good faith with the
reasonable belief that his conduct was in the best interest of the corporation
and not unlawful. However, the Delaware Law, unlike the Michigan Law, does not
permit a corporation to indemnify persons against judgments in actions brought
by or in the right of the corporation unless the Delaware Court of Chancery
approves the indemnification. The Arbor Bylaws provide that directors and
officers shall be indemnified to the fullest extent permitted by the Michigan
Law. The CVS Charter provides that directors and officers shall be indemnified
to the fullest extent permitted by the Delaware Law.
Sale, Lease or Exchange of Assets and Mergers. The Michigan Law generally
requires approval of a merger by the holders of a majority of the outstanding
shares of the corporation entitled to vote on the plan of merger and, if a class
or series is entitled to vote on the plan as a class, a majority of these
stockholders as well. For a sale, conveyance, transfer,
lease or exchange of all or substantially all
of a corporation's property in the usual and regular course of its business, the
Michigan Law does not require stockholder approval. However, where such a sale,
lease or exchange is not in the usual and the regular course of business, the
Michigan Law requires approval by holders of a majority of the outstanding
shares of the corporation entitled to vote.
The Delaware Law requires the approval of the directors and the vote of
holders of a majority of the outstanding stock entitled to vote thereon for the
sale, lease or exchange of all or substantially all of a corporation's property
and assets or a merger or consolidation of the corporation into any other corporation, although the certificate of incorporation may require a higher
stockholder vote. The CVS Charter does not require a higher vote.
Appraisal Rights. The rights of dissenting stockholders to obtain the fair
value of their shares (so-called "appraisal rights") are similarly limited under
the Michigan Law and the Delaware Law. The Michigan Law allows appraisal rights
by statute for a statutory merger, a sale or exchangedisposal of all or substantially all of the property and
assets of the corporationCompany;
(3) to comply with any requirements of the Commission in connection
with the qualification of the indenture under the Trust indenture Act;
(4) to evidence and provide for the acceptance of appointment under
the indenture by a successor trustee; or
(5) to make any change that does not materially and adversely affect
the rights of any holder.
The indenture also contains provisions whereby the Company and the trustee,
subject to certain conditions, without prior notice to any holders, may amend
the indenture and the outstanding notes with the written consent of the holders
of a majority in principal amount of the notes then outstanding, and the holders
of a majority in principal amount of the outstanding notes by written notice to
the trustee may waive future compliance by the Company with any provision of the
indenture or the notes.
Notwithstanding the foregoing provisions, without the consent of each
holder affected thereby, an amendment or waiver may not:
(i) extend the stated maturity of the principal of, or any installment
of interest on, such holder's notes, or reduce the principal thereof or the
rate of interest thereon, or any premium payable with respect thereto, or
change any place or currency of payment where any note or any premium or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the due date therefor;
(ii) reduce the percentage in principal amount of outstanding notes
the consent of whose holders is required for any such supplemental
indenture, for any waiver of compliance with certain provisions of the
indenture or certain Defaults and their consequences provided for in the
indenture;
(iii) waive a Default in the payment of principal of or interest on
any note of such holder; or
(iv) modify any of the provisions of this provision of the indenture,
except to increase any such percentage or to provide that certain other
provisions of the indenture cannot be modified or waived without the
consent of the holder of each outstanding note thereunder affected thereby.
It shall not be necessary for the consent of any holder under this
provision of the indenture to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof. After an amendment, supplement or waiver under
this section of the indenture becomes effective, the Company shall give to the
holders affected thereby a notice briefly describing the amendment, supplement
or waiver. The Company will mail supplemental indentures to holders upon
request. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture or waiver.
Governing Law
The indenture and the notes will be governed by the laws of the State of
New York.
19
The Trustee
The Company and its subsidiaries maintain ordinary banking and trust
relationships with The Bank of New York and its affiliates. The trustee also
acts as the registrar and transfer agent for our common stock, and an affiliate
of the trustee acted as an initial purchaser of the old notes.
Book-Entry; Delivery and Form
The certificates representing the new notes will be issued in fully
registered form, without coupons. Except as described below, the new notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York, and registered in the name of Cede & Co. as DTC's nominee, in the form of
a global note (the "Global Registered Note").
The Global Registered Note. CVS expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Registered Note, DTC or its
custodian will credit on its internal system interests in the Global Registered
notes to the accounts of persons who have accounts with DTC ("Participants") and
(b) ownership of the Global Registered Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC or
its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons other than Participants).
Ownership of beneficial interests in the usual and regular
courseGlobal Registered Note will be limited
to Participants or persons who hold interests through Participants.
So long as DTC or its nominee is the registered owner or holder of business andthe new
notes, DTC or such nominee will be considered the sole owner or holder of the
new notes represented by the Global Registered Note for some amendmentsall purposes under the
indenture. No beneficial owner of an interest in the Global Registered Note will
be able to transfer such interest except in accordance with DTC's procedures, in
addition to those provided for under the indenture with respect to the articlesnew
notes.
Payments of incorporation.the principal of or premium and interest on the Global
Registered Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of CVS, the trustee or any paying agent under the
indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Registered Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of the
principal of or premium and interest on the Global Registered Note, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Registered Note as shown on the records of DTC or its nominee. We also expect
that payments by Participants to owners of beneficial interests in the Global
Registered Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated exchange note for any reason,
including to sell new notes to persons in states which require physical delivery
of the new notes or to pledge such securities, such holder must transfer its
interest in the Global Registered Note in accordance with the normal procedures
of DTC and with the procedures set forth in the indenture.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of new notes (including the presentation of new notes for exchange as
described below) only at the direction of one or more Participants to whose
account at DTC interests in the Global Registered Note are credited and only in
respect of such portion of the aggregate principal amount of new notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Michigan Law, similarindenture, DTC will exchange
the Global Registered Note for Certificated new notes, which it will distribute
to its Participants.
20
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the Delaware Law, doesprovisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Registered Notes among Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither CVS nor the trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. Interests in the Global Registered Notes will be
exchangeable or transferable, as the case may be, for certificated notes if
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for such Global Registered Notes, or DTC ceases to be a
"clearing agency" registered under the Exchange Act, and a successor
depositary is not allowappointed by CVS within 90 days, or
(2) CVS in its discretion at any time determines not to have all the
notes represented by the Global Securities, or
(3) an Event of Default has occurred and is continuing with respect to
such new notes.
Upon the occurrence of any of the events described in the preceding
sentence, CVS will cause the appropriate certificated notes to be delivered.
THE EXCHANGE OFFER
Pursuant to a registration rights agreement between CVS and the initial
purchasers of the old notes, we agreed
(1) to file a registration statement on or prior to 90 days after the
closing of the offering of the old notes with respect to an offer to
exchange the old notes for a new issue of notes, with terms substantially
the same as of the old notes but registered under the Securities Act,
(2) to use our best efforts to cause the registration statement to be
declared effective by the SEC on or prior to 180 days after the closing of
the old notes offering and
(3) use our best efforts to consummate the exchange offer and issue
the new notes within 30 business days after the registration statement is
declared effective.
The registration rights agreement provides that, in the event we fail to
file the registration statement within 90 days after the closing date or
consummate the exchange offer within 220 days, we will be required to pay
additional interest on the old notes over and above the regular interest on the
notes. Upon consummation of this exchange offer, the provision for additional
interest on the old notes shall cease.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or acceptance of the exchange offer would violate the securities or blue
sky laws of such jurisdiction.
21
Terms of the Exchange Offer; Period for Tendering Old Notes
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal (which together constitute the exchange offer), we will accept for
exchange old notes which are properly tendered on or prior to the expiration
date, unless you have previously withdrawn them.
o When you tender to us old notes as provided below, our acceptance of
the old notes will constitute a binding agreement between you and us
upon the terms and subject to the conditions in this prospectus and in
the accompanying letter of transmittal.
o For each $1,000 principal amount of old notes surrendered to us
pursuant to the exchange offer, we will give the you $1,000 principal
amount of new notes.
o We will keep the exchange offer open for not less than 30 days (or
longer if required by applicable law) after the date that we first
mail notice of the exchange offer to the holders of the old notes. We
are sending this prospectus, together with the letter of transmittal,
on or about the date of this prospectus to all of the registered
holders of old notes at their addresses listed in the trustee's
security register with respect to old notes.
o The exchange offer expires at 5:00 p.m., New York City time, on
, 1999; provided, however, that we, in our sole discretion, may
extend the period of time for which the exchange offer is open. The
term "expiration date" means , 1999 or, if extended by us,
the latest time and date to which the exchange offer is extended.
o As of the date of this prospectus, $300,000,000 in aggregate principal
amount of the old notes were outstanding. The exchange offer is not
conditioned upon any minimum principal amount of old notes being
tendered.
o Our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to certain conditions that we describe in
the section called "Certain Conditions to the Exchange Offer" below.
o We expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and thereby delay
acceptance of any old notes, by giving oral or written notice of such
extension to the exchange agent and notice of such extension to the
holders as described below. During any such extension, all old notes
previously tendered will remain subject to the exchange offer and may
be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
o We expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes that we have not
yet accepted for exchange, upon the occurrence of any of the
conditions of the exchange offer specified below under "Certain
Conditions to the Exchange Offer."
o We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old
notes as promptly as practicable. If we extend the expiration date, we
will give notice by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public
announcement and subject to applicable law, we will have no obligation
to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to the Dow Jones News
Service.
o Holders of old notes do not have any appraisal or dissenters' rights
wherein connection with the corporation's sharesexchange offer.
22
o Old notes which are listednot tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding
and be entitled to the benefits of the indenture, but will not be
entitled to any further registration rights under the registration
rights agreement.
o We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
o By executing, or otherwise becoming bound by, the letter of
transmittal, you will be making certain representations to us.
See "--Resales of the New Notes."
Important rules concerning the exchange offer
You should note that:
o All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be
determined by CVS in its sole discretion, which determination shall be
final and binding.
o We reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any
particular old notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
o We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular old notes either before or after the expiration date
(including the right to waive the ineligibility of any holder who
seeks to tender old notes in the exchange offer). Unless we agree to
waive any defect or irregularity in connection with the tender of old
notes for exchange, such waiver must be cured within such reasonable
period of time as we shall determine.
o Our interpretation of the terms and conditions of the exchange offer
as to any particular old notes either before or after the expiration
date (including the letter of transmittal and the instructions
thereto) shall be final and binding on all parties.
o Neither CVS, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with
respect to any tender of old notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
Procedures for Tendering Old Notes
What to submit and how
If you, as the registered holder of an old note, wish to tender your old
notes for exchange pursuant to the exchange offer, you must transmit a properly
completed and duly executed letter of transmittal, including all other documents
required by such letter of transmittal, to The Bank of New York at the address
set forth below under "Exchange Agent" on or prior to the expiration date.
In addition,
(1) certificates for such old notes must be received by the exchange
agent along with the letter of transmittal, or
23
(2) a timely confirmation of a book-entry transfer (what we call a
"book-entry confirmation") of such old notes, if such procedure is
available, into the exchange agent's account at DTC pursuant to the
procedure for book-entry transfer described below, must be received by the
exchange agent prior to the expiration date or
(3) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the your election and risk. If such delivery is by
mail, we recommend that registered mail, properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to assure
timely delivery. No letters of transmittal or old notes should be sent to CVS.
How to sign your letter of transmittal and other documents
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
pursuant thereto are tendered
(1) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal or
(2) for the account of an Eligible Institution (as defined below).
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by certain
eligible institutions, including:
o a firm which is a member of a registered national securities exchange
or designated as a national market system security on an interdealer
quotation system bymember of the National Association of Securities Dealers, Inc.; nor
o a commercial bank or trust company having an office or correspondent
in the United States
(collectively, "Eligible Institutions").
If old notes are appraisal rights availableregistered in the name of a person other than the person
signing the letter of transmittal, the old notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature thereon
guaranteed by an Eligible Institution.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, such old notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the old
notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a merger transaction where stockholders
receive cashfiduciary or sharesrepresentative
capacity, such person should so indicate when signing and, unless waived by CVS,
proper evidence satisfactory to CVS of its authority to so act must be
submitted.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the
exchange offer, we shall be deemed to have accepted properly tendered old notes
for exchange when, as and if we have given oral or written notice thereof to the
Exchange Agent.
24
In all cases, we will only issue new notes in exchange for old notes that
satisfyare accepted for exchange only after timely receipt by the exchange agent of:
o certificates for such old notes, or
o a timely book-entry confirmation of such old notes into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures
described below, and
o a properly completed and duly executed letter of transmittal and all
other required documents.
If we do not accept any tendered old notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing old notes in a greater principal amount than you wish to exchange,
we will return such unaccepted or non-exchanged old notes without expense to the
tendering holder or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described below, such non-exchanged old notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this standard.
Underprospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the Delaware Law, appraisal rights mayexchange agent's account in accordance with
DTC's Automated Tender Offer Program ("ATOP") procedures for transfer. However,
the exchange for the old notes so tendered will only be availablemade after timely
confirmation of such book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an Agent's Message (as such
term is defined in connection
withthe next sentence) and any other documents required by the
Letter of Transmittal. The term "Agent's Message" means a statutory merger or consolidation in certain specific situations.
Appraisal rightsmessage, transmitted
by DTC and received by the exchange agent and forming a part of a Book-entry
confirmation, which states that DTC has received an express acknowledgment from
a Participant tendering old notes that are not available under the Delaware Law when a corporation issubject of such Book-entry
confirmation that such Participant has received and agrees to be the surviving corporation and no vote of its stockholders is required to
approve the merger. In addition, unless otherwise provided in the charter, no
appraisal rights are available under the Delaware Law to holders of shares of
any class of stock which is either: (a) listed on a national securities exchange
or designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc. or (b) held of
record by more than 2,000 stockholders, unless such stockholders are requiredbound by the
terms of the mergerletter of transmittal, and that we may enforce such agreement
against such Participant.
Although delivery of old notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other required documents, must in any case be
delivered to accept anything other than: (i) shares of stock of
the surviving corporation; (ii) shares of stock of another corporation which are
so listed on a national securities exchange or designated as a national market
system security on an inter-dealer quotation systemand received by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 stockholders as
of the effective date of the merger or consolidation; (iii) cash in lieu of
fractional shares of such stock; or (iv) any combination thereof. Appraisal
rights are not availableexchange agent at its address listed under
the Delaware Law in the event of sale, lease or
exchange of all or substantially all of a corporation's assets or the adoption
of an amendment to its certificate of incorporation, unless such rights are
granted in the corporation's certificate of incorporation. The CVS Charter does
not grant such rights.
Certain Business Combinations. Chapters 7A and 7B of the Michigan Law
restrict the ability of certain persons to acquire control of a Michigan
corporation. In general, under Chapter 7A, Business Combinations (defined to
include, among other transactions, certain mergers, dispositions of assets or
shares and recapitalizations) between covered Michigan corporations or their
subsidiaries and an Interested Stockholder (defined as the direct or indirect
beneficial owner of at least 10% of the voting power of a covered corporation's
outstanding shares) can be consummated only if approved by at least 90% of the
votes of each class of the corporation's shares entitled to vote and by at least
two-thirds of such voting shares not held by the Interested Stockholder or such
stockholder's affiliates, unless five years have elapsed since the person
involved became an Interested Stockholder and unless certain price and other
conditions are satisfied. The board of directors may exempt Business
Combinations with a particular Interested Stockholder by resolution adopted
prior to the time the Interested Stockholder attained that status. The board of
directors of Arbor exempted the Merger from coverage of Chapter 7A of the
Michigan Law and therefore this provision does not apply to the transactions
contemplated by the Merger.
The Delaware Law provides that, if a person acquires 15% or more of the
stock of a Delaware corporation without the approval of the board of directors
of that corporation (thereby becoming an "Interested Stockholder"), such person
may not engage in certain transactions with the corporation for a period of
three years. The Delaware Law includes certain exceptions to this prohibition;
for example, if the board of directors approves the acquisition of stock or the
transaction prior to the time that the person became an Interested Stockholder,
or if the Interested Stockholder acquires 85% of the voting stock of the
corporation (excluding voting stock owned by directors who are also officers and
certain employee stock plans) in one transaction, or if the transaction is
approved by the board of directors and by the affirmative vote of two-thirds of
the outstanding voting stock which is not owned by the Interested Stockholder.
The CVS Charter does not provide for an "opt out" from this provision of the
Delaware Law and, therefore, it applies to CVS.
The CVS Charter provides that any Business Combination (as defined below)
with a Related Person (as defined below) requires, in addition to any vote
required by law, the affirmative approval of at least 662/3% of the outstanding
shares of voting stock, voting together as a single class, held by stockholders
other than a Related Person, unless, among other things, (i) the Continuing
Directors (as defined below), by at least 662/3% vote of such Continuing
Directors, have expressly approved such Business Combination either in advance
of or subsequent to such Related Person's having become a Related Person or (ii)
certain fair price criteria and disclosure obligations are satisfied. The term
"Related Person" is defined to mean (a) any Person (other than CVS or any wholly
owned subsidiary) that, alone or together with any affiliates and associates, is
or becomes the beneficial owner of an aggregate of 10% or more of the
outstanding voting stock, and (b) any affiliate or associate of any such Person,
provided that the term "Related Person" shall not include (x) a Person whose
acquisition of such aggregate percentage of voting stock was approved in advance
by at least 662/3% of the Continuing Directors or (y) any pension, profit
sharing, employee stock ownership or other employee benefit plan of CVS or any
subsidiary, all of the capital stock of or equity interest in which subsidiary
is owned by CVS and one or more subsidiaries or CVS, or any trustee or fiduciary
when acting in such capacity with respect to any such plan. The term "Business
Combination" is defined to mean (a) any merger or consolidation of CVS or a
subsidiary with or into a Related Person, (b) any sale, lease, exchange,
transfer or other disposition, including without limitation by way of a mortgage
or any other security device, of any substantial amount of the assets of CVS,
one or more of its subsidiaries or CVS and one or more of its subsidiaries to a
Related Person, (c) the adoption of any plan or proposal for the liquidation or
dissolution of CVS proposed by or on behalf of any Related Person, (d) any sale,
lease, exchange, transfer or other disposition, including without limitation by
way of a mortgage or any other security device, of any substantial amount of the
assets of a Related Person to CVS, one or more of its subsidiaries or CVS and
one or more of its subsidiaries, (e) the issuance of any securities of CVS, one
or more of its subsidiaries or CVS and one or more of its subsidiaries to a
Related Person or to a Person that, after giving effect thereto, would be a
Related Person other than the issuance of securities on a pro rata basis to all
holders of stock of the same class pursuant to a stock split or stock dividend,
(f) any reclassification of CVS' securities, recapitalization of CVS, or any
merger or consolidation of CVS with or into one or more of its subsidiaries or
any other transaction that would have the effect, directly or indirectly, of
increasing the voting power or other equity interest of a Related Person in CVS,
(g) any loan, advance, guaranty, pledge or other financial assistance by CVS,
one or more of its subsidiaries or CVS and one or more of its subsidiaries to or
for the benefit, directly or indirectly (except proportionately as a
stockholder), of a Related Person, (h) any agreement, contract or other
arrangement providing for any Business Combination and (i) any series of
transactions that a majority of Continuing Directors determines are related and
that, taken together, would constitute a Business Combination. The term
"Continuing Director" is defined to mean a director of CVS who is not the
Related Person, or an affiliate or associate of the Related Person (or a
representative or nominee of the Related Person or such affiliate or associate),
that is involved in the relevant Business Combination and (a) who was a member
of the CVS Board immediately prior to the time that such Related Person became a
Related Person or (b) whose initial election as a director was recommended by
the affirmative vote of at least 662/3% of the Continuing Directors then in
office, provided that, in either such case, such Continuing Director has
continued in office after becoming a Continuing Director.
There is no similar provision in the Arbor Charter.
Control Share Acquisition. Under Chapter 7B of the Michigan Law, an entity
that acquires Control Shares (as defined below) of a corporation in a control
share acquisition may vote the Control Shares on any matter only if a majority
of all shares, and of all non-Interested Shares (as defined below), of each
class of shares entitled to vote as a class approve such voting rights.
Interested Shares are shares owned by officers of a corporation,
employee-directors of a corporation and the entity making the control share
acquisition. Control Shares are shares that, when added to shares already owned
by an entity, would give the entity voting power in the election of directors
over any of three thresholds: one-fifth, one-third and a majority. The effect of
the statute is to condition the acquisition of voting control of a corporation
on the approval of a majority of the pre-existing disinterested stockholders.
The Arbor Bylaws expressly provide that Chapter 7B of the Michigan Law does not
apply to any control share acquisition of Arbor Common Stock. Chapter 7B
therefore does not apply to the transactions contemplated by the Merger.
Delaware does not have a control share acquisition statute.
DESCRIPTION OF CVS CAPITAL STOCK
The summary of the terms of the capital stock of CVS set forth below does
not purport to be complete and is qualified by reference to the CVS Charter and
CVS Bylaws. Copies of the CVS Charter and CVS Bylaws are incorporated by
reference herein and will be sent to holders of shares of CVS Common Stock and
Arbor Common Stock upon request. See "Where You Can Find More Information."
Authorized Capital Stock
Under the CVS Charter, CVS' authorized capital stock consists of
300,000,000 shares of CVS Common Stock, 120,619 shares of Cumulative Preferred
Stock, par value $0.01 per share (the "CVS Preferred Stock"), and 50,000,000
shares of CVS ESOP Preference Stock (CVS Preferred Stock and CVS ESOP Preference
Stock being referred to collectively as "Preferred Stock").
CVS Common Stock
The holders of CVS Common Stock are entitled to receive ratably, from funds
legally available for the payment thereof, dividends when and as declared by
resolution of the CVS Board, subject to any preferential dividend rights granted
to the holders of any outstanding Preferred Stock. In the event of liquidation,
each share of CVS Common Stock is entitled to share pro rata in any distribution
of CVS' assets after payment or providing for the payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Each holder of CVS
Common Stock is entitled to one vote for each share of CVS Common Stock held of
record on the applicable record date on all matters submitted to a vote of
stockholders, including the election of directors. In addition, holders of CVS
ESOP Preference Stock are entitled to vote on all matters submitted to a vote of
holders of CVS Common Stock, voting together with the CVS Common Stock as a
single class. Each share of CVS ESOP Preference Stock is entitled to the number
of votes equal to the number of shares of CVS Common Stock into which such share
of CVS ESOP Preference Stock could be converted on the record date for the
applicable meeting, which is currently 1.2 votes (subject to adjustment in the
case of certain dilutive events).
Holders of CVS Common Stock have no cumulative voting rights or preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption rights or sinking fund provisions with
respect to CVS Common Stock. The outstanding shares of CVS Common Stock are, and
the shares of CVS Common Stock issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable.
CVS Preferred Stock and CVS Preference Stock
As of February 8, 1998, (i) approximately 5,321,168 shares of CVS ESOP
Preference Stock were issued and outstanding and (ii) no other shares of
Preferred Stock were issued or outstanding. Under the CVS Charter, the CVS Board
has the authority, without further stockholder approval but subject to certain
limitations set forth in the CVS Charter, to create one or more series of
Preferred Stock, to issue shares of Preferred Stock in such series up to the
maximum number of shares of the relevant class of Preferred Stock authorized,
and to determine the preferences, rights, privileges and restrictions of any
such series, including the dividend rights, voting rights, rights and terms of
redemption, liquidation preferences, the number of shares constituting any such
series and the designation of such series. Pursuant to this authority, the CVS
Board could create and issue a series of preferred stock with rights, privileges
or restrictions, and adopt a shareholder rights plan, having the effect of
discriminating against an existing or prospective holder of such securities as a
result of such security holder beneficially owning or commencing a tender offer
for a substantial amount of CVS Common Stock. One of the effects of authorized
but unissued and unreserved shares of capital stock may be to render more
difficult or discourage an attempt by a potential acquiror to obtain control of
CVS by means of a merger, tender offer, proxy contest or otherwise, and thereby
protect the continuity of CVS' management. The issuance of such shares of
capital stock may have the effect of delaying, deferring or preventing a change
in control of CVS without any further action by the stockholders of CVS. CVS has
no present intention to adopt a shareholder rights plan, but could do so without
stockholder approval at any future time.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, LLC is the transfer agent and registrar
for the CVS Common Stock.
Stock Exchange Listing; Delisting and Deregistration of Arbor Common Stock
It is a condition to the Merger that the shares of CVS Common Stock
issuable in the Merger be approved for listing on the NYSE"--Exchange Agent" on or prior to the Effective Time,expiration date, or you must comply
guaranteed delivery procedure described below.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
If you are a registered holder of old notes and you want to tender such old
notes but your old notes are not immediately available, or time will not permit
your old notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if
(1) the tender is made through an Eligible Institution,
(2) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), stating:
25
o the name and address of the holder of old notes
o the amount of old notes tendered
o the tender is being made by delivering such notice and guaranteeing
that within five New York Stock Exchange trading days after the date
of execution of the notice of guaranteed delivery, the certificates of
all physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by that
Eligible Institution with the exchange agent, and
(3) the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal, are received by
the exchange agent within five New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
You can withdraw your tender of old notes may be withdrawn at any time
prior to the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"Exchange Agent." Any such notice of withdrawal must specify:
o the name of the person having tendered the old notes to be withdrawn,
o the old notes to be withdrawn (including the principal amount of such
old notes), and
o if certificates for old notes have been delivered to the exchange
agent, the name in which such old notes are registered, if different
from that of the withdrawing holder.
o if certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, you must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
unless you are an Eligible Institution.
o if old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any note of withdrawal must
specify the name and number of the account at DTC to be credited with
the withdrawn old notes and otherwise comply with the procedures of
such facility.
Please note that all questions as to the validity, form and eligibility
(including time of receipt) of such notices of withdrawal will be determined by
us, and our determination shall be final and binding on all parties. Any old
notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you
may do so by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time
26
before the acceptance of such old notes for exchange or the exchange of the new
notes for such old notes, such acceptance or issuance would violate applicable
law or any interpretation of the staff of the SEC.
The foregoing condition is for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to such condition. Our failure at
any time to exercise the foregoing rights shall not be deemed a waiver by us of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the exchange offer
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act.
Exchange Agent
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
Deliver To:
The Bank of New York, Exchange Agent
101 Barclay Street
Floor 7 East
New York New York 10286
Attn: Jennifer Pedi
Facsimile Transmissions:
(212) 815-6339
To Confirm by Telephone
or for Information:
(212) 815-6331
Delivery to an address other than as listed above above or transmission of
instructions via facsimile other than as listed above above does not constitute
a valid delivery.
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and affiliates. We will not pay any additional compensation to
any such officers and employees who engage in soliciting tenders. We will not
make any payment to brokers, dealers, or others soliciting acceptances of the
exchange offer. However, we will pay the exchange agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection with the exchange offer.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $ .
27
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer to be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Resale of the New Notes
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act. However, any purchaser of old notes who is an "affiliate" of CVS
or who intends to participate in the exchange offer for the purpose of
distributing the new notes
(1) will not be able to rely on the interpretation of the staff of the
SEC,
(2) will not be able to tender its old notes in the exchange offer and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the notes unless such sale or transfer is made pursuant to an exemption
from such requirements.
By executing, or otherwise becoming bound by, the Letter of Transmittal
each holder of the old notes (other than certain specified holders) will
represent that:
(1) it is not our "affiliate";
(2) any new notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the new notes.
In addition, in connection with any resales of new notes, any broker-dealer
participating in the exchange offer who acquired notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes (other than a resale of an unsold
allotment from the original sale of the old notes) with the prospectus contained
in the exchange offer exchange offer. Under the registration rights agreement,
we are required to allow participating broker-dealers and other persons, if any,
subject to official noticesimilar prospectus delivery requirements to use this prospectus as it
may be amended or supplemented from time to time, in connection with the resale
of issuance. Ifsuch new notes.
28
CERTAIN UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of old notes for new notes pursuant to the Merger is
consummated, Arbor Common Stockexchange offer will
ceasenot result in any United States federal income tax consequences to holders. When
a holder exchanges an old note for a new note pursuant to the exchange offer,
the holder will have the same adjusted basis and holding period in the new note
as in the old note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 135 days after the
expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be listedan "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the NNM.Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 135 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the CVS Common Stock to be issued to Arbor stockholders
pursuant to the Mergernotes offered hereby will be passed upon for CVS by
Davis Polk & Wardwell, special
counsel to CVS. It is a condition to the consummation of the Merger that Arbor
receive an opinion from Weil, Gotshal & Manges, LLP, special counsel to Arbor,
to the effect that, among other things, Arbor stockholders will not recognize
gain or loss for U.S. federal income tax purposes as a result of the Merger
(other than in respect of any cash paid in lieu of fractional shares). See "The
Merger Agreement--Conditions to the Merger" and "The Merger--Certain U.S.
Federal Income Tax Consequences."New York, New York.
EXPERTS
The historical consolidated financial statements and schedules of CVS Corporation and its
subsidiaries as of December 31, 19961997 and 19951998 and the consolidated
statements of operations, shareholders' equity and cash flows for each of the three years ended
December 31, 19961998 and the related consolidated financial statement schedule have
been incorporated by reference in this Proxy Statement/Prospectusoffering circular in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and given upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Arbor Drugs, Inc. and its
subsidiaries as of July 31, 1997 and July 31, 1996 and29
================================================================================
You should rely only on the consolidated
statements of income, shareholders' equity and cash flows for each of the three
years ended July 31, 1997 incorporated by referenceinformation contained in this Proxy
Statement/Prospectus have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on authority of that
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
CVS and Arbor file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statementsdocument or other information we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
CVS filed a Registration Statement on Form S-4 to register with the SEC the
CVS Common Stock to be issued to Arbor stockholders in the Merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of CVS in addition to being a proxy statement of Arbor for the
Special Meeting. As allowed by SEC rules, this Proxy Statement/Prospectus does
not contain all the information you can find in the Registration Statement or
the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement/Prospectus, which means that
we can disclose importanthave referred you to. We have not authorized anyone to provide you with
information to
you by referring you to another document filed separately withthat is different. We are not making an offer of these securities in
any state where the SEC. The
information incorporated by referenceoffer is deemed to be part of this Proxy
Statement/Prospectus, except for any information superseded bynot permitted. You should not assume that the
information in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about our companies and their
finances.prospectus or any prospectus supplement is accurate as of
any CVS SEC Filings (File No. 1-1011) Period
- --------------------------------- ------
Annual Report on Form 10-K/A Fiscal Year ended December 31, 1996
Quarterly Reports on Form 10-Q Fiscal Quarter ended March 29,
1997, June 28, 1997 and September 27,
1997
Current Reports on Form 8-K Filed on February 7, 1997, March 26,
1997, May 30, 1997, July 16, 1997,
July 17, 1997 and February 11, 1998
The description of CVS Common Stock Filed on November 5, 1996
set forth in the Registration
Statement on Form 8-B
Arbor SEC Filings (File No. 0-11491) Period
- ------------------------------------ ------
Annual Report on Form 10-K Fiscal Year ended July 31, 1997
Quarterly Reports on Form 10-Q Fiscal Quarter ended October 31, 1997
Current Reports on Form 8-K Filed on February 10, 1998
We are also incorporating by reference additional documents that we file
with the SEC betweendate other than the date on the front of this Proxy Statement/Prospectus and the date of
the Special Meeting.
CVS has supplied all information contained or incorporated by reference in
this Proxy Statement/Prospectus relating to CVS, and Arbor has supplied all such
information relating to Arbor.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Proxy Statement/Prospectus. Stockholders may obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone from the appropriate party at the following address:
CVSthose Corporation Arbor Drugs, Inc.
One CVS Drive 3331 West Big Beaver Road
Woonsocket, RI 02895 Troy, MI 48084
Tel: (914) 722-4704 Tel: (248) 643-9420
If you would like to request documents from us, please do so by March 24,
1998 to receive them before the Meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER
PROPOSAL. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED MARCH 3,
1009. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE PROXY
STATEMENT/PROPSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO ARBOR
STOCKHOLDERS NOR THE ISSUANCE OF CVS COMMON STOCK IN THE MERGER SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.
LIST OF DEFINED TERMS
Defined Term Page No.
- ------------ --------
1933 Act....................................................................22
1993 Stock Option Plan......................................................34
1996 Stock Option Plan......................................................34
1998E P/E Multiple..........................................................31
1998E P/E/IBES LT Growth Rate Multiple......................................31
1999E P/E Multiple..........................................................31
Acquisition Proposal........................................................39
affiliates..................................................................22
Antitrust Division..........................................................21
Applebaum Stockholder.......................................................43
Applebaum Stockholder Shares................................................43
appraisal rights............................................................49
Arbor ......................................................................14
Arbor Board Approval........................................................33
Arbor Bylaws................................................................46
Arbor Charter...............................................................46
Arbor Common Stock..........................................................14
Arbor Record Date...........................................................45
broker non-votes............................................................45
Business Combination........................................................50
Change in Control...........................................................33
Change in Control Agreements................................................33
Code ......................................................................20
Consulting Agreement........................................................35
Continuing Director.........................................................50
Continuing Employees........................................................36
Covered Management Employees................................................33
CSFB ......................................................................15
CVS ......................................................................14
CVS Bylaws..................................................................46
CVS Charter.................................................................46
CVS Common Stock............................................................14
CVS ESOP Preference Stock...................................................47
CVS Preferred Stock.........................................................51
Delaware Law................................................................46
Demand Registration.........................................................44
EBITDAL.....................................................................31
Effective Time..............................................................14
Engagement Letter...........................................................32
Exchange Agent..............................................................38
Exchange Ratio..............................................................37
FIFO .......................................................................6
Footstar....................................................................23
FTC ......................................................................21
GAAP ......................................................................20
Goldman Sachs...............................................................14
Goldman Sachs Opinion.......................................................30
Good Reason.................................................................33
HSR Act.....................................................................21
IBES ......................................................................31
IBES Estimates..............................................................31
Interested Stockholder......................................................49
J.C. Penney.................................................................31
Levered Multiple for LTM EBIT...............................................31
Levered Multiple for LTM EBITDAL............................................31
Levered Multiple for LTM Sales..............................................31
LIFO .......................................................................6
LTM ......................................................................31
Merger......................................................................14
Merger Agreement............................................................14
Merger Proposal.............................................................44
Merger Subsidiary...........................................................14
Michigan Law................................................................46
Named Officers..............................................................34
NNM ......................................................................23
NYSE ......................................................................21
Option......................................................................43
Option and Voting Agreement.................................................43
Preferred Stock.............................................................51
Registrable Securities......................................................44
Related Person..............................................................50
Revco .......................................................................8
Rite Aid....................................................................31
SEC .......................................................................6
Selected Companies..........................................................31
Selected Transactions.......................................................31
Special Meeting.............................................................14
Superior Proposal...........................................................39
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
February 8, 1998*
among
CVS CORPORATION,
ARBOR DRUGS, INC.
AND
RED ACQUISITION, INC.
*(Text reflects the First Amendment dated as of March 2, 1998 to Agreement
and Plan of Merger, but the Agreement and Plan of Merger dated as of
February 8, 1998 has not been amended and restated.)documents.
----------------------
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1-----
Where You Can Find More Information.................2
The Merger
Section 1.1.Company.........................................3
Cautionary Statement Concerning Forward-
Looking Statements...............................3
Use of Proceeds.....................................5
Selected Consolidated Financial Data................6
Description of Notes................................8
The Merger...................................................A-1
Section 1.2. Conversion of Shares.........................................A-2
Section 1.3. Surrender and Payment........................................A-2
Section 1.4. Stock Options................................................A-3
Section 1.5. Fractional Shares............................................A-4
Section 1.6. Adjustments..................................................A-5
ARTICLE 2
The Surviving Corporation
Section 2.1. Articles of Incorporation....................................A-5
Section 2.2. Bylaws.......................................................A-5
Section 2.3. Directors and Officers.......................................A-5
ARTICLE 3
Representations and Warranties of Company
Section 3.1. Organization and Power.......................................A-6
Section 3.2. Corporate Authorization......................................A-6
Section 3.3. Governmental Authorization...................................A-6
Section 3.4. Non-contravention............................................A-7
Section 3.5. Capitalization of Company....................................A-7
Section 3.6. Capitalization of Subsidiaries...............................A-8
Section 3.7. SEC Filings..................................................A-8
Section 3.8. Financial Statements.........................................A-8
Section 3.9. Disclosure Documents.........................................A-8
Section 3.10. Information Supplied.........................................A-8
Section 3.11. Absence ofExchange Offer.................................21
Certain Changes...................................A-9
Section 3.12. No Undisclosed Material Liabilities.........................A-10
Section 3.13. Litigation..................................................A-10
Section 3.14. Taxes.......................................................A-10
Section 3.15. Employee Benefit Plans; ERISA...............................A-11
Section 3.16. Compliance with Laws; No Default; No Non-Competes...........A-12
Section 3.17. Finders' Fees...............................................A-13
Section 3.18. Environmental Matters.......................................A-13
Section 3.19. Assets......................................................A-13
Section 3.20. Opinion of Financial Advisor................................A-14
Section 3.21. Transactions with Affiliates................................A-14
Section 3.22. Pooling; Tax Treatment......................................A-14
Section 3.23. Pooling Letter..............................................A-14
Section 3.24. Takeover Statutes...........................................A-14
Section 3.25. Affiliates..................................................A-15
ARTICLE 4
Representations and Warranties of Parent
Section 4.1. Organization and Power......................................A-15
Section 4.2. Corporate Authorization.....................................A-15
Section 4.3. Governmental Authorization..................................A-15
Section 4.4. Non-contravention...........................................A-16
Section 4.5. Capitalization of Parent....................................A-16
Section 4.6. Capitalization of Subsidiaries..............................A-16
Section 4.7. SEC Filings.................................................A-17
Section 4.8. Financial Statements........................................A-17
Section 4.9. Disclosure Documents........................................A-17
Section 4.10. Information Supplied........................................A-17
Section 4.11. Absence of Certain Changes..................................A-18
Section 4.12. No Undisclosed Material Liabilities.........................A-19
Section 4.13. Litigation..................................................A-19
Section 4.14. Taxes.......................................................A-19
Section 4.15. Employee Benefits, ERISA....................................A-20
Section 4.16. Compliance with Laws; No Default; No Non-Competes...........A-20
Section 4.17. Finders' Fees...............................................A-21
Section 4.18. Environmental Matters.......................................A-21
Section 4.19. Assets......................................................A-21
Section 4.20. Accounting Matters..........................................A-22
Section 4.21. Pooling Letter..............................................A-22
Section 4.22. Takeover Statutes...........................................A-22
Section 4.23. Merger Subsidiary...........................................A-22
ARTICLE 5
Covenants
Section 5.1. Conduct of Company..........................................A-22
Section 5.2. Conduct of Parent...........................................A-24
Section 5.3. Stockholder Meeting; Proxy Materials; Form S-4..............A-25
Section 5.4. Access to Information.......................................A-25
Section 5.5. No Solicitation.............................................A-26
Section 5.6. Notices of Certain Events...................................A-27
Section 5.7. Reasonable Best Efforts.....................................A-27
Section 5.8. Cooperation.................................................A-27
Section 5.9. Public Announcements........................................A-28
Section 5.10. Further Assurances..........................................A-28
Section 5.11. Affiliates; Registration Rights.............................A-28
Section 5.12. Director and Officer Liability..............................A-28
Section 5.13. Obligations of Merger Subsidiary............................A-29
Section 5.14. Listing of Stock............................................A-29
Section 5.15. Antitakeover Statutes.......................................A-29
Section 5.16. Tax and Accounting Treatment................................A-29
Section 5.17. Employee Benefits...........................................A-29
Section 5.18. Parent Board of Directors...................................A-30
Section 5.19. Combined Financial Results..................................A-30
Section 5.20. Charitable Commitment.......................................A-30
Section 5.21. Parent's Registration Rights................................A-30
ARTICLE 6
Conditions to the Merger
Section 6.1. Conditions to the Obligations of Each Party.................A-31
Section 6.2. Conditions to the Obligations of Parent and Merger
Subsidiary..................................................A-31
Section 6.3. Conditions to the Obligations of Company....................A-32
ARTICLE 7
Termination
Section 7.1. Termination.................................................A-32
Section 7.2. Effect of Termination.......................................A-33
ARTICLE 8
Miscellaneous
Section 8.1. Notices.....................................................A-33
Section 8.2. Entire Agreement; Non-survival of Representations and
Warranties; Third Party Beneficiaries.......................A-34
Section 8.3. Amendments; No Waivers......................................A-35
Section 8.4. Expenses....................................................A-35
Section 8.5. Successors and Assigns......................................A-35
Section 8.6. Governing Law...............................................A-35
Section 8.7. Jurisdiction................................................A-36
Section 8.8. Counterparts; Effectiveness.................................A-36
Section 8.9. Interpretation..............................................A-36
Section 8.10. Severability................................................A-36
Section 8.11. Specific Performance........................................A-36
Section 8.12. Joint and Several Liability.................................A-36
Schedules
Exhibit A Option and Voting Agreement
Exhibit B Registration Rights Agreement
Exhibit C-1 Affiliate's Letter Relating to Pooling (Company)
Exhibit C-2 Affiliate's Letter Relating to Pooling (Parent)
Exhibit C-3 Affiliate's Letter (Company)
Exhibit D Form of Tax Certificate (Parent)
Exhibit E Form of Tax Certificate (Company)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 8, 1998*
among CVS Corporation, a Delaware corporation ("Parent"), Arbor Drugs,
Inc., a Michigan corporation ("Company"), and Red Acquisition, Inc., a
Michigan corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary").
______________
*Text reflects the First Amendment dated as of March 2, 1998 to Agreement
and Plan of Merger, but the Agreement and Plan of Merger dated as of
February 8, 1998 has not been amended and restated.
WHEREAS, the respective Boards of Directors of Parent and
Company have approved, and deem it advisable and in the best interests of
their respective stockholders to consummate, the acquisition of Company by
Parent on the terms and conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger contemplated by this Agreement qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations
promulgated thereunder;
WHEREAS, for accounting purposes, it is intended that the
Merger be accounted for as a pooling of interests under United States
generally accepted accounting principles ("GAAP"); and
WHEREAS, as a condition and inducement to Parent entering into
this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, Parent is entering into an
Option and Voting Agreement with certain stockholders of Company ("Selling
Stockholders") in the form of Exhibit A hereto (the "Option Agreement")
pursuant to which, among other things, each Selling Stockholder has agreed (i)
under certain circumstances to sell the shares of Company Common Stock owned by
such Selling Stockholder to Parent and (ii) to vote the shares of Company
Common Stock owned by such Selling Stockholder in favor of this Agreement and
the Merger provided for herein;
NOW, THEREFORE, in consideration of the promises and the
respective representations, warranties, covenants, and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE 1
The Merger
Section 1.1. The Merger. (a) Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as
hereinafter defined), Merger Subsidiary shall be merged (the "Merger") with
and into Company in accordance with the Michigan Business Corporation Act (the
"Michigan Law"), whereupon the separate existence of Merger Subsidiary shall
cease, and Company shall continue as the surviving corporation (the "Surviving
Corporation").
(b) Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date (the "Closing Date") which shall be no later than the
second business day after satisfaction of the conditions set forth in
Article 6, other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction of those
conditions at the Closing, at the offices of Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, unless another time, date or
place is agreed to in writing by the parties
hereto.
(c) Upon the Closing, Company and Merger Subsidiary will
file a certificate of merger with the Michigan Department of Consumer and
Industry Services and make all other filings or recordings required by
Michigan Law in connection with the Merger. The Merger shall become
effective at such time as the certificate of merger is duly filed with the
Michigan Department of Consumer and Industry Services or at such later time
as is agreed by Parent and Company and specified in the certificate of
merger (the "Effective Time").
(d) The Merger shall have the effects set forth in Section
450.1724 of the Michigan Law.
Section 1.2. Conversion of Shares. (a) At the Effective Time:
(i) each share of Common Stock, par value $0.01
per share, of Company ("Company Common Stock") owned by
Parent or any Subsidiary (as hereinafter defined) of Parent
immediately prior to the Effective Time shall be canceled,
and no Parent Common Stock or other consideration shall be
delivered in exchange therefor;
(ii) each share of common stock of Merger
Subsidiary ("Merger Subsidiary Common Stock") outstanding
immediately prior to the Effective Time shall be converted
into and become one share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares
of capital stock of the Surviving Corporation; and
(iii) each share (each, a "Share" and collectively,
the "Shares") of Company Common Stock outstanding
immediately prior to the Effective Time shall, except as
otherwise provided in Section 1.02(a)(i), be converted into
the right to receive the number of shares of fully paid and
non-assessable Common Stock, par value $0.01 per share
("Parent Common Stock"), of Parent equal to that number (the
"Exchange Ratio") (rounded to the nearest ten-thousandth)
determined by dividing $23 by the Parent Average Closing
Price; provided that the Exchange Ratio (x) shall not be
less than 0.3182 and (y) shall not exceed 0.3660 ((x) and
(y) being referred to as "Collars").
For purposes of this Agreement, "Parent Average Closing Price"
means the average closing price per share of the Parent Common Stock on the
New York Stock Exchange, Inc. (the "NYSE") for the Random Trading Days and
"Random Trading Days" means the ten trading days selected by lot out of the
twenty trading days ending on and including the fifth trading day preceding
the date of the Company Stockholders Meeting (with the Random Trading Days
selected by lot by Parent and Company at 5:00 p.m. New York time on the fifth
trading day prior to the date of the Company Stockholders Meeting).
(b) From and after the Effective Time, all Shares converted in
accordance with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration (as hereinafter defined) and any dividends payable pursuant to
Section 1.03(f). From and after the Effective Time, all certificates
representing the common stock of Merger Subsidiary shall be deemed for all
purposes to represent the number of shares of common stock of the Surviving
Corporation into which they were converted in accordance with Section
1.02(a)(ii).
(c) The Parent Common Stock to be received as consideration
pursuant to the Merger by each holder of Shares (together with cash in lieu
of fractional shares of Parent Common Stock as specified below) is referred
to herein as the "Merger Consideration".
(d) For purposes of this Agreement, the word "Subsidiary"
when used with respect to any Person means any other Person, whether
incorporated or unincorporated, of which a majority of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions
with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries. For purposes of this Agreement, "Person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including a
Governmental Authority (as hereinafter defined).
Section 1.3. Surrender and Payment. (a) Prior to the
Effective Time, Parent shall appoint an agent reasonably acceptable to Company
(the "Exchange Agent") for the purpose of exchanging certificates representing
Shares for the Merger Consideration. Immediately following the Effective Time,
Parent shall deposit with the Exchange Agent, for the benefit of the holders
of shares of Company Common Stock, certificates representing the Parent Common
Stock issuable pursuant to Section 1.02 in exchange for outstanding shares of
Company Common Stock. Promptly after the Effective Time, Parent will send, or
will cause the Exchange Agent to send, to each holder of Shares at the
Effective Time (i) a letter of transmittal for use in such exchange (which
shall specify that delivery of the Merger Consideration shall be effected, and
risk of loss and title to the certificates representing Parent Common Stock
and Company Common Stock shall pass, only upon proper delivery of the
certificates representing Shares to the Exchange Agent) and (ii) instructions
for use in effecting the surrender of the certificates representing Shares in
exchange for the certificates representing Parent Common Stock.
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates representing such Shares, together
with a properly completed letter of transmittal covering such Shares, will
be entitled to receive the Merger Consideration payable in respect of such
Shares and any dividends payable pursuant to Section 1.03(f). Until so
surrendered, each such certificate shall, after the Effective Time,
represent for all purposes only the right to receive the Merger
Consideration and any dividends payable pursuant to Section 1.03(f).
(c) If any portion of the Merger Consideration is to be
paid to a Person other than the registered holder of the Shares represented
by the certificate or certificates surrendered in exchange therefor, it
shall be a condition to such payment that the certificate or certificates
so surrendered shall be properly endorsed or otherwise be in proper form
for transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a Person other than the registered
holder of such Shares represented by the certificate or certificates so
surrendered or establish to the satisfactionTax Consequences of the
Exchange Agent that
such tax has been paid or is not applicable.
(d) After the Effective Time, there shall be no further
registrationOffer..................................29
Plan of transfers of Shares. If, after the Effective Time,
certificates representing Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this
Article 1.
(e) Any portion of the Merger Consideration made available
to the Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by
the holders of Shares six months after the Effective Time shall be returned
to Parent, upon demand, and any such holder who has not exchanged his
Shares for the Merger Consideration in accordance with this Section 1.03
prior to that time shall thereafter look only to Parent for payment of the
Merger Consideration and any dividends payable pursuant to Section 1.03(f)
in respect of his Shares. Notwithstanding the foregoing, Parent shall not
be liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property laws. Any amounts remaining
unclaimed by holders of Shares seven years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental Authority)
shall, to the extent permitted by applicable law, become the property of
Parent free and clear of any claims or interest of any Person previously
entitled thereto.
(f) No dividends or other distributions with respect to
Parent Common Stock issued in the Merger shall be paid to the holder of any
unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.03. Subject to the effect of
applicable laws, following the surrender of such certificates, there shall
be paid, without interest, to the record holder of the Parent Common Stock
issued in exchange therefor at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time payable prior to or on the date of such surrender with respect to such
whole shares of Parent Common Stock and not previously paid, less the
amount of any withholding taxes which may be required thereon.
Section 1.4. Stock Options. (a) As soon as practicable
following the date of this Agreement, Parent and Company (or, if appropriate,
any committee of the Board of Directors of Company administering Company's
Amended and Restated Stock Option Plan and 1996 Stock Option Plan
(collectively, the "Company Option Plans") shall take such action as may be
required to effect the following provisions of this Section 1.04(a). The
terms of each outstanding option granted by Company to purchase shares of
Company Common Stock under the Company Option Plans (a "Company Stock
Option"), whether vested or unvested, shall be adjusted as necessary to
provide that at the Effective Time, each Company Stock Option outstanding
immediately prior to the Effective Time shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option (after giving effect to the existing provisions in
the Company Option Plans or related option agreements that provide for the
automatic acceleration of vesting upon consummation of a change of control of
Company), the same number of shares of Parent Common Stock as the holder of
such Company Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Company Stock Option in full immediately
prior to the Effective Time (assuming for this purpose that such option were
then exercisable), at a price per share of Parent Common Stock equal to (A)
the aggregate exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Company Stock option divided by (B) the aggregate
number of shares of Parent Common Stock deemed purchasable pursuant to such
Company Stock Option (each, as so adjusted, an "Adjusted Option"); provided
that (after aggregating all the Shares of a holder subject to Company Stock
Options) any fractional share of Parent Common Stock resulting from such
calculation for such holder shall be rounded down to the nearest whole share;
and provided further that, in the case of any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422 through 424 of the Code ("qualified stock options"), the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such Adjusted Option shall be determined in such
manner so as to comply with Section 424 of the Code. Upon exercise of an
Adjusted Option, a cash payment shall be made to the holder of such Adjusted
Option for the fractional share of Parent Common Stock referred to in the
preceding sentence. For purposes of determining the amount of such payment
the price of the Parent Common Stock shall be the average closing price per
share of the Parent Common Stock on the NYSE for the five trading days
immediately prior to the date of exercise.
(b) As soon as practicable after the Effective Time, Parent
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the respective Company
Option Plans and that such Company Stock Options and agreements shall be
assumed by Parent and shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 1.04 after
giving effect to the Merger).
(c) Parent shall take such actions as are necessary for the
assumption of the Company Option Plans pursuant to this Section 1.04,
including the reservation, issuance and listing of Parent Common Stock as
is necessary to effectuate the transactions contemplated by this Section
1.04. Parent shall prepare and file with the SEC (as hereinafter defined)
a registration statement on Form S-8 or other appropriate form with respect
to shares of Parent Common Stock subject to Company Stock Options issued
under such Company Option Plans and shall use its reasonable best efforts
to have such registration statement declared effective as soon as
practicable following the Effective Time and to maintain the effectiveness
of such registration statement or registration statements covering such
Company Stock Options (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Company Stock Options
remain outstanding. With respect to those individuals, if any, who
subsequent to the Effective Time will be subject to the reporting
requirements under Section 16(a) of the 1934 Act (as hereinafter defined),
where applicable, Parent shall use all reasonable efforts to administer the
Company Option Plans assumed pursuant to this Section 1.04 in a manner that
complies with Rule 16b-3 promulgated under the 1934 Act to the extent the
applicable Company Option Plan complied with such rule prior to the Merger.
Section 1.5. Fractional Shares. (a) No fractional shares of
Parent Common Stock shall be issued in the Merger, but in lieu thereof each
holder of Shares otherwise entitled to a fractional share of Parent Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.05, a cash payment in lieu of such fractional
shares of Parent Common Stock representing such holder's proportionate
interest, if any, in the net proceeds from the sale by the Exchange Agent in
one or more transactions of the number of shares of Parent Common Stock
delivered to the Exchange Agent by Parent pursuant to Section 1.03(a) over
the aggregate number of whole shares of Parent Common Stock to be distributed
to the holders of the certificates representing Shares pursuant to Section
1.03(b) (such excess being herein called the "Excess Shares"). The parties
acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting problems that would otherwise be caused by the issuance of
fractional shares. As soon as practicable after the Effective Time, the
Exchange Agent, as agent for the holders of the certificates representing
Shares, shall sell the Excess Shares at then prevailing prices on the NYSE in
the manner provided in the following paragraph.
(b) The sale of the Excess Shares by the Exchange Agent
shall be executed on the NYSE through one or more member firms of the NYSE
and shall be executed in round lots to the extent practicable. The
proceeds from such sale or sales available for distribution to the holders
of Shares shall be reduced by the compensation payable to the Exchange
Agent and the expenses incurred by the Exchange Agent, in each case, in
connection with such sale or sales of the Excess Shares, including all
related commissions, transfer taxes and other out-of-pocket transaction
costs. Until the net proceeds of such sale or sales have been distributed
to the holders of Shares, the Exchange Agent shall hold such net proceeds
in trust for the holders of Shares (the "Common Shares Trust"). The
Exchange Agent shall determine the portion of the Common Shares Trust to
which each holder of Shares shall be entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Common Shares Trust by
a fraction, the numerator of which is the amount of the fractional share
interest to which such holder of Shares would otherwise be entitled and the
denominator of which is the aggregate amount of fractional share interests
to which all holders of Shares would otherwise be entitled.
(c) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Shares in lieu of any
fractional shares of Parent Common Stock, the Exchange Agent shall make
available such amounts to such holders of Shares without interest.
Section 1.6. Adjustments. In the event of any split,
combination or reclassification of the outstanding Parent Common Stock or any
issuance of any other securities in exchange or in substitution for outstanding
shares of Parent Common Stock at any time during the period from the date of
this Agreement to the Effective Time, Company and Parent shall make such
adjustment to the Exchange Ratio and the Collars as Company and Parent shall
mutually agree so as to preserve the economic benefits that Company and Parent
each reasonably expected on the date of this Agreement to receive as a result
of the consummation of the Merger and the other transactions contemplated by
this Agreement.
ARTICLE 2
The Surviving Corporation
Section 2.1. Articles of Incorporation. The articles of
incorporation of Merger Subsidiary shall be the articles of incorporation of
the Surviving Corporation until amended in accordance with applicable law.
Section 2.2. Bylaws. The bylaws of Merger Subsidiary in
effect at the Effective Time shall be the bylaws of the Surviving Corporation
until amended in accordance with applicable law.
Section 2.3. Directors and Officers. From and after the
Effective Time, until successors are duly elected or appointed and qualified
in accordance with the Michigan Law and the articles of incorporation and
bylaws of the Surviving Corporation, (a) the directors of Merger Subsidiary at
the Effective Time shall be the directors of the Surviving Corporation, and
(b) the officers of Merger Subsidiary at the Effective Time shall be the
officers of the Surviving Corporation.
ARTICLE 3
Representations and Warranties of Company
Company represents and warrants to Parent that:
Section 3.1. Organization and Power. Each of Company and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, and has the requisite corporate or other
power and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Each of Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on Company. For purposes of this Agreement, a
"Material Adverse Effect" with respect to any Person means a material adverse
effect (i) on the condition (financial or otherwise), business, liabilities,
properties, assets or results of operations of such Person and its
Subsidiaries, taken as a whole, or (ii) on the ability of such Person to
perform its obligations under or to consummate the transactions contemplated
by this Agreement. Schedule 3.01 sets forth a complete list of Company's
Subsidiaries that are "significant subsidiaries", as such term is defined in
Section 1-02 of Regulation S-X under the 1934 Act (each, a "Significant
Subsidiary"). Company has heretofore delivered to Parent true and complete
copies of Company's articles of incorporation and bylaws as currently in
effect.
Section 3.2. Corporate Authorization. The execution, delivery
and performance by Company of this Agreement and the consummation by Company
of the transactions contemplated hereby are within Company's corporate powers
and, except as set forth in the next succeeding sentence of this Section 3.02,
have been duly authorized by all necessary corporate action. The affirmative
vote of a majority of the outstanding Shares is the only vote of any class or
series of Company's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated by this Agreement. This Agreement
has been duly executed and delivered by Company and constitutes a valid and
binding agreement of Company, enforceable against Company in accordance with
its terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, regardless of whether in a proceeding at equity or at law).
Section 3.3. Governmental Authorization. The execution,
delivery and performance by Company of this Agreement, and the consummation by
Company of the transactions contemplated hereby, require no action by or in
respect of, or filing with, any federal, state or local government or any
court, administrative agency or commission or other governmental agency or
authority (a "Governmental Authority") other than (a) the filing of a
certificate of merger with respect to the Merger with the Michigan Department
of Consumer and Industry Services and appropriate documents with the relevant
authorities of other states in which Company is qualified to do business; (b)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (c) compliance with any
applicable requirements of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "1933 Act"); (d) compliance
with any applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "1934
Act"); (e) compliance with any other applicable securities laws; (f) those
that may be required solely by reason of Parent's or Merger Subsidiary's (as
opposed to any other third party's) participation in the transactions
contemplated by this Agreement; (g) the approval of the relevant pharmacy
board, alcoholic beverage commission and lottery commission in Michigan; (h)
actions or filings which, if not taken or made, would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Company; and (i) filings and notices not required to be made or given until
after the Effective Time.
Section 3.4. Non-contravention. Except as set forth on
Schedule 3.04, the execution, delivery and performance by Company of this
Agreement do not, and the consummation by Company of the transactions
contemplated hereby will not (a) assuming receipt of the approval of
stockholders referred to in Section 3.02, contravene or conflict with the
articles of incorporation, bylaws or similar organizational documents of
Company or any of its Significant Subsidiaries, (b) assuming compliance with
the matters referred to in Section 3.03, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Company or any
Subsidiary of Company, (c) constitute a default (or an event which with
notice, the lapse of time or both would become a default) under or give rise to
a right of termination, cancellation or acceleration of any right or
obligation of Company or any Subsidiary of Company or to a loss of any benefit
to which Company or any Subsidiary of Company is entitled under any provision
of any agreement, contract or other instrument binding upon Company or any
Subsidiary of Company and which either has a term of more than one year or
involves the payment or receipt of money in excess of $250,000 (a "Company
Agreement") or any license, franchise, permit or other similar authorization
held by Company or any Subsidiary of Company, or (d) result in the creation or
imposition of any Lien on any asset of Company or any Subsidiary of Company,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, losses
or Liens referred to in clause (c) or (d) that would not, individually or in
the aggregate, have a Material Adverse Effect on Company. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset.
Section 3.5. Capitalization of Company. (a) The authorized
capital stock of Company consists of 100,000,000 shares of Company Common
Stock and 2,000,000 shares of Preferred Stock, par value $.01 per share (the
"Company Preferred Stock"). As of the close of business on January 31, 1998,
59,363,555 shares of Company Common Stock are issued and outstanding, no
shares of Company Common Stock are reserved for issuance under Company's
401(k) Savings Plan, 750,000 shares of Company Common Stock are reserved for
issuance under Company's Employee Stock Purchase Plan, 8,352,195 shares of
Company Common Stock are reserved for issuance pursuant to options previously
granted pursuant to the Company Stock Option Plans and no shares of the
Company Preferred Stock are issued or outstanding. All holders of Company
Common Stock as of the record date will be entitled to vote with respect to
the Merger. All the outstanding shares of Company's capital stock are, and
all shares which may be issued pursuant to the Company Option Plans will be,
when issued in accordance with the respective terms thereof, duly authorized,
validly issued, fully paid and non-assessable. Except (i) as set forth in this
Section 3.05 or in Schedule 5.01, (ii) for the transactions contemplated by
this Agreement, including those permitted in accordance with Section 5.01(f),
(iii) for changes since January 31, 1998 resulting from the exercise of
employee and director stock options outstanding on such date and (iv) for
Shares that may be issued as provided in Section 5.01(f), there are
outstanding (x) no shares of capital stock or other voting securities of
Company, (y) no securities of Company convertible into or exchangeable for
shares of capital stock or voting securities of Company, and (z) no options,
warrants or other rights to acquire from Company, and no preemptive or similar
rights, subscriptions or other rights, convertible securities, agreements,
arrangements or commitments of any character, relating to the capital stock of
Company, obligating Company to issue, transfer or sell, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Company or obligating Company to grant, extend
or enter into any such option, warrant, subscription or other right,
convertible security, agreement, arrangement or commitment (the items in
clauses (x), (y) and (z) being referred to collectively as the "Company
Securities"). None of Company or its Subsidiaries has any contractual
obligation to redeem, repurchase or otherwise acquire any Company Securities
or any Company Subsidiary Securities (as hereinafter defined), including as a
result of the transactions contemplated by this Agreement. Except as permitted
by this Agreement, the number of shares of Company Common Stock outstanding is
not subject to change prior to the Effective Time. Except as permitted by
this Agreement, following the Merger, neither Company nor any of its
Subsidiaries will have any obligation to issue, transfer or sell any shares of
its capital stock pursuant to any employee benefit plan or otherwise.
(b) There are no voting trusts or other agreements or
understandings to which Company or any Subsidiary of Company is a party
with respect to the voting of the capital stock of Company or any
Subsidiary of Company.
Section 3.6. Capitalization of Subsidiaries. Except as set
forth in Schedule 3.06, all of the outstanding shares of capital stock of, or
other ownership interests in, each Subsidiary of Company, is owned by Company,
directly or indirectly, free and clear of any Lien (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Company or
any Subsidiary of Company convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary of Company, or (ii) options or other rights to acquire from Company
or any Subsidiary of Company, and no other obligation of Company or any
Subsidiary of Company to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable
for, any capital stock, voting securities or ownership interests in, any
Subsidiary of Company (the items in clauses (i) and (ii) being referred to
collectively as the "Company Subsidiary Securities").
Section 3.7. SEC Filings. (a) Company has filed all required
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission (the "SEC") since July 31, 1996 (the "Company SEC
Documents").
(b) As of its filing date, each Company SEC Document filed
pursuant to the 1934 Act did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent that such statements have been
modified or superseded by a later filed Company SEC Document.
(c) Each Company SEC Document that is a registration
statement, as amended or supplemented, if applicable, filed pursuant to the
1933 Act as of the date such registration statement or amendment became
effective did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, except to the extent that such
statements have been modified or superseded by a later filed Company SEC
Document.
Section 3.8. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements
of Company included in Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1997 (the "Company 10-K") and its Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 1997 have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Company and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements). For purposes of this Agreement, "Company Balance Sheet" means the
consolidated balance sheet of Company as of July 31, 1997 set forth in the
Company 10-K and "Company Balance Sheet Date" means July 31, 1997.
Section 3.9. Disclosure Documents. Neither the proxy
statement of Company (the "Company Proxy Statement") to be filed with the SEC
in connection with the Merger, nor any amendment or supplement thereto, will,
at the date the proxy statement or any such amendment or supplement is first
mailed to shareholders of Company or at the time such shareholders vote on the
adoption and approval of this Agreement and the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company
Proxy Statement will, when filed, comply as to form in all material respects
with the requirements of the 1934 Act. No representation or warranty is made
by Company in this Section 3.09 with respect to statements made or
incorporated by reference therein based on information supplied by Parent or
Merger Subsidiary for inclusion or incorporation by reference in the Company
Proxy Statement.
Section 3.10. Information Supplied. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in the Form S-4 (as hereinafter defined) or any amendment or
supplement thereto will, at the time the Form S-4 or any such amendment or
supplement becomes effective under the 1933 Act or at the Effective Time,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
Section 3.11. Absence of Certain Changes. Except as disclosed
in the Company SEC Documents filed prior to the date of this Agreement or as
disclosed in Schedule 3.11, since the Company Balance Sheet Date, Company and
its Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development which, individually
or in the aggregate, has had or would be reasonably likely to have a
Material Adverse Effect on Company, except for general economic changes,
changes that affect the industry of Company or any of its Subsidiaries
generally, and changes in Company's business after the date hereof
attributable solely to the execution of this Agreement or actions taken by
Parent;
(b) except for a dividend payable in Company Common Stock on
the Company Common Stock (all effects of which are reflected in Section
3.05 of this Agreement) and an increase to $.06 per share of the regular
quarterly cash dividend on the Company Common Stock, each as authorized by
the Company's Board of Directors in December 1997, any declaration, setting
aside or payment of any dividend or other distribution with respect to any
shares of capital stock of Company, or any repurchase, redemption or other
acquisition by Company or any Subsidiary of Company of any amount of
outstanding shares of capital stock or other equity securities of, or other
ownership interests in, Company or any Subsidiary of Company;
(c) any amendment of any term of any outstanding security of
Company or any Subsidiary of Company that would increase the obligations of
Company or such Subsidiary under such security;
(d) (x) any incurrence or assumption by Company or any
Subsidiary of Company of any indebtedness for borrowed money other than
under existing credit facilities (or any renewals, replacements or
extensions that do not increase the aggregate commitments thereunder) (A)
in the ordinary course of business consistent with past practices (it being
understood that any indebtedness incurred prior to the date hereof in
respect of capital expenditures disclosed in writing to Parent shall be
considered to have been in the ordinary course of business consistent with
past practice) or (B) in connection with (1) any acquisition or capital
expenditure permitted by Section 5.01 or (2) the transactions contemplated
hereby, or (y) any guarantee, endorsement or other incurrence or assumption
of liability (whether directly, contingently or otherwise) by Company or
any Subsidiary of Company for the obligations of any other Person (other
than any wholly owned Subsidiary of Company), other than in the ordinary
course of business consistent with past practice;
(e) any creation or assumption by Company or any Subsidiary
of Company of any Lien on any material asset of Company or any Subsidiary
of Company other than in the ordinary course of business consistent with
past practices;
(f) any making of any loan, advance or capital contribution
to or investment in any Person by Company or any Subsidiary of Company
other than (i) any acquisition permitted by Section 5.01, (ii) loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries of Company or (iii) loans or advances to employees of Company
or any Subsidiary of Company made in the ordinary course of business
consistent with past practices;
(g) (i) any contract or agreement entered into by Company
or any Subsidiary of Company on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by
Company or any Subsidiary of Company of any contract, license or other
right (including any insurance policy naming it as a beneficiary or a loss
payable payee) that would be reasonably likely to have a Material Adverse
Effect on Company, other than, in the case of (i) and (ii), transactions,
commitments, contracts or agreements in the ordinary course of business
consistent with past practice and those contemplated by this Agreement;
(h) any material change in any method of accounting or
accounting principles or practice by Company or any Subsidiary of Company,
except for any such change required by reason of a change in GAAP; or
(i) except for items permitted by Section 5.17, any (i)
grant of any severance or termination pay to any director, officer or
employee of Company or any of its Subsidiaries, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of Company or any of its Subsidiaries, (iii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of Company or any of
its Subsidiaries other than, in the case of clause (iv) only, increases
prior to the date hereof in compensation, bonus or other benefits payable
to employees of Company or any of its Subsidiaries in the ordinary course
of business consistent with past practice or merit increases in salaries of
employees at regularly scheduled times in customary amounts consistent with
past practices.
Section 3.12. No Undisclosed Material Liabilities. There have
been no liabilities or obligations (whether pursuant to contracts or
otherwise) of any kind whatsoever incurred by Company or any Subsidiary of
Company since the Company Balance Sheet Date, whether accrued, contingent,
absolute, determined, determinable or otherwise, other than:
(a) liabilities or obligations disclosed or provided for in
the Company Balance Sheet or in the notes thereto or in the Company SEC
Documents filed prior to the date hereof;
(b) liabilities or obligations which, individually and in
the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on Company; or
(c) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 3.13. Litigation. Except as disclosed in the Company
SEC Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Company,
threatened against or affecting, Company or any Subsidiary of Company or any
of their respective properties before any Governmental Authority which,
individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on Company.
Section 3.14. Taxes. (a) Company and each of its
Subsidiaries, and each affiliated group (within the meaning of Section 1504 of
the Code) of which Company or any Subsidiary is or has been a member, has
timely filed (or has had timely filed on its behalf) or will file or cause to
be timely filed, all material Tax Returns required by applicable law to be
filed by it prior to or as of the Effective Time, and all such material Tax
Returns are, or will be at the time of filing, true and complete in all
material respects;
(b) Company and each of its Subsidiaries has paid (or has
had paid on its behalf) or, where payment is not yet due, has established
or will timely establish (or has had or will timely have established on its
behalf and for its sole benefit and recourse) an adequate accrual in
accordance with GAAP for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Effective Time;
(c) The federal income Tax Returns of Company and its
Subsidiaries have been examined and settled with the Internal Revenue
Service (the "Service") (or the applicable statutes of limitation for the
assessment of federal income Taxes for such periods have expired) for all
years through 1995;
(d) There are no material Liens or encumbrances for Taxes
on any of the assets of Company or its Subsidiaries (other than for current
Taxes not yet due and payable);
(e) Company and its Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes;
(f) No federal, state, local or foreign audits or
administrative proceedings are presently pending with regard to any
material Taxes or Tax Return of Company or its Subsidiaries and none of
them has received a written notice of any proposed audit or proceeding
regarding any pending audit or proceeding; and
(g) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including income, gross receipts, excise, real
or personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, goods and services, service use, license,
value added, capital, net worth, payroll, profits, franchise, transfer and
recording taxes, fees and charges, and any other taxes, assessment or
similar charges imposed by the Service or any other taxing authority
(whether domestic or foreign including any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)) (a "Taxing Authority"), whether computed on a
separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts, and any joint, several and/or transferee liabilities,
attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments. "Tax Return" shall mean any
report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction (foreign or
domestic) with respect to Taxes, including information returns, any
documents with respect to or accompanying payments of estimated Taxes, or
with respect to or accompanying requests for the extension of time in which
to file any such report, return, document, declaration or other
information.
Section 3.15. Employee Benefit Plans; ERISA. (a) Except as
set forth in Schedule 3.15(a), there are no material employee benefit plans
(including any plans for the benefit of directors or former directors),
arrangements, practices, contracts or agreements (including employment
agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by Company, any of its
Subsidiaries or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Company would be deemed a "controlled group"
within the meaning of Section 4001(a)(14) of ERISA, or with respect to which
Company or any of its Subsidiaries has or may have a liability (the "Company
Benefit Plans"). Except as disclosed in Schedule 3.15(a) (or as otherwise
permitted by this Agreement): (1) neither Company nor any ERISA Affiliate has
any formal plan or commitment, whether legally binding or not, to create any
additional Company Benefit Plan or modify or change any existing Company
Benefit Plan that would affect any employee or terminated employee of Company
or any ERISA Affiliate; and (2) since October 31, 1997, there has been no
change, amendment, modification to, or adoption of, any Company Benefit Plan,
in each case, that has had, or would be reasonably likely to have, a Material
Adverse Effect on Company.
(b) With respect to each Company Benefit Plan, except as
disclosed in Schedule 3.15(b) or as would not, individually or in the
aggregate, have a Material Adverse Effect on Company: (i) if intended to
qualify under Section 401(a), 401(k) or 403(a) of the Code, such plan so
qualifies, and its trust is exempt from taxation under Section 501(a) of
the Code; (ii) such plan has been administered in accordance with its
terms and applicable law; (iii) no breaches of fiduciary duty have
occurred; (iv) no prohibited transaction within the meaning of Section 406
of ERISA has occurred; (v) as of the date of this Agreement, no lien
imposed under the Code or ERISA exists; and (vi) all contributions and
premiums due (including any extensions for such contributions and premiums)
have been made in full.
(c) None of the Company Benefit Plans has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code, whether or not waived.
(d) Except as disclosed in Schedule 3.15(d), neither
Company nor any ERISA Affiliate has incurred any liability under Title IV
of ERISA (including Sections 4063-4064 and 4069 of ERISA) that has not been
satisfied in full except as, individually or in the aggregate, would not
have or would not be reasonably likely to have a Material Adverse Effect on
Company or that has not been reflected on Company's consolidated financial
statements.
(e) With respect to each Company Benefit Plan that is a
"welfare plan" (as defined in Section 3(1) of ERISA), except as
specifically disclosed in Schedule 3.15(e), no such plan provides medical
or death benefits with respect to current or former employees of Company or
any of its Subsidiaries beyond their termination of employment, other than
as may be required under Part 6 of Title I of ERISA and at the expense of
the participant or the participant's beneficiary and except as would not be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Company.
(f) Except with respect to payments under the agreements
and programs specified in Schedule 3.15(f), the consummation of the
transactions contemplated by this Agreement will not entitle any individual
to severance pay or any tax "gross-up" payments with respect to the
imposition of any tax pursuant to Section 4999 of the Code or accelerate
the time of payment or vesting, or increase the amount, of compensation or
benefits due to any individual with respect to any Company Benefit Plan.
(g) Except as disclosed in Schedule 3.15(a), there is no
Company Benefit Plan that is a "multiemployer plan", as such term is
defined in Section 3(37) of ERISA, or which is covered by Section 4063 or
4064 of ERISA.
(h) Schedule 3.15(h) identifies each collective bargaining
agreement to which Company or any of its Significant Subsidiaries is a
party and copies of each such agreement have been furnished to or made
available to Parent. Except as set forth on Schedule 3.15(h), or except as
would not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Company, (i) there is no labor strike, slowdown
or work stoppage or lockout against Company or any of its Significant
Subsidiaries and (ii) there is no unfair labor practice charge or complaint
against or pending before the National Labor Relations Board. As of the
date of this Agreement, there is no representation claim or petition
pending before the National Labor Relations Board and, to the knowledge of
Company, no question concerning representation exists with respect to the
employees of Company or any of its Significant Subsidiaries.
Section 3.16. Compliance with Laws; No Default; No
Non-Competes. (a) Neither Company nor any of its Subsidiaries is in
violation of or, since December 31, 1996, has been in violation of or has
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree, order, writ, injunction, permit or license or other authorization or
approval of any Governmental Authority applicable to its business or
operations, except for violations and failures to comply that have not had and
would not, individually or in the aggregate, be reasonably likely to result in
a Material Adverse Effect on Company.
(b) Each Company Agreement is a valid, binding and enforceable
obligation of Company and in full force and effect, except where the failure
to be valid, binding and enforceable and in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
None of Company or any of its Subsidiaries is in default or violation of any
term, condition or provision of (i) its respective articles of incorporation
or by-laws or similar organizational documents or (ii) except as disclosed in
Schedule 3.16, any Company Agreement and except, in the case of clause (ii)
above for defaults or violations that, individually or in the aggregate, have
not had and would not be reasonably likely to have a Material Adverse Effect on
Company. Company has all permits and licenses (including pharmaceutical and
liquor licenses and permits) necessary to carry on the business being
conducted at each store location, except where the failure to have such permit
or license would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect on Company. Except as disclosed in Schedule
3.16, neither Company nor any Subsidiary of Company is a party to any
agreement that expressly limits the ability of Company or any Subsidiary of
Company to compete in or conduct any line of business or compete with any
Person or in any geographic area or during any period of time except to the
extent that any such limitation would not be reasonably likely to have a
Material Adverse Effect on Company.
Section 3.17. Finders' Fees. Except for Goldman, Sachs & Co.,
a copy of whose engagement agreement has been provided to Parent, no
investment banker, broker, finder, other intermediary or other Person is
entitled to any fee or commission from Company or any Subsidiary of Company
upon consummation of the transactions contemplated by this Agreement.
Section 3.18. Environmental Matters. (a) Except as set forth
in the Company 10-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received
by, no complaint has been filed against, no penalty has been
assessed against, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of
Company or any Subsidiary of Company, is threatened by any
Person against, Company or any Subsidiary of Company with
respect to any matters relating to or arising out of any
Environmental Law which, individually or in the aggregate,
would be reasonably likely to have a Material Adverse Effect
on Company;
(ii) no Hazardous Substance has been discharged,
disposed of, dumped, injected, pumped, deposited, spilled,
leaked, emitted or released at, on or under any property now
or, to the knowledge of Company, previously owned, leased or
operated by Company or any Subsidiary of Company, which
circumstance, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on
Company; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be
reasonably likely to have a Material Adverse Effect on
Company.
(b) For purposes of this Section, the following terms shall
have the meanings set forth below:
(i) "Company" and "Subsidiary of Company" shall
include any entity which is, in whole or in part, a
predecessor of Company or any of its Subsidiaries;
(ii) "Environmental Laws" means any and all
federal, state, local and foreign law (including common
law), treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit, or governmental
restrictions or any agreement with any governmental
authority or other third party, relating to human health and
safety, the environment or to pollutants, contaminants,
wastes or chemicals or toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances,
wastes or materials;
(iii) "Environmental Liabilities" means any and all
liabilities of or relating to Company or any Subsidiary of
Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, which (A)
arise under or relate to matters covered by Environmental
Laws and (B) arise from actions occurring or conditions
existing on or prior to the Effective Time; and
(iv) "Hazardous Substances" means any pollutant,
contaminant, waste or chemical or any toxic, radioactive,
corrosive, reactive or otherwise hazardous substance, waste
or material, or any substance having any constituent
elements displaying any of the foregoing characteristics,
including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance, waste or material regulated
under any Environmental Laws.
Section 3.19. Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds thereto, of Company
and its Subsidiaries, taken as a whole, are sufficient to permit Company and
its Subsidiaries to conduct their business as currently being conducted with
only such exceptions as are not reasonably likely to have a Material Adverse
Effect on Company. All material real property owned by Company and its
Subsidiaries is owned free and clear of all Liens, except (A) those reflected
or reserved against in the latest balance sheet (or notes thereto) of Company
included in the Company SEC Documents filed prior to the date hereof, (B)
taxes and general and special assessments not in default and payable without
penalty or interest, and (C) Liens that do not materially adversely interfere
with any present use of such property.
Section 3.20. Opinion of Financial Advisor. Company has
received the opinion of Goldman, Sachs & Co. to the effect that, as of the
date of such opinion, the Exchange Ratio to be received by the holders of
Shares in connection with the Merger is fair to such holders from a financial
point of view, and such opinion has not been withdrawn.
Section 3.21. Transactions with Affiliates. Except to the
extent disclosed in the Company SEC Documents filed prior to the date hereof
or in Schedule 3.21, since the Company Balance Sheet Date there have been no
transactions, agreements, arrangements or understandings between Company or
its Subsidiaries, on the one hand, and Company's Affiliates (other than its
wholly-owned Subsidiaries) or other Persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the 1933 Act.
For purposes of this Agreement, the term "Affiliate", when used with respect
to any Person, means any other Person directly or indirectly controlling,
controlled by, or under common control with such Person. As used in the
definition of "Affiliate", the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Section 3.22. Pooling; Tax Treatment. (a) The Company
intends that the Merger be accounted for under the "pooling of interests"
method under the requirements of Opinion No. 16 (Business Combinations) of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board, and the rules and
regulations of the SEC.
(b) Neither Company nor any of its Affiliates has taken or
agreed to take any action or is aware of any fact or circumstance that would
prevent the Merger from qualifying (i) for "pooling of interests" accounting
treatment as described in (a) above or (ii) as a reorganization within the
meaning of Section 368 of the Code (a "368 Reorganization").
Section 3.23. Pooling Letter. Company has received a letter
from Coopers & Lybrand LLP dated as of the date hereof and addressed to
Company, a copy of which has been delivered to Parent, stating that Coopers &
Lybrand LLP believes that the acquisition of Company by Parent should be
treated as a "pooling of interests" as described in Section 3.22(a).
Section 3.24. Takeover Statutes. The Board of Directors of
Company has duly and validly approved and taken all corporate action required
to be taken by the Board of Directors for the consummation of the transactions
contemplated by the Merger, this Agreement and the Option Agreement,
including, but not limited to, all actions required to render the provisions
of Section 775 through Section 784 of the Michigan Law restricting business
combinations with "interested shareholders" inapplicable to such transactions
and to provide that none of Parent, Merger Subsidiary or any of their
affiliates shall become an "interested shareholder" upon the execution and
delivery of the Option Agreement or the acquisition of Company Common Stock
pursuant thereto, such that any business combination thereafter proposed among
Parent or Merger Subsidiary or their affiliates and the Company shall be
exempt from the requirements of such Sections. The Company has taken all
action necessary to opt out of Sections 790 through 799 of the Michigan Law in
order to render the provisions of such statutes restricting voting rights of
"control shares" inapplicable to Company Common Stock acquired by Parent,
Merger Subsidiary or their affiliates pursuant to the Merger or the Option
Agreement. No other "fair price", "moratorium", "control share acquisition" or
other similar antitakeover statute or regulation enacted under state or
federal laws in the United States (each, a "Takeover Statute") applicable to
Company or any of its Subsidiaries is applicable to the Merger or the other
transactions contemplated hereby.
Section 3.25. Affiliates. Schedule 3.25 sets forth each
Person who, as of the date hereof, is, to the best of Company's knowledge,
deemed to be an Affiliate of Company.
ARTICLE 4
Representations and Warranties of Parent
Parent represents and warrants to Company that:
Section 4.1. Organization and Power. Each of Parent and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation or organization, and has the requisite corporate or other
power and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Each of Parent and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on Parent. Schedule 4.01 sets forth a complete
list of Parent's Significant Subsidiaries. Parent has delivered to Company
true and complete copies of Parent's and Merger Subsidiary's certificate of
incorporation and bylaws as currently in effect.
Section 4.2. Corporate Authorization. The execution, delivery
and performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action, including by
resolution of the Board of Directors of Parent. This Agreement has been duly
executed and delivered by each of Parent and Merger Subsidiary and constitutes
a valid and binding agreement of each of Parent and Merger Subsidiary,
enforceable against Parent or Merger Subsidiary, as applicable, in accordance
with its terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, regardless of whether in a proceeding at equity or at law). The shares
of Parent Common Stock issued pursuant to the Merger, when issued in
accordance with the terms hereof, will be duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
Section 4.3. Governmental Authorization. The execution,
delivery and performance by Parent and Merger Subsidiary of this Agreement,
and the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby, require no action, by or in respect of, or filing with,
any Governmental Authority other than (a) the filing of a certificate of
merger with respect to the Merger with the Michigan Department of Consumer and
Industry Services and appropriate documents with the relevant authorities of
other states in which Merger Subsidiary is qualified to do business; (b)
compliance with any applicable requirements of the HSR Act; (c) compliance
with any applicable requirements of the 1933 Act; (d) compliance with any
applicable requirements of the 1934 Act; (e) compliance with any other
applicable securities laws; (f) those that may be required solely by reason of
Company's (as opposed to any other third party's) participation in the
transactions contemplated by this Agreement; (g) the approval of the relevant
pharmacy board, alcoholic beverage commission and lottery commission in
Michigan; (h) actions or filings which, if not taken or made, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent; and (i) filings and notices not required to be made
or given until after the Effective Time.
Section 4.4. Non-contravention. Except as set forth on
Schedule 4.04, the execution, delivery and performance by Parent and Merger
Subsidiary of this Agreement do not, and the consummation by Parent and Merger
Subsidiary of the transactions contemplated hereby will not (a) contravene or
conflict with the certificate of incorporation, bylaws or similar
organizational documents of Parent or any of its Subsidiaries, (b) assuming
compliance with the matters referred to in Section 4.03, contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable
to Parent or Merger Subsidiary, (c) constitute a default (or an event which
with notice, the lapse of time or both would become a default) under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of Parent or Merger Subsidiary or to a loss of any benefit to which
Parent or Merger Subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon Parent or Merger Subsidiary and
which either has a term of more than one year or involves the payment or
receipt of money in excess of $1,000,000 (a "Parent Agreement") or any
license, franchise, permit or other similar authorization held by Parent or
Merger Subsidiary, or (d) result in the creation or imposition of any Lien on
any asset of Parent or Merger Subsidiary, except for such contraventions,
conflicts or violations referred to in clause (b) or defaults, rights of
termination, cancellation or acceleration, losses or Liens referred to in
clause (c) or (d) that would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
Section 4.5. Capitalization of Parent. (a) The authorized
capital stock of Parent consists of 300,000,000 shares of Parent Common Stock
(subject to any changes in the capital structure of Parent after the date
hereof and prior to the Effective Date that would cause an appropriate
adjustment pursuant to Section 1.06), 120,619 shares of Cumulative Preferred
Stock, par value $0.01 per share (the "Parent Preferred Stock"), and
50,000,000 shares of Preference Stock, par value $1 per share (the "Parent
ESOP Preference Stock"). As of the close of business on December 31, 1997, (i)
172,802,881 shares of Parent Common Stock are issued and outstanding,
5,680,101 shares of Parent Common Stock are held in Parent's treasury,
6,160,452 shares of Parent Common Stock are reserved for issuance upon
conversion of shares of Parent ESOP Preference Stock, 9,863,709 shares of
Parent Common Stock are reserved for additional grants under option and other
stock-based plans and 5,395,082 shares of Parent Common Stock are reserved for
issuance pursuant to options previously granted pursuant to Parent option
plans, (ii) 5,324,504 shares of Parent ESOP Preference Stock are issued and
outstanding, and (iii) no shares of Parent Preferred Stock are issued or
outstanding. All the outstanding shares of Parent's capital stock are, and all
shares which may be issued pursuant to Parent option plans will be, when
issued in accordance with the respective terms thereof, duly authorized,
validly issued, fully paid and non-assessable. Except as set forth in this
Section 4.05, except for the transactions contemplated by this Agreement
(including those permitted in Section 5.02(d)), and except for changes since
December 31, 1997 resulting from the exercise of employee and director stock
options outstanding on such date, as of the date hereof, there are outstanding
(x) no shares of capital stock or other voting securities of Parent, (y) no
securities of Parent convertible into or exchangeable for shares of capital
stock or voting securities of Parent, and (z) no options, warrants or other
rights to acquire from Parent, and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements,
arrangements or commitments of any character, relating to the capital stock of
Parent, obligating Parent to issue, transfer or sell, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent or obligating Parent to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses (x), (y)
and (z) being referred to collectively as the "Parent Securities"). None of
Parent or its Subsidiaries has any contractual obligation to redeem,
repurchase or otherwise acquire any Parent Securities or any Parent Subsidiary
Securities, including as a result of the transactions contemplated by this
Agreement.
(b) Except for the provisions relating to the voting of
Parent's ESOP Preference Stock by the applicable trustee in accordance with
the instructions of plan participants, there are no voting trusts or other
agreements or understandings to which Parent or any Subsidiary of Parent is
a party with respect to the voting of the capital stock of Parent or any
Subsidiary of Parent.
Section 4.6. Capitalization of Subsidiaries. Except as set
forth in Schedule 4.06, all of the outstanding shares of capital stock of, or
other ownership interests in, each Subsidiary of Parent, is owned by Parent,
directly or indirectly, free and clear of any Lien (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Parent or any
Subsidiary of Parent convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of
Parent, or (ii) options or other rights to acquire from Parent or any
Subsidiary of Parent, and no other obligation of Parent or any Subsidiary of
Parent to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for, any
capital stock, voting securities or ownership interests in, any Subsidiary of
Parent (the items in clauses (i) and (ii) being referred to collectively as
the "Parent Subsidiary Securities"). The authorized capital stock of Merger
Subsidiary consists of 60,000 shares of Merger Subsidiary Common Stock, of
which 100 shares are outstanding. The number of shares of Merger Subsidiary
Common Stock outstanding is not subject to change prior to the Effective Time.
Section 4.7. SEC Filings. (a) Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1996 (the "Parent SEC Documents").
(b) As of its filing date, each Parent SEC Document filed
pursuant to the 1934 Act did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent that such statements have been
modified or superseded by a later filed Parent SEC Document.
(c) Each Parent SEC Document that is a registration
statement, as amended or supplemented, if applicable, filed pursuant to the
1933 Act as of the date such registration statement or amendment became
effective did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, except to the extent that such
statements have been modified or superseded by a later filed Parent SEC
Document.
Section 4.8. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements
of Parent included in Parent's Current Report on Form 8-K (filed on July 17,
1997) for the fiscal year ended December 31, 1996 (the "Parent 8-K") and its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997
have been prepared in accordance with GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of Parent and
its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements). For purposes of this Agreement, "Parent Balance Sheet" means the
consolidated balance sheet of Parent as of December 31, 1996 set forth in the
Parent 8-K.
Section 4.9. Disclosure Documents. (a) The Registration
Statement on Form S-4 of Parent (the "Form S-4") to be filed under the 1933
Act relating to the issuance of Parent Common Stock in the Merger, that may be
required to be filed with the SEC in connection with the issuance of shares of
Parent Common Stock pursuant to the Merger and any amendments or supplements
thereto, will, when filed, subject to the last sentence of Section 4.09(b),
comply as to form in all material respects with the applicable requirements of
the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement
thereto will at the time it becomes effective under the 1933 Act or at the
Effective Time contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. No representation or warranty is
made by Parent in this Section 4.09 with respect to statements made or
incorporated by reference therein based on information supplied by Company
for inclusion or incorporation by reference in the Form S-4.
Section 4.10. Information Supplied. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by
reference in the Company Proxy Statement or any amendment or supplement
thereto will, at the date the Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of Company and at the time
such stockholders vote on the adoption and approval of this Agreement and the
transactions contemplated hereby, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 4.11. Absence of Certain Changes. Except as disclosed
in the Parent SEC Documents filed prior to the date of this Agreement or as
disclosed in Schedule 4.11 and except in connection with the Permitted Parent
Transactions (as hereinafter defined), since September 30, 1997, Parent and
its Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development which, individually
or in the aggregate, has had or would be reasonably likely to have a
Material Adverse Effect on Parent, except for general economic changes and
changes that affect the industry of Parent or any of its Subsidiaries
generally;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of Parent (other than payment of Parent's regular quarterly cash dividend
on Parent Common Stock, payment of required dividends on Parent ESOP
Preference Stock and any other changes in the capital structure of Parent
that would be reflected by an appropriate adjustment pursuant to Section
1.06) or any repurchase, redemption or other acquisition by Parent or any
Subsidiary of Parent of any amount of outstanding shares of capital stock
or other equity securities of, or other ownership interests in, Parent or
any Subsidiary of Parent;
(c) any amendment of any term of any outstanding security of
Parent or any Subsidiary of Parent that would materially increase the
obligations of Parent or such Subsidiary under such security;
(d) (x) any incurrence or assumption by Parent or any
Subsidiary of Parent of any indebtedness for borrowed money other than
under existing credit facilities (or any renewals, replacements or
extensions thereof that do not materially increase the commitments
thereunder except to the extent of the amount required to refinance any
indebtedness for borrowed money of Company and its Subsidiaries as of the
Closing Date) (A) in the ordinary course of business consistent with past
practices (it being understood that any indebtedness incurred prior to the
date hereof in respect of capital expenditures shall be considered to have
been in the ordinary course of business consistent with past practice) or
(B) in connection with the transactions contemplated by this Agreement, or
(y) any guarantee, endorsement or other incurrence or assumption of
liability (whether directly, contingently or otherwise) by Parent or any
Subsidiary of Parent for the obligations of any other Person (other than
any Subsidiary of Parent), other than in the ordinary course of business
consistent with past practice or in connection with obligations of Company
and its Subsidiaries assumed at the Effective Time;
(e) any creation or assumption by Parent or any Subsidiary of
Parent of any Lien on any material asset of Parent or any Subsidiary of Parent
other than in the ordinary course of business consistent with past practices;
(f) any making of any loan, advance or capital contribution
to or material investment in any Person by Parent or any Subsidiary of
Parent other than (i) loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of Parent or (ii) loans or
advances to employees of Parent or any Subsidiary of Parent made in the
ordinary course of business consistent with past practices;
(g) (i) any contract or agreement entered into by Parent or
any Subsidiary of Parent on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by
Parent or any Subsidiary of Parent of any contract, license or other right
(including any insurance policy naming it as a beneficiary or a loss
payable payee) that would be reasonably likely to have a Material Adverse
Effect on Parent, other than, in the case of (i) and (ii), transactions,
commitments, contracts or agreements in the ordinary course of business
consistent with past practice and those contemplated by this Agreement and
other than dispositions of stores acquired in the Revco transaction; or
(h) any material change in any method of accounting or
accounting principles or practice by Parent or any Subsidiary of Parent,
except for any such change required by reason of a change in GAAP.
Section 4.12. No Undisclosed Material Liabilities. There have
been no liabilities or obligations (whether pursuant to contracts or
otherwise) of any kind whatsoever incurred by Parent or any Subsidiary of
Parent since December 31, 1996, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities or obligations (i) disclosed or provided for
in the Parent Balance Sheet or in the notes thereto, (ii) disclosed in the
Parent SEC Documents filed prior to the date hereof or (iii) disclosed in
Schedule 4.12;
(b) liabilities or obligations which, individually and in
the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on Parent; or
(c) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 4.13. Litigation. Except as disclosed in the Parent
SEC Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Parent,
threatened against or affecting, Parent or any Subsidiary of Parent or any of
their respective properties before any Governmental Authority which,
individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on Parent.
Section 4.14. Taxes. (a) Parent and each of its Subsidiaries,
and each affiliated group (within the meaning of Section 1504 of the Code) of
which Company or any Subsidiary is or has been a member, has timely filed (or
has had timely filed on its behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by it prior to
or as of the Effective Time, and all such material Tax Returns are, or will be
at the time of filing, true, correct and complete in all material respects;
(b) Parent and each of its Subsidiaries has paid (or has
had paid on its behalf) or, where payment is not yet due, has established
or will timely establish (or has had or will timely have established on its
behalf and for its sole benefit and recourse) an adequate accrual in
accordance with GAAP for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Effective Time;
(c) The federal income Tax Returns of Parent and its
Subsidiaries have been examined by and settled with the Service (or the
applicable statutes of limitation for the assessment of federal income
Taxes for such periods have expired) for all years through 1990;
(d) There are no material Liens or encumbrances for Taxes
on any of the assets of Parent or its Subsidiaries (other than for current
Taxes not yet due and payable);
(e) Parent and its Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes; and
(f) No federal, state, local or foreign audits or
administrative proceedings are presently pending with regard to any
material Taxes or Tax Return of Parent or its Subsidiaries and none of them
has received a written notice of any proposed audit or proceeding regarding
any pending audit or proceeding.
Section 4.15. Employee Benefits, ERISA. (a) Except as set
forth in Schedule 4.15, there are no material employee benefit plans
(including any plans for the benefit of directors or former directors),
arrangements, practices, contracts or agreements (including employment
agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of ERISA), maintained by Parent,
any of its Subsidiaries or any ERISA Affiliate, that together with Parent
would be deemed a "controlled group" within the meaning of Section 4001(a)(14)
of ERISA, or with respect to which Parent or any of its Subsidiaries has or
may have a liability (the "Parent Benefit Plans"). Since September 30, 1997
there has been no change, amendment, modification to, or adoption of, any
Parent Benefit Plan, in each case, that has had, or would be reasonably likely
to have, a Material Adverse Effect on Parent.
(b) With respect to each Parent Benefit Plan, except as
would not, individually or in the aggregate, have a Material Adverse Effect
on Parent: (i) if intended to qualify under Section 401(a), 401(k) or
403(a) of the Code, such plan so qualifies, and its trust is exempt from
taxation under Section 501(a) of the Code; (ii) such plan has been
administered in accordance with its terms and applicable law; (iii) no
breaches of fiduciary duty have occurred; (iv) no prohibited transaction
within the meaning of Section 406 of ERISA has occurred; (v) as of the
date of this Agreement, no Lien imposed under the Code or ERISA exists; and
(vi) all contributions and premiums due (including any extensions for such
contributions and premiums) have been made in full.
(c) None of the Parent Benefit Plans has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code, whether or not waived.
(d) Neither Parent nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and 4069 of
ERISA) that has not been satisfied in full except as, individually or in
the aggregate, would not have or would not be reasonably likely to have a
Material Adverse Effect on Parent or that has not been reflected on
Parent's consolidated financial statements.
(e) With respect to each Parent Benefit Plan that is a
"welfare plan" (as defined in Section 3(l) of ERISA), no such plan provides
medical or death benefits with respect to current or former employees of
Parent or any of its Subsidiaries beyond their termination of employment,
other than as may be required under Part 6 of Title I of ERISA and at the
expense of the participant or the participant's beneficiary and except as
would not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Parent.
(f) The consummation of the transactions contemplated by
this Agreement will not entitle any individual to severance pay or any tax
"gross-up" payments with respect to the imposition of any tax pursuant to
Section 4999 of the Code or accelerate the time of payment or vesting, or
increase the amount, of compensation or benefits due to any individual with
respect to any Parent Benefit Plan.
(g) Except as set forth in Schedule 4.15(g), there is no
Parent Benefit Plan that is a "multiemployer plan", as such term is defined
in Section 3(37) of ERISA, or which is covered by Section 4063 or 4064 of
ERISA.
(h) Except as set forth in Schedule 4.15(h), neither Parent
nor any of its Significant Subsidiaries is a party to any collective
bargaining agreement. Except as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
Parent, (i) there is no labor strike, slowdown or work stoppage or lockout
against Parent or any of its Significant Subsidiaries and (ii) there is no
unfair labor practice charge or complaint against or pending before the
National Labor Relations Board. As of the date of this Agreement, there is
no representation claim or petition pending before the National Labor
Relations Board and, to the knowledge of Parent, no question concerning
representation exists with respect to the employees of Parent or any of its
Significant Subsidiaries.
Section 4.16. Compliance with Laws; No Default; No
Non-Competes. (a) Neither Parent nor any of its Subsidiaries is in violation
of or, since December 31, 1996, has been in violation of or has failed to
comply with, any statute, law, ordinance, regulation, rule, judgment, decree,
order, writ, injunction, permit or license or other authorization or approval
of any Governmental Authority applicable to its business or operations, except
for violations and failures to comply that would not, individually or in the
aggregate, be reasonably likely to result in a Material Adverse Effect on
Parent.
(b) Each Parent Agreement is a valid, binding and
enforceable obligation of Parent and in full force and effect, except where
the failure to be valid, binding and enforceable and in full force and
effect would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. None of Parent or any of its Subsidiaries is in default
or violation of any term, condition or provision of (i) its respective
certificate of incorporation or by-laws or similar organizational documents
or (ii) any Parent Agreement, except, in the case of clause (ii) above, for
defaults or violations that, individually or in the aggregate, have not had
and would not be reasonably likely to have a Material Adverse Effect on
Parent. Parent has all permits and licenses (including pharmaceutical and
liquor licenses and permits) necessary to carry on the business being
conducted at each store location, except where the failure to have such
permit or license would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect on Parent. Neither
Parent nor any Subsidiary of Parent is a party to any agreement that
expressly limits the ability of Parent or any Subsidiary of Parent to
compete in or conduct any line of business or compete with any Person or in
any geographic area or during any period of time except to the extent that
any such limitation would not be reasonably likely to have a Material
Adverse Effect on Parent after giving effect to the Merger.
Section 4.17. Finders' Fees. Except for Credit Suisse First
Boston Corporation, no investment banker, broker, finder, other intermediary
or other Person is entitled to any fee or commission from Parent or any
Subsidiary of Parent upon consummation of the transactions contemplated by
this Agreement.
Section 4.18. Environmental Matters. (a) Except as set forth
in the Parent 8-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received
by, no complaint has been filed against, no penalty has been
assessed against, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of
Parent or any Subsidiary of Parent, is threatened by any
Person, against Parent or any Subsidiary of Parent with
respect to any matters relating to or arising out of any
Environmental Law which, individually or in the aggregate,
would be reasonably likely to have a Material Adverse Effect
on Parent;
(ii) no Hazardous Substance has been discharged,
disposed of, dumped, injected, pumped, deposited, spilled,
leaked, emitted or released at, on or under any property now
or, to the knowledge of Parent, previously owned, leased or
operated by Parent or any Subsidiary of Parent, which
circumstance, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on
Parent; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be
reasonably likely to have a Material Adverse Effect on
Parent.
(b) For purposes of this Section, capitalized terms used
shall have the meanings assigned to them in Section 3.18(b), except that in
all cases the word "Parent" shall be substituted for the word "Company".
Section 4.19. Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds thereto, of Parent
and its Subsidiaries, taken as a whole, are sufficient to permit Parent and its
Subsidiaries to conduct their business as currently being conducted with only
such exceptions as would not be reasonably likely to have a Material Adverse
Effect on Parent. All material real property owned by Parent and its
Subsidiaries is owned free and clear of all Liens, except (A) those reflected
or reserved against in the latest balance sheet (or notes thereto) of Parent
included in the Parent SEC Documents filed prior to the date hereof, (B) taxes
and general and special assessments not in default and payable without penalty
or interest, (C) Liens disclosed in Schedule 4.19 and (D) Liens that do not
materially adversely interfere with any present use of such property.
Section 4.20. Accounting Matters. Neither Parent nor any of
its Affiliates has taken or agreed to take any action or is aware of any fact
or circumstance that would prevent the Merger from qualifying for "pooling of
interests" accounting treatment as described in Section 3.22(a).
Section 4.21. Pooling Letter. Parent has received a letter
from KPMG Peat Marwick, LLP dated as of the date hereof and addressed to
Parent, a copy of which has been delivered to Company, stating that, as of the
date hereof, based on their best judgment regarding the application of GAAP
and the published rules and regulations of the SEC relative to matters of
accounting for business combinations, no conditions exist which would preclude
Parent from accounting for the Merger as a "pooling of interests".
Section 4.22. Takeover Statutes. To the best of Parent's
knowledge, no Takeover Statute applicable to Parent or any of its Subsidiaries
is applicable to the Merger or the other transactions contemplated hereby.
Section 4.23. Merger Subsidiary. Merger Subsidiary is a
newly-formed wholly-owned Subsidiary of Parent that has engaged in no business
activities other than as specifically contemplated by this Agreement.
ARTICLE 5
Covenants
Section 5.1. Conduct of Company. Company covenants and agrees
that, from the date hereof until the Effective Time, except as expressly
provided otherwise in this Agreement, including Schedules 3.11 and 5.01
hereto, or as reasonably necessary for Company to fulfill its obligations
hereunder, Company and its Subsidiaries shall conduct their business in the
ordinary course consistent with past practice and shall use their best efforts
to preserve intact their business organizations and relationships with
customers, suppliers, creditors and business partners and shall use their
reasonable efforts to keep available the services of their present officers
and employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, without the prior written approval of Parent
(which approval shall not be unreasonably withheld):
(a) Company will not adopt or propose any change in its
articles of incorporation or in its bylaws, other than changes effected to
facilitate the Merger;
(b) Company will not, and will not permit any Subsidiary of
Company to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization of Company or any of its Subsidiaries (other than a
liquidation or dissolution of any Subsidiary or a merger or consolidation
between wholly owned Subsidiaries);
(c) Company will not, and will not permit any Subsidiary of
Company to, make any investment in or acquisition of any business or stores of
any Person or any material amount of assets (other than inventory), except for
(i) acquisitions for cash of drug store businesses comprising not more than
ten stores in any such business acquisition and (ii) any capital expenditure
permitted by Section 5.01(k);
(d) Company will not, and will not permit any Subsidiary of
Company to, sell, lease, license, close, shut down or otherwise dispose of any
assets (other than inventory) or stores, except (i) pursuant to existing
contracts or commitments listed on Schedule 5.01 or (ii) sales or other
dispositions of assets or stores in the ordinary course of business consistent
with past practice;
(e) Company will not, and will not permit any Subsidiary of
Company to, declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock other
than (i) cash dividends payable by Company in an aggregate amount not in
excess of $.06 per share per calendar quarter and (ii) dividends paid by any
Subsidiary of Company to Company or any wholly-owned Subsidiary of Company;
(f) Company will not, and will not permit any Subsidiary of
Company to, issue, sell, transfer, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class or series of Company or its Subsidiaries,
other than (i) issuances pursuant to the exercise of stock-based awards or
options (including under the plans described in Section 3.05(a)) that are
outstanding on the date hereof and are referred to in Section 3.05, (ii)
Shares that may become issuable under Company's Employee Stock Purchase Plan,
(iii) issuances by any Subsidiary of Company to Company or any wholly-owned
Subsidiary of Company, (iv) Shares issuable pursuant to Company's 401(k)
Savings Plan and (v) Shares issuable pursuant to options granted to newly hired
management level employees in accordance with Company's past practices;
(g) Company will not, and will not permit any Subsidiary of
Company to, redeem, purchase or otherwise acquire directly or indirectly any
of Company's capital stock;
(h) Company will not, and will not permit any Subsidiary of
Company to, close, shut down, or otherwise eliminate Company's distribution
center;
(i) Company will not, and will not permit any Subsidiary of
Company to, move the location, close, shut down or otherwise eliminate
Company's headquarters or effect a general staff reduction at such
headquarters;
(j) except in connection with investments or acquisitions
permitted by Section 5.01(c) or 5.01(d), Company will not, and will not permit
any Subsidiary of Company to, (i) enter into (or commit to enter into) any new
lease or (ii) purchase or acquire or enter into any agreement to purchase or
acquire any real estate (except, in the case of clauses (i) and (ii), pursuant
to commitments existing and disclosed to Parent in writing prior to the date
hereof or in the ordinary course of business consistent with past practice);
(k) Company will not, and will not permit any Subsidiary of
Company to, make or commit to make any capital expenditure (including for
store remodelings, store signage and information systems) except for (i)
individual capital expenditure projects or items not exceeding $1,000,000 per
project or item and $5,000,000 in the aggregate in respect of all such items
or projects, (ii) those projects or items committed to prior to the date
hereof and disclosed in writing to Parent on Schedule 5.01, (iii) expenditures
covered under Section 5.01(c) or 5.01(j), and (iv) expenditures pertaining to
the acquisition of drug stores consistent with Section 5.01(c) or the opening
of drug stores in the ordinary course of business consistent with past
practice;
(l) Company will not, and will not permit any Subsidiary of
Company to, change any tax election, change any annual tax accounting period,
change any method of tax accounting, file any amended Tax Return, enter into
any closing agreement, settle any Tax claim or assessment, surrender any right
to claim a Tax refund or consent to any extension or waiver (other than a
reasonable extension or waiver) of the limitations period applicable to any
Tax claim or assessment, if any such action in this clause (1) would have the
effect of materially increasing the aggregate Tax liability for any taxable
year or materially reducing the aggregate Tax assets of Company and its
Subsidiaries, taken as a whole;
(m) Company will not, and will not permit any Subsidiary of
Company to, increase the compensation or benefits of any director, officer or
employee, except for normal increases in the ordinary course of business
consistent with past practice or as required under applicable law or existing
agreement or commitment;
(n) Company will not, and will not permit any Subsidiary of
Company to, agree or commit to do any of the foregoing; and
(o) Company will not, and will not permit any Subsidiary of
Company to take or agree or commit to take any action that would make any
representation and warranty of Company hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time.
Section 5.2. Conduct of Parent. From the date hereof until
the Effective Time, except as expressly provided otherwise in this Agreement,
including Schedule 5.02 hereto, or as reasonably necessary for Parent to
fulfill its obligations hereunder, Parent and its Subsidiaries shall conduct
their business in the ordinary course consistent with past practice and shall
use their best efforts to preserve intact their business organizations and
relationships with customers, suppliers, creditors and business partners and
shall use their reasonable efforts to keep available the services of their
present officers and employees. It is understood that nothing in this
Agreement will restrict any acquisition or disposition by Parent or any of its
Subsidiaries, in one or more transactions, of any drug store or any drug store
or related business (the "Permitted Parent Transactions"). Without limiting
the generality of the foregoing but subject to the preceding sentence, from
the date hereof until the Effective Time, without the prior written approval
of Company (which approval shall not be unreasonably withheld):
(a) Parent will not adopt or propose any change in its
certificate of incorporation or any material change in its bylaws, except
for the creation of a series of preferred stock in connection with the
adoption of a shareholder rights plan or any increase in its authorized
capital stock;
(b) Parent will not, and will not permit any Subsidiary of
Parent to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization of Parent or any of its Subsidiaries (other
than a liquidation or dissolution of any Subsidiary or a merger or
consolidation between wholly owned Subsidiaries);
(c) Parent will not, and will not permit any Subsidiary of
Parent to, issue, sell, transfer, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of capital stock of any class or series of Parent or its
Subsidiaries, other than (u) issuances of shares of Parent Common Stock in
connection with any Permitted Parent Transaction, (v) issuances by any
Subsidiary of Parent to Parent or any wholly-owned Subsidiary of Parent,
(w) preferred stock purchase rights and related preferred stock in
connection with the adoption of a shareholder rights plan, (x) issuances
pursuant to the exercise of stock-based awards or options, including under
the plans described in Section 4.05(a), outstanding on the date hereof or
granted as contemplated in clause (z) below, (y) issuances of shares of
Parent Common Stock upon conversion of shares of Parent ESOP Preference
Stock outstanding on the date hereof, and (z) any grant of options or other
stock based awards in respect of Parent Common Stock to employees or
directors of Parent or any of its Subsidiaries under Parent's employee and
director stock option and other stock-based plans;
(d) Parent will not, and will not permit any Subsidiary of
Parent to, declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock other
than (i) regular quarterly cash dividends on Parent Common Stock, (ii)
required cash dividends on Parent ESOP Preference Stock, (iii) dividends
paid by any Subsidiary of Parent to Parent or any wholly-owned Subsidiary
of Parent and (iv) in connection with any other changes in the capital
structure of Parent that would cause an appropriate adjustment pursuant to
Section 1.06;
(e) Parent will not, and will not permit any Subsidiary of
Parent to, redeem, purchase or otherwise acquire directly or indirectly any
of Parent's capital stock;
(f) Parent will not, and will not permit any Subsidiary of
Parent to, agree or commit to do any of the foregoing; and
(g) Parent will not, and will not permit any Subsidiary of
Parent to take or agree or commit to take any action that would make any
representation and warranty of Parent hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time.
Section 5.3. Stockholder Meeting; Proxy Materials; Form S-4.
(a) Company shall cause a meeting of its shareholders (the "Company
Stockholder Meeting") to be duly called and held as soon as reasonably
practicable after the date of this Agreement for the purpose of voting on the
approval and adoption of this Agreement (the "Company Stockholder Approval").
Except as provided in the next sentence, the Board of Directors of Company
shall recommend approval and adoption of this Agreement by Company's
shareholders. The Board of Directors of Company shall be permitted to (i) not
recommend to Company's shareholders that they give the Company Stockholder
Approval or (ii) withdraw or modify in a manner adverse to Parent its
recommendation to Company's shareholders that they give the Company
Stockholder Approval, only (x) if and to the extent that (i) an unsolicited
bona fide Superior Proposal (as hereinafter defined) from another Person is
pending at such time and (ii) the Board of Directors of the Company by a
majority vote determines in its good faith judgment that it is necessary to so
withdraw or modify its recommendation to comply with its fiduciary duty to
shareholders under applicable law, after receiving the advice of an outside
legal counsel, and (y) if Company, its Subsidiaries and the officers,
directors, employees, investment bankers, consultants and other agents of
Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control complied with their obligations set forth in Section 5.05.
In connection with such shareholder meeting, Company (x) will promptly prepare
and file with the SEC, will use its reasonable best efforts to have cleared by
the SEC and will thereafter mail to its shareholders as promptly as
practicable the Company Proxy Statement and all other proxy materials for such
meeting, (y) will use its reasonable best efforts, subject to the immediately
preceding sentence, to obtain the Company Stockholder Approval and (z) will
otherwise comply with all legal requirements applicable to such meeting.
(b) Subject to the terms and conditions of this Agreement
and unless the Board of Directors of Company shall take any action
permitted by the third sentence of paragraph (a) above, Parent shall (i)
promptly prepare and file with the SEC the Form S-4 with respect to the
Parent Common Stock issuable in connection with the Merger and take any
action required to be taken under applicable state securities laws and the
regulations of the NYSE in connection with such issuance of Parent Common
Stock and (ii) use its reasonable best efforts to have the Form S-4
declared effective under the 1933 Act as promptly as practicable after the
Form S-4 is filed.
Section 5.4. Access to Information. (a) To the extent
permitted by applicable law, from the date hereof until the Effective Time,
Company will give Parent, its counsel, financial advisors, auditors and other
authorized representatives reasonable access during normal business hours to
the offices, properties, books and records of Company and its Subsidiaries,
will furnish to Parent, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct Company's
employees, auditors, counsel and financial advisors to cooperate with Parent
in its investigation of the business of Company and its Subsidiaries; provided
that no investigation pursuant to this Section shall affect any representation
or warranty given by Company to Parent hereunder. The foregoing information
shall be held in confidence to the extent required by, and in accordance with,
the provisions of the letter agreement dated January 27, 1998, executed by
Parent and Goldman, Sachs & Co. on behalf of Company (the "Parent
Confidentiality Agreement").
(b) To the extent permitted by applicable law, from the
date hereof until the Effective Time, Parent will give Company, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties,
books and records of Parent and its Subsidiaries, will furnish to Company,
its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as
such Persons may reasonably request and will instruct Parent's employees,
auditors, counsel and financial advisors to cooperate with Company in its
investigation of the business of Parent and its Subsidiaries; provided that
no investigation pursuant to this Section shall affect any representation
or warranty given by Parent to Company hereunder. Such information shall
be held in confidence to the extent required by, and in accordance with,
the letter agreement concerning the confidentiality obligations of Parent
between Company and Parent (the "Company Confidentiality Agreement").
Section 5.5. No Solicitation. From the date hereof until the
termination hereof, Company will not and will cause its Subsidiaries and the
officers, directors, employees, investment bankers, consultants and other
agents of Company and its Subsidiaries and the Affiliates of Company over
which Company exercises control not to, directly or indirectly, take any
action to solicit, initiate, encourage or facilitate the making of any
Acquisition Proposal or any inquiry with respect thereto or engage in
discussions or negotiations with any Person with respect thereto, or disclose
any non-public information relating to Company or any Subsidiary of Company or
afford access to the properties, books or records of Company or any Subsidiary
of Company to, any Person that has made or is considering making any
Acquisition Proposal; provided that nothing contained in this Section 5.05
shall prevent Company from furnishing non-public information to, or entering
into discussions or negotiations with, any Person in connection with an
unsolicited bona fide Acquisition Proposal received from such Person so long
as prior to furnishing non-public information to, or entering into discussions
or negotiations with, such Person, (i) the Board of Directors of the Company
by a majority vote determines in its good faith judgement that it is necessary
to do so to comply with its fiduciary duty to shareholders under applicable
law, after receiving the advice of an outside legal counsel, and (ii) Company
receives from such Person an executed confidentiality agreement with terms no
less favorable to Company than those contained in the Parent Confidentiality
Agreement. Nothing contained in this Agreement shall prevent the Board of
Directors of Company from complying with Rule 14e-2 under the 1934 Act with
regard to an Acquisition Proposal; provided that the Board of Directors of
Company shall not recommend that the shareholders of Company tender their
shares in connection with a tender offer except to the extent the Board of
Directors of Company by a majority vote determines in its good faith judgment
that such a recommendation is required to comply with the fiduciary duties of
the Board of Directors to shareholders under applicable law, after receiving
the advice of an outside legal counsel. Company will promptly (and in no
event later than 24 hours after receipt of any Acquisition Proposal) notify
(which notice shall be provided orally and in writing and shall identify the
Person making such Acquisition Proposal and set forth the material terms
thereof) Parent after receipt of any Acquisition Proposal, indication that any
Person is considering making an Acquisition Proposal or any request for
nonpublic information relating to Company or any Subsidiary of Company or for
access to the properties, books or records of Company or any Subsidiary of
Company by any Person that may be considering making, or has made, an
Acquisition Proposal. Company will keep Parent fully informed of the status
and material terms of any such Acquisition Proposal or request. In
furtherance and not in limitation of the foregoing, Company shall give Parent
at least 24 hours' advance notice of any information to be supplied to, and at
least 48 hours' advance notice of any agreement to be entered into with, any
Person making such Acquisition Proposal (attaching the most current version of
such agreement to such notice). Company will, and will cause its Subsidiaries
and the officers, directors, employees and other agents of Company and its
Subsidiaries and the Affiliates of Company over which Company exercises
control to, immediately cease and cause to be terminated all discussions and
negotiations, if any, that have taken place prior to the date hereof with any
parties with respect to any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving Company or any Subsidiary of Company or the
acquisition of any equity interest in, or a substantial portion of the assets
of, Company or any Subsidiary of Company, other than the transactions
contemplated by this Agreement and other than an offer for a bona fide de
minimis equity interest, or for an amount of assets not material to Company
and its Subsidiaries taken as a whole, that Company has no reason to believe
would lead to a change of control Company (or to the acquisition of a
substantial portion of the assets of Company and its Subsidiaries). For
purposes of this Agreement, "Superior Proposal" means any bona fide
Acquisition Proposal for a majority or all of the outstanding Shares on terms
that the Board of Directors of Company determines in its good faith judgment
(based on the written advice of a financial advisor of nationally recognized
reputation, taking into account all the terms and conditions of the
Acquisition Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation) are more favorable and provide
greater value to all Company's stockholders than this Agreement and the Merger
taken as a whole.
Section 5.6. Notices of Certain Events. (a) Company and
Parent shall promptly notify each other of:
(i) any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement; and
(ii) any notice or other communication from any
Governmental Authority in connection with the transactions
contemplated by this Agreement.
(b) Company shall promptly notify Parent of any actions,
suits, claims, investigations or proceedings commenced or, to its knowledge
threatened against, relating to or involving or otherwise affecting Company
or any Subsidiary of Company which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 3.13 or which relate to the consummation of the transactions
contemplated by this Agreement.
(c) Parent shall promptly notify Company of any actions,
suits, claims, investigations or proceedings commenced or, to its knowledge
threatened against, relating to or involving or otherwise affecting Parent
or any Subsidiary of Parent which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 4.13 or which relate to the consummation of the transactions
contemplated by this Agreement.
Section 5.7. Reasonable Best Efforts. (a) Subject to the
terms and conditions of this Agreement, each party will use its reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger and the other transactions contemplated
by this Agreement. In furtherance and not in limitation of the foregoing, each
party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within ten business days of
the date hereof and to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and Company shall, in connection with
the efforts referenced in Section 5.07(a) to obtain all requisite approvals
and authorizations for the transactions contemplated by this Agreement
under the HSR Act or any other Antitrust Law, use its reasonable best
efforts to (i) cooperate in all respects with each other in connection with
any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; (ii) keep
the other party informed in all material respects of any material
communication received by such party from, or given by such party to, the
Federal Trade Commission (the "FTC"), the Antitrust Division of the
Department of Justice (the "DOJ") or any other Governmental Authority and
of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the
transactions contemplated hereby; and (iii) permit the other party to
review any material communication given by it to, and consult with each
other in advance of any meeting or conference with, the FTC, the DOJ or any
such other Governmental Authority or, in connection with any proceeding by
a private party, with any other Person. For purposes of this Agreement,
"Antitrust Law" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign, if any, statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that
are designed or intended to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade or lessening
of competition through merger or acquisition.
Section 5.8. Cooperation. Without limiting the generality of
Section 5.07, Parent and Company shall together, or pursuant to an allocation
of responsibility to be agreed between them, coordinate and cooperate in
connection with the preparation of the Company Proxy Statement and the Form
S-4, (ii) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (iv) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Company Proxy
Statement or the Form S-4 and seeking timely to obtain any such actions,
consents, approvals or waivers.
Section 5.9. Public Announcements. So long as this Agreement
is in effect, Parent and Company will consult with each other before issuing
any press release or making any SEC filing or other public statement with
respect to this Agreement or the transactions contemplated hereby or thereby
and, except as may be required by applicable law, court process or any listing
agreement with any national securities exchange, will not issue any such press
release or make any such SEC filing or other public statement prior to such
consultation and providing the other party with a reasonable opportunity to
comment thereon.
Section 5.10. Further Assurances. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of Company or
Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of Company or Merger Subsidiary, any
other actions and things to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets of Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
Section 5.11. Affiliates; Registration Rights. (a) Company
shall use its best efforts to deliver to Parent, within 15 days of the date
hereof, a letter agreement substantially in the form of Exhibit C-1 hereto
executed by each Person listed on Schedule 3.25.
(b) Parent shall use its best efforts to obtain, within 15
days of the date hereof, a letter agreement substantially in the form of
Exhibit C-2 hereto executed by each Person listed on Schedule 5.11.
(c) Prior to the Closing Date, Company shall cause to be
delivered to Parent a letter identifying, to the best of Company's
knowledge, all Persons who are, at the time of the Company Stockholder
Meeting described in Section 5.03(a), deemed to be "affiliates" of Company
for purposes of Rule 145 under the 1933 Act (the "1933 Act Affiliates").
Company shall use its reasonable best efforts to cause each Person who is
so identified as a 1933 Act Affiliate to deliver to Parent on or prior to
the Closing Date a letter agreement substantially in the form of Exhibit C-
3 to this Agreement.
(d) At or prior to the Effective Time, Parent shall enter
into a Registration Rights Agreement in the form attached as Exhibit B
hereto with the Persons named therein, so long as those Persons who are
required to deliver letter agreements under clauses (a) and (c) above have
delivered such letters.
Section 5.12. Director and Officer Liability. Parent agrees
that at all times after the Effective Time, it shall, or shall cause the
Surviving Corporation and its Subsidiaries to indemnify each Person who is
now, or has been at any time prior to the date hereof, a director or officer
of Company or of any Subsidiary of Company, its successors and assigns
(individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent permitted by law, with respect to any claim,
liability, loss, damage, judgment, fine, penalty, amount paid in settlement or
compromise, cost or expense (including reasonable fees and expenses of legal
counsel), whenever asserted or claimed, based in whole or in part on, or
arising in whole or in part out of, any facts or circumstances occurring at or
prior to the Effective Time whether commenced, asserted or claimed before or
after the Effective Time, including liability arising under the 1933 Act, the
1934 Act or state law. In the event of any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense described in the preceding sentence, Parent shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties promptly
after statements are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred. Parent
shall, or shall cause the Surviving Corporation to, maintain in effect for not
less than six years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by Company and its
Subsidiaries on the date hereof (provided that Parent may substitute therefor
policies with reputable and financially sound carriers having at least the
same coverage and amounts thereof and containing terms and conditions which
are no less advantageous to the Persons currently covered by such policies as
insured) with respect to facts or circumstances occurring at or prior to the
Effective Time; provided that if the aggregate annual premiums for such
insurance during such six-year period shall exceed 200% of the per annum rate
of the aggregate premium currently paid by Company and its Subsidiaries for
such insurance on the date of this Agreement, then Parent shall cause the
Surviving Corporation to, and the Surviving Corporation shall, provide the
most advantageous coverage that shall then be available at an annual premium
equal to 200% of such rate. Parent agrees to pay all expenses (including fees
and expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section
5.12. The rights under this Section 5.12 are in addition to rights that an
Indemnified Party may have under the articles of incorporation, bylaws, or
other similar organizational documents of Company or any of its Subsidiaries
or the Michigan Law. The rights under this Section 5.12 shall survive
consummation of the Merger and are expressly intended to benefit each
Indemnified Party.
Section 5.13. Obligations of Merger Subsidiary. Parent will
take all action necessary to cause Merger Subsidiary to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
Section 5.14. Listing of Stock. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in connection
with the Merger to be approved for listing on the NYSE on or prior to the
Closing Date, subject to official notice of issuance.
Section 5.15. Antitakeover Statutes. The Company, regardless
of any termination of this Agreement (other than a termination of this
Agreement pursuant to Section 7.01(a) or 7.01(e) hereof), shall not (a) take
any action which, in the reasonable judgment of Parent, would impede,
interfere with or attempt to discourage the transactions contemplated by this
Agreement or the Option Agreement, (b) amend, revoke, withdraw or modify the
approval of the Merger and the other transactions contemplated hereby so as to
render the restrictions of Section 775 through Section 784 of the Michigan Law
applicable to Parent, Merger Subsidiary or their affiliates, or to any
business combination proposed by any of them before or after, or as the result
of, the execution and delivery of the Option Agreement or the acquisition of
Company Common Stock pursuant thereto, (c) opt in to Section 790 through
Section 799 of the Michigan law, or (d) take action rendering the requirements
of any of the Sections of the Michigan Law referred to in this Section 5.15
inapplicable to any other Person or any business combination between the
Company and any other Person or its affiliates. If any Takeover Statute is or
may become applicable to the Merger, each of Parent and Company shall take
such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger.
Section 5.16. Tax and Accounting Treatment. Each of Parent
and Company shall not take any action and shall not fail to take any action
which action or failure to act would prevent, or would be reasonably likely
to prevent, the Merger from qualifying (A) for "pooling of interests"
accounting treatment or (B) a 368 Reorganization.
Section 5.17. Employee Benefits. (a) Subject to Section
1.04, following the Effective Time, Parent shall, or shall cause the
Surviving Corporation to (i) honor all obligations under employment or
severance agreements of Company or its Subsidiaries and (ii) pay all
benefits accrued through the Effective Time under employee benefit plans,
programs, policies and arrangements of Company or its Subsidiaries in
accordance with the terms thereof. In furtherance and not in limitation of
the foregoing, Parent agrees to provide, or cause the Surviving Corporation
to provide, employees of Company who continue to be employed by the
Surviving Corporation or its Subsidiaries as of the Effective Time
("Continuing Employees") for a period of not less than one year following
the Effective Time (or ending at such earlier time as employment
terminates) with compensation and benefits no less favorable in the
aggregate than the compensation and benefits provided at the Effective Time
to similarly situated Parent employees. In addition to the foregoing, for
a period of one year following the Effective Time, Parent shall, or shall
cause the Surviving Corporation or its Subsidiaries to, establish and
maintain a plan to provide severance and termination benefits to all non-
union employees of Company and its Subsidiaries. If Continuing Employees
are included in any benefit plan (including provision for vacation) of
Parent or its Subsidiaries, the Continuing Employees shall receive credit
for service prior to the Effective Time with the Company and its
Subsidiaries to the same extent such service by employees of Parent or its
Subsidiaries would count for purposes of eligibility, vesting, eligibility
for retirement and benefit accrual. If Continuing Employees are included
in any medical, dental or health plan other than the plan or plans they
participated in as of the Effective Time, any such plans shall not include
pre-existing condition exclusions, except to the extent such exclusions
were applicable under the similar Company Benefit Plan as of the Effective
Time, and shall provide credit for any deductibles and co-payments applied
or made with respect to each Continuing Employee in the calendar year of
the change.
(b) At the Effective Time, Company's Employee Stock
Purchase Plan shall be terminated with the effect that the then current
offering period under such plan will be terminated effective as of the
Effective Time.
(c) Company shall take such action as may be required to
amend its 401(k) Plan in order that after the Effective Time (i) no
additional contributions will be allocated to, nor any amounts from other
investment accounts under its 401(k) Plan transferred to, the Company
Stock Fund and (ii) participants in the Plan are permitted to direct that
amounts in their Company Stock Fund account be transferred to any other
investment fund available under the Company's 401(k) Plan subject to
applicable rules with respect to the frequency of such reallocation. As
soon as practicable after the Effective Time, the Continuing Employees
shall become participants in Parent's 401(k) Plan and the Company's 401(k)
Plan shall be merged with Parent's 401(k) Plan. Until such time,
Continuing Employees shall continue to participate in the Company's 401(k)
Plan, subject to the modifications described in the preceding language of
this paragraph (c).
Section 5.18. Parent Board of Directors. The Board of
Directors of Parent shall take such corporate actions as are necessary to
provide that, effective on the day immediately following the Closing Date,
the individual set forth on Schedule 5.18 shall become a member of the
Board of Directors of Parent.
Section 5.19. Combined Financial Results. Parent covenants
and agrees for the benefit of the Persons specified in Schedules 3.25 and 5.11
that, as promptly as practicable following the Effective Time, and in any
event no later than 40 days after the end of the calendar month in which the
Effective Time occurs, it will publicly release the financial results of
Parent and Company that includes a 30-day period following the Effective Time.
Section 5.20. Charitable Commitment. Parent agrees that for a
period of five years following the Effective Time, Parent will maintain a
charitable commitment within the State of Michigan, such commitment to take
the form of and include contributions, sponsorship of charitable events and
similar activities; provided that Parent shall not be required to expend more
than $600,000 annually in respect of such commitment. Such contributions and
sponsorships shall be under the supervision of a committee of the Parent's
board of directors or any individual designated by such committee.
Section 5.21. Parent's Registration Rights. Company agrees
that it will provide Parent with registration rights with respect to shares of
the Company Common Stock, if any, that are acquired by Parent pursuant to the
Option Agreement. Such registration rights shall be substantially the same as
the registration rights provided by Parent under the Registration Rights
Agreement attached as Exhibit B hereto (treating for that purpose Company as
the Issuer and the Company Common Stock as Registrable Securities thereunder,
and construing the other provisions thereof accordingly).
ARTICLE 6
Conditions to the Merger
Section 6.1. Conditions to the Obligations of Each Party. The
obligations of Company, Parent and Merger Subsidiary to consummate the Merger
are subject to the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of the following conditions:
(a) this Agreement and the transactions contemplated hereby
shall have been approved and adopted by the shareholders of Company in
accordance with the Michigan Law;
(b) any applicable waiting period under the HSR Act relating
to the transactions contemplated by this Agreement shall have expired;
(c) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit or enjoin the
consummation of the Merger;
(d) there shall not be pending any suit, action or
proceeding by any Governmental Authority, (i) seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement, or seeking to obtain from Parent or Company
any damages the amount of which would be reasonably likely to have a
Material Adverse Effect on Company and Parent, taken as a whole, or (ii)
except to the extent consistent with the obligations of Company and Parent
under Section 5.07, seeking to prohibit or limit the ownership or operation
by Company, Parent or any of their respective Subsidiaries of, or to compel
Parent, Company or any of their respective Subsidiaries to dispose of or
hold separate, any material portion of the business or assets of Parent,
Company or any of their respective Subsidiaries, as a result of the Merger
or any of the other transactions contemplated by this Agreement;
(e) the Form S-4 shall have been declared effective under
the 1933 Act and no stop order suspending the effectiveness of the Form S-4
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the SEC;
(f) the shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance; and
(g) (i) Parent shall have received a letter from KPMG Peat
Marwick LLP dated as of the Closing Date and addressed to Parent, stating
that KPMG Peat Marwick LLP believes that the acquisition of Company by
Parent should be treated as a pooling of interests in conformity with GAAP
as described in Accounting Principles Board Opinion No. 16 and applicable
rules and regulations of the SEC and such letter shall not have been
withdrawn or modified in any material respect and (ii) Company shall have
received a letter from Coopers & Lybrand LLP dated as of the Closing Date
and addressed to Company, stating that Coopers & Lybrand LLP believes that
the acquisition of Company by Parent should be treated as a pooling of
interests in conformity with GAAP as described in Accounting Principles
Board Opinion No. 16 and applicable rules and regulations of the SEC and
such letter shall not have been withdrawn or modified in any material
respect.
Section 6.2. Conditions to the Obligations of Parent and
Merger Subsidiary. The obligations of Parent and Merger Subsidiary to
consummate the Merger are subject to the satisfaction (or waiver by Parent) of
the following further conditions:
(a) (i) Company shall have performed in all material
respects all of its obligations and complied in all material respects with
all of its covenants hereunder required to be performed or complied with by
it at or prior to the Effective Time and (ii) the representations and
warranties of Company contained in this Agreement shall be true and correct
in all material respects at and as of the Effective Time, as if made at and
as of such time, except (x) for changes specifically permitted by this
Agreement and (y) those representations and warranties that address matters
only as of a particular date which are true and correct in all material
respects as of such date; and Parent shall have received a certificate
signed by an executive officer of Company to the effect set forth in
clauses (i) and (ii).
Section 6.3. Conditions to the Obligations of Company. The
obligations of Company to consummate the Merger are subject to the
satisfaction (or waiver by Company) of the following further conditions:
(a) (i) Parent shall have performed in all material
respects all of its obligations and complied in all material respects with
all of its covenants hereunder required to be performed or complied with by
it at or prior to the Effective Time and (ii) the representations and
warranties of Parent contained in this Agreement shall be true and correct
in all material respects at and as of the Effective Time, as if made at and
as of such time, except (x) for changes specifically permitted by this
Agreement and (y) those representations and warranties that address matters
only as of a particular date which are true and correct in all material
respects as of such date; and Company shall have received a certificate
signed by an executive officer of Parent to the effect set forth in clauses
(i) and (ii); and
(b) Company shall have received an opinion of Weil, Gotshal
& Manges LLP in form and substance reasonably satisfactory to Company, on
the basis of certain facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts existing at the
Effective Time, substantially to the effect that none of its stockholders
shall recognize gain or loss for U.S. federal income tax purposes on their
exchange of Company Common Stock solely for Parent Common Stock pursuant to
the Merger (other than in respect of any cash paid in lieu of fractional
shares). In rendering the opinions described in the preceding sentence,
such counsel may require and rely upon representations contained in
certificates of officers and principal stockholders of Company, Parent and
their respective Subsidiaries (the certificates substantially in the form
of Exhibits D and E).
ARTICLE 7
Termination
Section 7.1. Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the shareholders of
Company):
(a) by mutual written consent of Company and Parent;
(b) by either Company or Parent,
(i) if the Merger has not been consummated by August
31, 1998 (the "End Date"); or
(ii) if the Company Stockholder Approval shall not have
been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or any
adjournment thereof;
(c) by either Company or Parent (so long as such party has
complied in all material respects with its obligations under Section 5.07),
if consummation of the Merger would violate or be prohibited by any law or
regulation or if any injunction, judgment, order or decree enjoining
Company or Parent from consummating the Merger is entered and such
injunction, judgment, order or decree shall become final and nonappealable;
(d) by Parent, if the Board of Directors of Company shall
have failed to recommend or withdrawn, or modified or changed in a manner
adverse to Parent its approval or recommendation of this Agreement or the
Merger or shall have recommended a Superior Proposal, or Company shall have
entered into a definitive agreement in respect of an Acquisition Proposal
with a Person other than Parent or its Subsidiaries (or the Board of
Directors of Company resolves to do any of the foregoing); and
(e) by Company, if (i) the Board of Directors of Company
authorizes Company, subject to complying with the terms of this Agreement,
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and Company notifies Parent in writing that
it intends to enter into such an agreement, attaching the most current
version of such agreement to such notice, (ii) Parent does not make,
within 48 hours of receipt of the Company's written notification of its
intention to enter into a binding agreement for a Superior Proposal, an
offer that the Board of Directors of Company determines, in good faith
after consultation with its financial advisors, is at least as favorable,
from a financial point of view, to the shareholders of Company as the
Superior Proposal and (iii) Company prior to such termination pursuant to
this clause (e) pays to Parent in immediately available funds the fees
required to be paid pursuant to Section 8.04. Company agrees (x) that it
will not enter into a binding agreement referred to in clause (ii) above
until at least 48 hours after it has provided the notice to Parent required
thereby and (y) to notify Parent promptly if its intention to enter into a
written agreement referred to in its notification shall change at any time
after giving such notification.
The party desiring to terminate this Agreement pursuant to
clauses (b), (c), (d) or (e) of this Section 7.01 shall give written notice of
such termination to the other party in accordance with Section 8.01, specifying
the provision hereof pursuant to which such termination is effected.
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.01 shall not be available to any
party (1) that is in material breach of its obligations hereunder or (2) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement in all material respects has been the cause of, or resulted in, the
failure to satisfy any condition to the obligations of either party hereunder.
Section 7.2. Effect of Termination. If this Agreement is
terminated pursuant to Section 7.01, this Agreement shall become void and of
no effect with no liability on the part of any party hereto, except that (a)
the agreements contained in this Section 7.02, in Section 5.21 and in Section
8.04 and in the Parent Confidentiality Agreement and the Company
Confidentiality Agreement shall survive the termination hereof, except that
nothing in the Company Confidentiality Agreement shall restrict the exercise
by Parent of any of its rights under this Agreement or the Option Agreement or
the transactions contemplated hereby and thereby and (b) no such termination
shall relieve any party of any liability or damages resulting from any willful
material breach by that party of this Agreement.
ARTICLE 8
Miscellaneous
Section 8.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given:
if to Parent, to:Distribution...............................29
Legal Matters......................................29
Experts............................................29
================================================================================
$300,000,000
CVS
Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice Chairman and
Chief Operating Officer
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Dennis S. Hersch, Esq.
if to Company, to:
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Fax: (248) 637-1634
Attention: Eugene Applebaum
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Fax: (212) 310-8007
Attention: Dennis J. Block, Esq.
and
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Fax: (313) 962-0176
Attention: Alan S. Schwartz, Esq.
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section 8.01 and the appropriate telecopy confirmation is received or (b) if
given by any other means, when delivered at the address specified in this
Section 8.01.
Section 8.2. Entire Agreement; Non-survival of Representations
and Warranties; Third Party Beneficiaries. (a) This Agreement (including any
exhibits hereto)[GRAPHIC OMITTED]
5 1/2% Exchange Notes due
February 15, 2004
-------------------
Prospectus
-------------------
, the other agreements referred to in this Agreement and the
Parent Confidentiality Agreement and the Company Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings
and negotiations, both written and oral, between the parties with respect to
such subject matter. None of this Agreement, the Parent Confidentiality
Agreement, the Company Confidentially Agreement or any other agreement
contemplated hereby or thereby (or any provision hereof or thereof) is
intended to confer on any Person other than the parties hereto or thereto any
rights or remedies (except that Article I and Sections 5.12, Section 5.17(a)
and Section 5.19 are intended to confer rights and remedies on the Persons
specified therein).
(b) The representations and warranties contained herein or
in any schedule, instrument or other writing delivered pursuant hereto
shall not survive the Effective Time.
Section 8.3. Amendments; No Waivers. (a) Any provision of
this Agreement may be amended or waived prior to the Effective Time if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Company and Parent or, in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the adoption
of this Agreement by the stockholders of Company, there shall be made no
amendment that by law requires further approval by stockholders without the
further approval of such stockholders
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
Section 8.4. Expenses. (a) Except as otherwise specified in
this Section 8.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
by this Agreement shall be paid by the party incurring such cost or expense.
(b) If:
(x) Company shall terminate this Agreement pursuant
to Section 7.01(e);
(y) Parent shall terminate this Agreement pursuant
to Section 7.01(d), or
(z) either Company or Parent shall terminate this
Agreement pursuant to Section 7.01(b)(ii) in circumstances
where the Company Stockholder Approval has not been obtained
and (1) Company has not complied with its obligation to
recommend the Company Stockholder Approval in accordance
with Section 5.03(a) or (2) prior to the Company Stockholder
Meeting an Acquisition Proposal is made and Company enters
into a definitive agreement in respect of an Acquisition
Proposal with any Person (other than Parent or an Affiliate
of Parent) within twelve months after termination of this
Agreement,
then in any case as described in clause (x), (y) or (z) (each such case of
termination being referred to as a "Trigger Event"), Company shall pay to
Parent (by wire transfer of immediately available funds not later than the
date of termination of this Agreement or, in the case of clause (z)(2), the
date of consummation of the Acquisition Proposal contemplated by such
definitive agreement or, if such definitive agreement contains any conditions
relating to the fee due hereunder, the date of such agreement) an amount equal
to $60 million. Acceptance by Parent of the payment referred to in the
foregoing sentence shall constitute conclusive evidence that this Agreement
has been validly terminated and upon acceptance of payment of such amount
Company shall be fully released and discharged from any liability or
obligation resulting from or under this Agreement.
Section 8.5. Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns; provided that
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Parent may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to any direct or
indirect wholly owned Subsidiary of Parent, it being understood that no such
assignment shall relieve Parent from any of its obligations hereunder.
Section 8.6. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of Michigan (without
regard to principles of conflict of laws).
Section 8.7. Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any Federal court
located in the State of Michigan or any Michigan state court, and each of the
parties hereto hereby consents to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action
or proceeding and waives any objection to venue laid therein. Process in any
such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the State of Michigan. Without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 8.01, together with
written notice of such service to such party, shall be deemed effective
service of process upon such party.
Section 8.8. Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party hereto
shall have received counterparts hereof signed by all of the other parties
hereto.
Section 8.9. Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of or
a Schedule to this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be
deemed to refer to February 8, 1998.
Section 8.10. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. Upon such determination that
any term, provision, covenant or restriction of this Agreement is invalid,
void, unenforceable or against regulatory policy, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the
end that the transactions contemplated hereby are fulfilled to the extent
possible.
Section 8.11. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Michigan or any
Michigan state court, in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.12. Joint and Several Liability. Parent and Merger
Subsidiary hereby agree that they will be jointly and severally liable for all
covenants, agreements, obligations and representations and warranties made by
either of them in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
CVS CORPORATION
By: /s/ Thomas M. Ryan
-------------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
By: /s/ Eugene Applebaum
-------------------------------
Name: Eugene Applebaum
Title: Chairman of the Board and
Chief Executive Officer
RED ACQUISITION, INC.
By: /s/ Charles Conaway
-------------------------------
Name: Charles Conaway
Title: President
EXHIBIT A
TO
ANNEX A
OPTION AND VOTING AGREEMENT
See Annex C.
EXHIBIT B
TO
ANNEX A
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of _________ __, 1998, among CVS Corporation, a
Delaware corporation (the "Issuer"), and the Investors as defined herein.
W I T N E S S E T H:
WHEREAS, this Agreement is being entered into in connection
with the closing under the Merger Agreement referred to below;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises, representations, warranties, covenants and agreements
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. Terms defined in the Agreement and
Plan of Merger dated as of February 8, 1998, among the Issuer, Arbor Drugs,
Inc., a Michigan corporation, and Red Acquisition, Inc., a Michigan
corporation, are used herein as defined therein. In addition, the following
terms, as used herein, shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission or
any successor governmental body or agency.
"Common Stock" means the common stock, par value $.01 per
share, of the Issuer.
"Demand Registration" has the meaning ascribed thereto in
Section 2.02(a)(i).
"Demand Request" has the meaning ascribed thereto in Section
2.02(a).
"Disadvantageous Condition" has the meaning ascribed thereto in
Section 2.04.
"Holder" means a Person who owns Registrable Securities and is
either (i) an Investor or (ii) a Person that (A) has agreed to be bound by the
terms of this Agreement as if such Person were an Investor and (B)(x) is a
Person (1) to whom an Investor has transferred Registrable Securities or (2)
with whom an Investor has entered into an agreement to transfer Registrable
Securities, in each case as part of a transaction pursuant to which derivative
securities relating to such Registrable Securities will be offered for sale by
such Person in a registered public offering or (y) is (1) upon the death of
any individual Investor, the executor of the estate of such Investor or such
Investor's heirs, devisees, legatees or assigns or (2) upon the disability of
any individual Investor, any guardian or conservator of such Investor.
"Investors" means the Persons listed on Schedule I hereto.
"1933 Act" means the Securities Act of 1933, as amended.
"Registrable Securities" means Common Stock acquired by the
Investors pursuant to the Option Agreement or the Merger or pursuant to any
option granted by the Issuer to any Stockholder (and any shares of stock or
other securities into which or for which such Common Stock may hereafter be
changed, converted or exchanged and any other shares or securities issued to
Holders of such Common Stock (or such shares of stock or other securities into
which or for which such shares are so changed, converted or exchanged) upon any
reclassification, share combination, share subdivision, share dividend, share
exchange, merger, consolidation or similar transaction or event). As to any
particular Registrable Securities, such Registrable Securities shall cease to
be Registrable Securities as soon as (i) such Registrable Securities have been
sold or otherwise disposed of pursuant to a registration statement that was
filed with the Commission and declared effective under the 1933 Act, (ii) as
soon as all such Registrable Securities held by a Holder can be sold in a
single transaction pursuant to Rule 144 or Rule 145, or (iii) they shall have
been otherwise sold, transferred or disposed of by a Holder to any Person that
is not a Holder.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with any registration of securities pursuant to
Article II, including, without limitation, (i) the fees, disbursements and
expenses of the Issuer's counsel and accountants (including in connection with
the delivery of opinions and/or comfort letters) in connection with this
Agreement and the performance of the Issuer's obligations hereunder; (ii) all
expenses, including filing fees, in connection with the preparation, printing
and filing of one or more registration statements hereunder; (iii) the cost of
printing or producing any agreements among underwriters, underwriting
agreements, and blue sky or legal investment memoranda; (iv) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the securities to be
disposed of; (v) transfer agents' and registrars' fees and expenses in
connection with such offering; (vi) all security engraving and security
printing expenses; (vii) all fees and expenses payable in connection with the
listing of the Registrable Securities on any securities exchange or automated
interdealer quotation system on which the Common Stock is then listed; and
(viii) all reasonable fees and expenses of one legal counsel for the Holders
in connection with each Demand Registration, which legal counsel shall be
selected by Holders owning a majority of the Registrable Securities then being
registered; provided that Registration Expenses shall exclude (w) any expenses
relating to any action taken by the Issuer in connection with a request under
Section 2.03(a) over and above the expenses that would have been incurred by
the Issuer in connection with an offering of Registrable Securities, (x) all
underwriting discounts and commissions, selling or placement agent or broker
fees and commissions, and transfer taxes, if any, in connection with the sale
of any securities, (y) the fees and expenses of counsel for any Holder (other
than pursuant to clause (viii)) and (z) all costs and expenses of the Issuer
incurred as contemplated in Section 2.06(g).
"Rule 144" means Rule 144 (or any successor rule to similar
effect) promulgated under the 1933 Act.
"Rule 145" means Rule 145 (or any successor rule to similar
effect) promulgated under the 1933 Act.
"Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar
effect) promulgated under the 1933 Act.
"Selling Holder" means any Holder who sells Registrable
Securities pursuant to a public offering registered hereunder.
References in this Agreement to an "underwritten public
offering" of Registrable Securities or "underwritten offering" of Registrable
Securities and words of similar meaning shall include, without limitation, any
offering through underwriters of (i) Registrable Securities or (ii) securities
of a trust or other special purpose vehicle formed for the purpose of
disposing of Registrable Securities, whether the securities described in (i)
and (ii) are offered separately or in conjunction with each other, if in
connection with such offering Registrable Securities are required to be
registered under the 1933 Act; provided that the provisions of this Agreement,
including without limitation Sections 2.05 and 2.08, shall not apply to any
registration of or registration statement relating to such trust or other
special purpose vehicle, except that the indemnity and contribution provisions
of Section 2.08 shall apply to information relating to the Issuer or to the
Registrable Securities in the case of such a registration or registration
statement (but not to the securities of the special purpose vehicle or the
trust or any other matter related to such special purpose vehicle or the
trust).
Section 1.2. Internal References. Unless the context
indicates otherwise, references to Articles, Sections and paragraphs shall
refer to the corresponding Articles, Sections and paragraphs in this Agreement,
and references to the parties shall mean the parties to this Agreement.
ARTICLE 2
Registration Rights
Section 2.1. Demand Registration. (a) Upon written notice to
the Issuer from one or more Holders at any time after the Effective Time (but
not later than the date that is two years after the Effective Time) (a "Demand
Request") requesting that the Issuer effect the registration under the 1933
Act of any or all of the Registrable Securities held by such requesting
Holders, which notice shall specify the intended method or methods of
disposition of such Registrable Securities, the Issuer shall prepare and,
within 60 days after such request (or 20 days in the case of the first such
request), file with the Commission a registration statement with respect to
such Registrable Securities and thereafter use its reasonable best efforts to
cause such registration statement to be declared effective under the 1933 Act
for purposes of dispositions in accordance with the intended method or methods
of disposition stated in such request. Notwithstanding any other provision of
this Agreement to the contrary:
(i) the Holders may collectively exercise their rights to
request registration under this Section 2.01(a) on not more than three
occasions (it being understood that a demand with respect to a two-
tranche contemporaneous offering of Registrable Securities and related
derivative securities shall be deemed to be only one demand) (each
such registration being referred to herein as a "Demand
Registration");
(ii) the Issuer shall not be required to effect a Demand
Registration hereunder unless the aggregate market value of
Registrable Securities to be registered pursuant to such Demand
Registration is equal to or more than $100 million;
(iii) the Holders shall not be permitted to make a request for
a Demand Registration more than once in any six-month period; and
(iv) the method of disposition requested by Holders in
connection with any Demand Registration may not be a Rule 415 Offering
without the Issuer's prior written consent, which consent shall be in the
Issuer's sole discretion.
(b) Notwithstanding any other provision of this Agreement to the
contrary, a Demand Registration requested by Holders pursuant to this Section
2.01 shall not be deemed to have been effected, and, therefore, not requested
and the rights of each Holder shall be deemed not to have been exercised for
purposes of paragraph (a) above, if such Demand Registration has not become
effective under the 1933 Act or if such Demand Registration, after it became
effective under the 1933 Act, was not maintained effective under the 1933 Act
(other than as a result of the request of Holders, or any stop order,
injunction or other order or requirement of the Commission or other government
agency or court solely on the account of a material misrepresentation or
omission of a Holder) for at least 30 days (or such shorter period ending when
all the Registrable Securities covered thereby have been disposed of pursuant
thereto) and, as a result thereof, the Registrable Securities requested to be
registered cannot be distributed in accordance with the plan of distribution
set forth in the related registration statement.
(c) The Issuer shall have the right to cause the registration of
additional equity securities for sale for the account of the Issuer in the
registration of Registrable Securities requested by the Holders pursuant to
Section 2.01(a) above; provided that if such Holders are advised in writing
(with a copy to the Issuer) by the lead or managing underwriter referred to in
Section 2.03(b) that, in such underwriter's good faith view, all or a part of
such Registrable Securities and additional equity securities cannot be sold
and the inclusion of such Registrable Securities and additional equity
securities in such registration would be likely to have an adverse effect on
the price, timing or distribution of the offering and sale of the Registrable
Securities and additional equity securities then contemplated, then Issuer
shall be entitled to include in such registration only such number of
additional equity securities, if any, which, when added to the Registrable
Securities requested by the Holders pursuant to Section 2.01(a) above, would
not exceed the number of securities that can, in the good faith view of such
underwriter, be sold in such offering without so adversely affecting such
offering.
(d) Within 10 days after delivery of a Demand Request by a Holder, the
Issuer shall provide a written notice to each Holder, advising such Holder of
its right to include any or all of the Registrable Securities held by such
Holder for sale pursuant to the Demand Registration and advising such Holder
of procedures to enable such Holder to elect to so include Registrable
Securities for sale in the Demand Registration. Any Holder may, within 10 days
of delivery to such Holder of a notice pursuant to this Section 2.01(d), elect
to so include Registrable Securities in the Demand Registration by written
notice to such effect to the Issuer specifying the number of Registrable
Securities desired to be so included by such Holder.
Section 2.2. Piggyback Registrations. (a) At any time after
the Effective Time (but not later than two years after the Effective Time) if
the Issuer proposes (other than pursuant to a Demand Registration or on Forms
S-4 or S-8 or any successor forms) to register any of its equity securities
under the 1933 Act (whether for the Issuer's own account or for the account of
any other Person), the Issuer will give prompt written notice to all Holders
of its intention to effect such a registration, and such notice shall offer
the Holders the opportunity to register on the same terms and conditions such
number of shares of Registrable Securities as such Holder may request (a
"Piggyback Registration"). The Issuer will include in such registration all
Registrable Securities with respect to which the Issuer has received written
requests for inclusion therein within 10 days after the receipt by such Holder
of the Issuer's notice, subject to the provisions of Section 2.02(b) below;
provided that the Holders may collectively exercise their right to request
Piggyback Registration on not more than three occasions.
(b) If the Issuer is advised in writing (with a copy to the Holders
participating in the Piggyback Registration) by the lead or managing
underwriter that, in such underwriter's good faith view, all or a part of such
Registrable Securities and other equity securities proposed to be sold for the
account of the Issuer or any other Person cannot be sold and the inclusion of
such Registrable Securities and other equity securities in such registration
would be likely to have an adverse effect on the price, timing or distribution
of the offering and sale of the Registrable Securities and other equity
securities then contemplated, then the Issuer will include any securities to
be sold in such registration in the following order: (i) first, the
securities the Issuer proposes to sell for its own account, and (ii) second,
the Registrable Securities and other equity securities requested to be
included in such registration by the Holders and other holders pro rata in
proportion to the amount requested to be included therein by each Holder and
other holder.
Section 2.3. Other Matters in Connection with Registrations.
(a) Notwithstanding the express terms of this Agreement, but subject to the
general provisions hereof regarding the rights of Holders and the obligations
of Issuer, the Issuer shall take such action as may reasonably be requested by
the Holders to facilitate the public sale of securities pursuant to a
derivatives transaction sought to be engaged in by the Holders with respect to
the Registrable Securities for hedging or other purposes (it being understood
that any registration under the 1933 Act by the Issuer in accordance with any
such request shall count as a Demand Registration for purposes of Section
2.01, subject to Section 2.01(b)).
(b) Each Holder shall keep the Issuer informed of the number of
Registrable Securities held from time-to-time by each such Holder, and of each
sale, transfer or other disposition of Registrable Securities (including the
number of shares sold) by each such Holder.
(c) In the event that any public offering pursuant to a Demand
Registration shall involve, in whole or in part, an underwritten offering, the
Holders owning a majority of the Registrable Securities proposed to be sold
therein shall have the right to designate the lead underwriter of such
underwritten offering and, in the case of a public offering of Registrable
Securities (but not derivative securities) requested to be registered pursuant
to Section 2.01(a), the Issuer shall have the right to designate an
underwriter as co-manager for such offering.
Section 2.4. Certain Delay Rights. Notwithstanding any other
provision of this Agreement to the contrary, with respect to any registration
statement filed or to be filed pursuant to Section 2.01, if the Issuer
provides written notice to each Holder that in the Issuer's good faith and
reasonable judgment it would be materially disadvantageous to the Issuer
(because the sale of Registrable Securities covered by such registration
statement or the disclosure of information therein or in any related
prospectus or prospectus supplement would materially interfere with any
acquisition, financing or other material event or transaction in connection
with which a registration of securities under the 1933 Act for the account of
the Issuer is then intended or the public disclosure of which at the time
would be materially prejudicial to the Issuer) (a "Disadvantageous Condition")
for such a registration statement to be maintained effective, or to be filed
and become effective, and setting forth the general reasons for such judgment,
the Issuer shall be entitled to cause such registration statement to be
withdrawn or the effectiveness of such registration statement terminated, or,
in the event no registration statement has yet been filed, shall be entitled
not to file any such registration statement, until such Disadvantageous
Condition no longer exists (notice of which the Issuer shall promptly deliver
to each Holder). With respect to each Holder, upon the receipt by such Holder
of any such notice of a Disadvantageous Condition if so directed by the Issuer
by notice as aforesaid, such Holder will deliver to the Issuer all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus and prospectus supplements then covering such Registrable
Securities at the time of receipt of such notice as aforesaid. Notwithstanding
anything else contained in this Agreement, neither the filing nor the
effectiveness of any registration statement under Section 2.01 may be delayed
(i) for more than a total of 60 days pursuant to this Section 2.04 or (ii) in
the case of the first Demand Request so long as it requires the Issuer to file
the related registration statement within 20 days after the Effective Time.
Section 2.5. Expenses. Except as provided herein, the Issuer
shall pay all Registration Expenses with respect to each registration
hereunder. Notwithstanding the foregoing, (i) each Holder shall be responsible
for the legal fees and expenses of its own counsel (except as provided in
clause (viii) of the definition of Registration Expenses), (ii) each Holder
shall be responsible for all underwriting discount and commissions, selling or
placement agent or broker fees and commissions, and transfer taxes, if any, in
connection with the sale of securities by such Holder and (iii) Section
2.03(a).
Section 2.6. Registration and Qualification. If and whenever
the Issuer is required to effect the registration of any Registrable
Securities under the 1933 Act as provided in Section 2.01, the Issuer shall
use its reasonable best efforts to (but subject to the provisions of Section
2.01):
(a) prepare, file and cause to become effective a registration statement
under the 1933 Act relating to the Registrable Securities to be offered in
accordance with the intended method of disposition thereof;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities in the case of the Demand Registration, until the
earlier of such time as all Registrable Securities proposed to be sold therein
have been disposed of in accordance with the intended methods of disposition
set forth in such registration statement and the expiration of 30 days after
such registration statement becomes effective; provided that such 30-day
period shall be extended for such number of days that equals the number of
days elapsing from (x) the date the written notice contemplated by paragraph
(e) below is given by the Issuer to (y) the date on which the Issuer delivers
to the Holders of Registrable Securities the supplement or amendment
contemplated by paragraph (e) below;
(c) furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the 1933 Act, and such
documents incorporated by reference in such registration statement or
prospectus, as the Holders of Registrable Securities or such underwriter may
reasonably request;
(d) furnish to any underwriter of such Registrable Securities an opinion
of counsel for the Issuer and a "cold comfort" letter signed by the
independent public accountants who have audited the financial statements of
the Issuer included in the applicable registration statement, in each such
case covering substantially such matters with respect to such registration
statement (and the prospectus included therein) and the related offering as
are customarily covered in opinions of issuer's counsel with respect thereto
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities and such other matters as such underwriters may
reasonably request;
(e) promptly notify the Selling Holders in writing (i) at any time when
a prospectus relating to a registration pursuant to Section 2.01 or 2.02 is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) of any request by the Commission or any other
regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case, at the request of the Selling Holders
prepare and furnish to the Selling Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made,
not misleading;
(f) list all such Registrable Securities covered by such registration on
each securities exchange and automated inter-dealer quotation system on which
the Common Stock is then listed;
(g) use reasonable efforts to assist the Holders in the marketing of
Registrable Securities in connection with up to three underwritten offerings
hereunder (including, to the extent reasonably consistent with work
commitments, using reasonable efforts to have officers of the Issuer attend
"road shows" and analyst or investor presentations scheduled in connection
with such registration); and
(h) furnish for delivery in connection with the closing of any offering
of Registrable Securities pursuant to a registration effected pursuant to
Sections 2.01 or 2.02 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested
by the Selling Holders or the underwriters.
Section 2.7. Underwriting; Due Diligence. (a) If requested by
the underwriters for any underwritten offering of Registrable Securities
pursuant to a Demand Registration, the Issuer shall enter into an underwriting
agreement with such underwriters for such offering, which agreement will
contain such representations and warranties by the Issuer and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
indemnification and contribution provisions substantially to the effect and to
the extent provided in Section 2.08, subject to such modifications as may
reasonably be requested by the lead or managing underwriter for any such
underwritten offering, and agreements as to the provision of opinions of
counsel and accountants, letters to the effect and to the extent provided in
Section 2.06(d). Such underwriting agreement shall also contain such
representations and warranties by such Selling Holders and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
indemnification and contribution provisions substantially to the effect and to
the extent provided in Section 2.08, subject to such modifications as may
reasonably be requested by the lead or managing underwriter for any such
underwritten offering.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act pursuant to
this Article II, the Issuer shall give the Holders of such Registrable
Securities and the underwriters, if any, and their respective counsel and
accountants (the identity and number of whom shall be reasonably acceptable to
the Issuer), such reasonable and customary access to its books, records and
properties and such opportunities to discuss the business and affairs of the
Issuer with its officers and the independent public accountants who have
certified the financial statements of the Issuer as shall be necessary, in the
opinion of such Holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act;
provided that the foregoing shall not require the Issuer to provide access to
(or copies of) any competitively sensitive information relating to the Issuer
or its Subsidiaries or their respective businesses; and provided further that
(i) each Holder and the underwriters and their respective counsel and
accountants shall have entered into a confidentiality agreement reasonably
acceptable to the Issuer and (ii) the Holders and the underwriters and their
respective counsel and accountants shall use their reasonable best efforts to
minimize the disruption to the Issuer's business and coordinate any such
investigation of the books, records and properties of the Issuer and any such
discussions with the Issuer's officers and accountants so that all such
investigations occur at the same time and all such discussions occur at the
same time.
Section 2.8. Indemnification and Contribution. (a) The Issuer
agrees to indemnify and hold harmless each Selling Holder and each person, if
any, who controls each Selling Holder within the meaning of either Section 15
of the 1933 Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or any
amendment thereof, any preliminary prospectus or prospectus (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto) relating to the Registrable Securities, or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information furnished to the Issuer in writing by a Selling Holder
expressly for use therein. The Issuer also agrees to indemnify any underwriter
of the Registrable Securities so offered and each person, if any, who controls
such underwriter on substantially the same basis as that of the
indemnification by the Issuer of the Selling Holder provided in this Section
2.08(a).
(b) Each Selling Holder agrees to indemnify and hold harmless the
Issuer, its directors, the officers who sign any registration statement and
each person, if any who controls the Issuer within the meaning of either
Section 15 of the 1933 Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
any amendment thereof, any preliminary prospectus or prospectus (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto) relating to the Registrable Securities, or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
with reference to information furnished in writing by a Selling Holder (or any
representative thereof) expressly for use in a registration statement, any
preliminary prospectus, prospectus or any amendments or supplements thereto.
Each Selling Holder also agrees to indemnify any underwriter of the
Registrable Securities so offered and each person, if any, who controls such
underwriter on substantially the same basis as that of the indemnification by
such Selling Holder of the Issuer provided in this Section 2.08(b).
(c) Each party indemnified under paragraph (a) or (b) above shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action; provided that the
failure to notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party on account of the indemnity
agreement contained in paragraph (a) or (b) above except to the extent that
the indemnifying party was actually prejudiced by such failure, and in no
event shall such failure relieve the indemnifying party from any other
liability that it may have to such indemnified party. If any such claim or
action shall be brought against an indemnified party, and it shall have
notified the indemnifying party thereof, unless based on the written advice of
counsel to such indemnified party a conflict of interest between such
indemnified party and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate therein, and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim
or action, the indemnifying party shall not be liable to the indemnified party
under this Section 2.08 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof. Any
indemnifying party against whom indemnity may be sought under this Section
2.08 shall not be liable to indemnify an indemnified party if such indemnified
party settles such claim or action without the consent of the indemnifying
party. The indemnifying party may not agree to any settlement of any such
claim or action, other than solely for monetary damages for which the
indemnifying party shall be responsible hereunder, the result of which any
remedy or relief shall be applied to or against the indemnified party, without
the prior written consent of the indemnified party, which consent shall not be
unreasonably withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof.
(d) If the indemnification provided for in this Section 2.08 shall for
any reason be unavailable (other than in accordance with its terms) to an
indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, cost, claim or
damage (i) in such proportion as is appropriate to reflect the relative
benefits received by the Issuer on the one hand and the Selling Holders on the
other hand from the offering of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified party or
parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Issuer on the one hand and the Selling Holders on the other hand in connection
with the offering of the Registrable Securities shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Registrable Securities (before deducting expenses) received by the Issuer and
the Selling Holders, respectively, bear to the aggregate public offering price
of the Registrable Securities. The relative fault of the Issuer on the one
hand and the Selling Holders on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuer or a Selling
Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by an indemnified party as a result of the loss, cost, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph (d) shall be deemed to include, for purposes of this paragraph (d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. The
Issuer and the Selling Holders agree that it would not be just and equitable
if contribution pursuant to this Section 2.08 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this paragraph. Notwithstanding
any other provision of this Section 2.08, no Selling Holder shall be required
to contribute any amount in excess of the amount by which the total price at
which the Registrable Securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The obligations of the parties under this Section 2.08 shall be in
addition to any liability which any party may otherwise have to any other
party.
Section 2.9. Holdback Agreement. In connection with an
underwritten public offering of Registrable Securities effected pursuant to
this Article II, each Selling Holder agrees not to effect any sale or
distribution, including any sale under Rule 144, of any equity security of the
Issuer (otherwise than through the registered public offering then being
made), within 10 days prior to or 90 days (or such lesser period as the lead or
managing underwriters may permit) after the effective date of the applicable
registration statement.
ARTICLE 3
Miscellaneous
Section 3.1. Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
Section 3.2. Assignment. No party may assign any of its
rights or obligations hereunder by operation of law or otherwise without the
prior written consent of the other parties.
Section 3.3. Amendments, Waivers, Etc. This Agreement may not
be amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
Issuer and Holders representing a majority of the Registrable Securities then
held by all Holders.
Section 3.4. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if given) by hand delivery or
telecopy, or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the address or telecopy number set forth on the signature pages
hereto or such other address or telecopy number as such party may hereafter
specify for the purpose by notice to the other parties hereto.
Section 3.5. Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law but if any provision
or portion of any provision of this Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
Section 3.6. No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon compliance
by any other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
Section 3.7. No Third Party Beneficiaries. This Agreement is
not intended to be for the benefit of, and shall not be enforceable by, any
Person who or which is not a party hereto.
Section 3.8. Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflicts of law thereof.
Section 3.9. Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any federal court
located in the State of Delaware or any Delaware state court, and each of the
parties hereto hereby consents to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action
or proceeding and waives any objection to venue laid therein. Process in any
such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the State of Delaware.
Section 3.10. Descriptive Headings. The descriptive headings
used herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 3.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the Issuer and the Holders have caused this
Agreement to be duly executed as of the day and year first above written.
CVS CORPORATION
By:
----------------------------
Name:
Title:
Investors
-------------------------------
EXHIBIT C-1
TO
ANNEX A
AFFILIATE'S LETTER RELATING TO POOLING
(Arbor Drugs, Inc.)
____________, 1998
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger
dated as of February 8, 1998 (the "Agreement") among CVS Corporation, a
Delaware corporation ("CVS"), Arbor Drugs, Inc., a Michigan corporation
(the "Company"), and Red Acquisition, Inc., a Michigan corporation ("Merger
Subsidiary"), Merger Subsidiary will be merged with and into the Company
with the Company to be the surviving corporation in the Merger (the
"Merger").
The undersigned represents, warrants and covenants with and
to CVS and the Company that:
A. The undersigned understands that the Merger is intended
to be accounted for using the "pooling-of-interests" method and that such
treatment for financial accounting purposes is dependent upon the accuracy
of certain of the representations and warranties, and the undersigned's
compliance with certain of the covenants and agreements, set forth herein.
Accordingly, the undersigned will not sell, transfer or otherwise dispose
of the undersigned's interests in, or acquire or sell any options or other
securities relating to securities of CVS or the Company that would be
intended to reduce the undersigned's risk relative to, any shares of common
stock of either CVS or the Company beneficially owned by the undersigned,
during the period commencing on the 30th day prior to the effectiveness of
the Merger and ending at such time as CVS publicly releases a report (the
"Combined Financial Results Report") covering at least 30 days of combined
operations of CVS after the Merger.
B. The undersigned also understands that stop transfer
instructions will be given to the transfer agents of CVS and the Company in
order to prevent any breach of the covenants and agreements made by the
undersigned in paragraph A, although such stop transfer instructions will
be promptly rescinded upon the publication of the Combined Financial
Results Report.
C. The undersigned understands and agrees that this letter
agreement shall apply to all shares of the capital stock of CVS and the
Company that are deemed to be beneficially owned by the undersigned
pursuant to applicable federal securities laws.
Very truly yours,
By:
-------------------------
Name:
Accepted this ____ day of
__________, 1998.
CVS CORPORATION
By: ---------------------------
Name:
Title:
EXHIBIT C-2
TO
ANNEX A
AFFILIATE'S LETTER RELATING TO POOLING
(CVS Corporation)
____________, 1998
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger dated
as of February 8, 1998 (the "Agreement") among CVS Corporation, a Delaware
corporation ("CVS"), Arbor Drugs, Inc., a Michigan corporation (the
"Company"), and Red Acquisition, Inc., a Michigan corporation ("Merger
Subsidiary"), Merger Subsidiary will be merged with and into the Company with
the Company to be the surviving corporation in the Merger (the "Merger").
I represent, warrant and covenant with and to CVS and the
Company that:
A. I understand that the Merger is intended to be accounted
for using the "pooling-of-interests" method and that such treatment for
financial accounting purposes is dependent upon the accuracy of certain of
the representations and warranties, and my compliance with certain of the
covenants and agreements, set forth herein. Accordingly, I will not sell,
transfer or otherwise dispose of my interests in, or acquire or sell any
options or other securities relating to securities of CVS or the Company
that would be intended to reduce my risk relative to, any shares of common
stock of either CVS or the Company beneficially owned by me, during the
period commencing on the 30th day prior to the effectiveness of the Merger
and ending at such time as CVS publicly releases a report (the "Combined
Financial Results Report") covering at least 30 days of combined operations
of CVS after the Merger.
B. I also understand that stop transfer instructions will
be given to the transfer agents of CVS and the Company in order to prevent
any breach of the covenants and agreements I make in paragraph A, although
such stop transfer instructions will be promptly rescinded upon the
publication of the Combined Financial Results Report.
C. I understand and agree that this letter agreement shall
apply to all shares of the capital stock of CVS and the Company that are
deemed to be beneficially owned by me pursuant to applicable federal
securities laws.
Very truly yours,
------------------------------
Name:
Accepted this ____ day of
___________, 1998.
CVS CORPORATION
By:
---------------------------
Name:
Title:
EXHIBIT C-3
TO
ANNEX A
AFFILIATE'S LETTER
(Arbor Drugs, Inc.)
____________, 1998
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
The undersigned has been advised that as of the date of
this letter the undersigned may be deemed to be an "affiliate" of Arbor
Drugs, Inc., a Michigan corporation (the "Company"), as the term
"affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145
of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of February 8, 1998 (the "Agreement")
among the Company, CVS Corporation, a Delaware corporation ("CVS"), and Red
Acquisition, Inc., a Michigan corporation and a wholly owned subsidiary of
CVS ("Merger Subsidiary"), Merger Subsidiary will be merged with and into
the Company with the Company to be the surviving corporation in the merger
(the "Merger").
As a result of the Merger, the undersigned will receive
shares of Common Stock, par value $0.01 per share, of CVS (the "CVS Common
Stock") in exchange for shares owned by the undersigned of Common Stock,
par value $0.01 per share, of the Company (the "Company Common Stock").
The undersigned represents, warrants and covenants to CVS and
the Company that as of the date the undersigned receives any CVS Common Stock
as a result of the Merger:
A. The undersigned shall not make any sale, transfer or
other disposition of the CVS Common Stock in violation of the Act or the
Rules and Regulations.
B. The undersigned has carefully read this letter and the
Agreement and discussed the requirements of such documents and other
applicable limitations upon the undersigned's ability to sell, transfer or
otherwise dispose of the CVS Common Stock to the extent the undersigned
felt necessary with the undersigned's counsel or counsel for the Company.
C. The undersigned has been advised that the issuance of
CVS Common Stock to the undersigned pursuant to the Merger will be
registered with the Commission under the Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at
the time the Merger is submitted for a vote of the stockholders of the
Company, the undersigned may be deemed to be an affiliate of the Company,
the undersigned may not sell, transfer or otherwise dispose of the CVS
Common Stock issued to the undersigned in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to CVS, or pursuant to a "no action" letter
obtained by the undersigned from the staff of the Commission, such sale,
transfer or other disposition is otherwise exempt from registration under
the Act.
D. The undersigned understands that CVS is under no
obligation to register the sale, transfer or other disposition of the CVS
Common Stock by the undersigned or on the undersigned's behalf under the
Act or to take any other action necessary in order to enable such sale,
transfer or other disposition by the undersigned in compliance with an
exemption from such registration, other than pursuant to and in accordance
with the Registration Rights Agreement dated as of ___________, 1998
between CVS and the holders referred to therein.
E. The undersigned also understands that there will be
placed on the certificates for the CVS Common Stock issued to the
undersigned or any substitution thereof, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH THE TERMS OF A
LETTER AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND CVS CORPORATION ,
A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF CVS
CORPORATION."
F. The undersigned also understands that unless the
transfer by the undersigned of the undersigned's CVS Common Stock has been
registered under the Act or is a sale made in conformity with the
provisions of Rule 145 under the Act, CVS reserves the right to put the
following legend on the certificates issued to the undersigned's
transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN
ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH,
ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in
paragraphs E and F above shall be removed by delivery of substitute
certificates without such legend if (i) the securities represented thereby
have been registered for sale by the undersigned under the 1933 Act or (ii)
CVS has received either an opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to CVS, or a "no-action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned.
G. The undersigned further understands and agrees that the
representations, warranties, covenants and agreements of the undersigned
set forth herein are for the benefit of CVS, the Company and the Surviving
Corporation (as defined in the Merger Agreement) and will be relied upon by
such entities and their respective counsel and accountants.
H. The undersigned understands and agrees that this letter
agreement shall apply to all shares of the capital stock of CVS and the
Company that are deemed to be beneficially owned by the undersigned
pursuant to applicable federal securities laws.
Execution of this letter should not be considered an admission
on the part of the undersigned that the undersigned is an "affiliate" of the
Company as described in the first paragraph of this letter or as a waiver of
any rights the undersigned may have to object to any claim that the
undersigned is such an affiliate on or after the date of this letter.
Very truly yours,
By:
-------------------------------
Name:
Title:
Accepted this ____ day of
____________, 1998.
CVS CORPORATION
By:
-------------------------------
Name:
Title:
EXHIBIT D
TO
ANNEX A
PARENT CORPORATION REPRESENTATION LETTER
__________, 1998
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to
Section 6.03(b) of the Agreement and Plan of Merger (the "Agreement")(1) dated
as of February 8, 1998, among CVS Corporation, a Delaware corporation
("Parent"), Red Acquisition, Inc., a Michigan corporation and a wholly-owned
subsidiary of Parent ("Merger Subsidiary"), and Arbor Drugs, Inc., a Michigan
corporation ("Company"), the undersigned officers of Parent and Merger
Subsidiary hereby certify and represent as to Parent and Merger Subsidiary that
the facts relating to the merger (the "Merger") of Merger Subsidiary with and
into Company pursuant to the Agreement and as described in the Proxy
Statement/S-4 dated ____________, 1998 filed by the Company and Parent (the
"Proxy Statement"), are true, correct and complete in all respects as of the
date hereof and will be true, correct and complete in all respects at the
Effective Time and that:
[FN]
- ------------
(1) References contained in this Certificate to the Agreement include,
unless the context otherwise requires, each document attached as an exhibit or
annex thereto. All defined terms used herein and not otherwise defined herein
have the meaning ascribed to them in the Agreement.
1. The consideration to be received in the Merger by
holders of Company Common Stock was determined by arm's length negotiations
between the managements of Parent and Company. In connection with the
Merger, no holder of Company Common Stock will receive in exchange for such
stock, directly or indirectly, any consideration other than Parent Common
Stock.
2. The fair market value of the Parent Common Stock to be
received by each Company shareholder will be approximately equal to the
fair market value of the Company Common Stock surrendered in the exchange.
3. Parent has no current plan or intention to redeem,
purchase, exchange or otherwise reacquire any of the Parent Common Stock to
be issued in the Merger, except in connection with and pursuant to the
terms of stock repurchase programs of Parent which were in existence prior
to the execution of the Agreement. In addition, Parent will cause all
persons related to Parent (within the meaning of Treasury Regulation
Section 1.368-1(e)(3)) not to, redeem, purchase, exchange or otherwise
acquire (including by derivative transactions such as an equity swap which
would have the economic effect of an acquisition), directly or indirectly
(including through partnerships or through third parties in connection with
a plan to so acquire), a number of shares of Parent Common Stock to be
received by Company shareholders in connection with the Merger that would
reduce the Company shareholders' ownership of Parent Common Stock to a
number of shares having a value, as of the Effective Time, of less than 50%
of the total value of Company Common Stock immediately prior to the
Effective Time. Shares of Company Common Stock that are redeemed or sold
or otherwise transferred to Company, Parent, or any person related to
Company or Parent prior to the Merger and in contemplation or as part of
the Merger will be taken into account for purposes of this representation.
4. Prior to the Merger, Parent will be in control of Merger
Subsidiary within the meaning of Section 368(c) of the Code. Merger
Subsidiary has been formed solely in order to consummate the Merger, and at
no time has or will Merger Subsidiary conduct any business activities or
other operations of any kind other than as contemplated by the Agreement.
5. In the Merger, Merger Subsidiary will have no
liabilities (other than immaterial liabilities related to its
incorporation) assumed by Company and will not transfer to Company any
assets subject to liabilities.
6. Following the Merger, Parent has no plan or intention to
cause Company to issue additional shares of stock that would result in
Parent losing control of Company within the meaning of Section 368(c) of
the Code.
7. Parent has no plan or intention to liquidate Company, to
merge Company with or into another corporation, to sell, exchange, transfer
or otherwise dispose of any stock of Company or to cause Company to sell,
exchange, transfer or otherwise dispose of any of its assets or of any
assets acquired from Merger Subsidiary in the Merger, except for (i)
dispositions made in the ordinary course of business, (ii) transfers
described in Section 368(a)(2)(C) of the Code, or (iii) asset dispositions
otherwise described in Treasury Regulation Section 1.368-1(d).
8. Following the Merger, Company will continue (and Parent
will cause Company to continue) its historic business or use a significant
portion of its historic business assets in a business.
9. After the Merger, to the best of the knowledge of the
management of Parent, Company will hold at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the
gross assets held by Merger Subsidiary immediately prior to the Merger and
at least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by Company immediately prior
to the Merger. For purposes of this representation, assets of Merger
Subsidiary or Company held immediately prior to the Merger include amounts
paid or incurred by Merger Subsidiary or Company in connection with the
Merger, including amounts used to pay reorganization expenses and all
payments, redemptions and distributions (except for regular, normal
dividends) made in contemplation or as part of the Merger.
10. Parent and Merger Subsidiary each will pay its or their
own expenses, if any, incurred in connection with or as part of the Merger
or related transactions. Neither Parent nor Merger Subsidiary has paid or
will pay, directly or indirectly, any expenses incurred or to be incurred
by any holder of Company Common Stock in connection with or as part of the
Merger or any related transactions. Neither Parent nor Merger Subsidiary
has agreed to assume, nor will it directly or indirectly assume, any
expense or other liability, whether fixed or contingent, of any holder of
Company Common Stock.
11. There is no intercorporate indebtedness existing between
Parent and Company or between Merger Subsidiary and Company that was
issued, acquired or will be settled at a discount.
12. All shares of Parent Common Stock into which shares of
Company Common Stock will be converted pursuant to the Merger will be newly
issued or treasury shares, and will be issued by Parent directly to holders
of Company Common Stock pursuant to the Merger.
13. In the Merger, all of the outstanding Company Common
Stock will be exchanged solely for Parent Common Stock and no cash or other
property of Parent will be utilized, directly or indirectly, to purchase or
redeem any Company Common Stock. Prior to and in connection with the
Merger, no Company Common Stock has been acquired by Parent or a person
related to Parent (within the meaning of Treasury Regulation Section 1.368-
1(e)) for consideration other than Parent Common Stock. As a result, in
the Merger, shares of Company Common Stock representing "control" of
Company, as defined in Section 368(c) of the Code, will be exchanged solely
for voting stock of Parent.
14. In the Merger, no liabilities of shareholders of Company
will be assumed by Parent, and none of the Company Common Stock acquired by
Parent will be subject to liabilities. Furthermore, there is no plan or
intention for Parent to assume any liabilities of Company.
15. Neither Parent nor Merger Subsidiary is an "investment
company" as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. None of the employee compensation to be received by any
shareholder-employees of Company is or will be separate consideration for,
or allocable to, any of their shares of Company Common Stock to be
surrendered in the Merger; none of the shares of Parent Common Stock to be
received by any shareholder-employee of Company in the Merger is or will be
separate consideration for, or allocable to, any employment, consulting or
similar arrangement; and any compensation paid or to be paid to any
shareholder of Company, who will be an employee of or perform advisory
services for Parent, Company, or any affiliate thereof after the Merger,
will be determined by bargaining at arm's length.
17. Neither Parent nor any person related to Parent (within
the meaning of Sections 1.368-1(e)(3) or owns or within the past 5 years
has owned, beneficially or of record, any class of stock of Company or any
securities of Company or any instrument giving the holder the right to
acquire any such stock or securities.
18. The Merger is being effected for bona fide business
reasons as described in the Proxy Statement and will be carried out
strictly in accordance with the Agreement, and none of the material terms
and conditions therein has been or will be waived or modified.
19. The Merger is not pursuant to an agreement that was
binding on or before January 28, 1998.
20. The Agreement and the documents described in the
Agreement represent the entire understanding of Parent, Merger Subsidiary,
and Company with respect to the Merger and there are no other written or
oral agreements regarding the Merger other than those expressly referred to
in the Agreement.
21. Neither Parent nor any of its subsidiaries will take any
position on any Federal, state or local income or franchise tax return, or
take any other tax reporting position, that is inconsistent with the
treatment of the Merger as a reorganization within the meaning of Section
368(a) of the Code, unless otherwise required by a "determination" (as
defined in Section 1313(a)(1) of the Code) or by applicable state or local
income or franchise tax law.
We understand that you will rely on this Certificate in rendering
your opinion as to certain United States Federal income tax consequences of
the Merger and we will promptly and timely inform you if, after signing
this Certificate, we have reason to believe that any of the facts described
in the Proxy Statement or any of the representations made in this
Certificate are untrue, incorrect or incomplete in any respect.
Very truly yours,
CVS CORPORATION
By:
-----------------------------------
Title:
-----------------------------------
MERGER SUBSIDIARY
By:
-----------------------------------
Title:
-----------------------------------
EXHIBIT E
TO
ANNEX A
COMPANY REPRESENTATION LETTER
_________, 1998
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to
Section 6.03(b) of the Agreement and Plan of Merger (the "Agreement")(1) dated
as of February 8, 1998, among CVS Corporation, a Delaware corporation
("Parent"), Red Acquisition, Inc., a Michigan corporation and a wholly-owned
subsidiary of Parent ("Merger Subsidiary"), and Arbor Drugs, Inc., a Michigan
corporation ("Company"), the undersigned officers of Company hereby certify
and represent as to Company that the facts relating to the merger (the
"Merger") of Merger Subsidiary with and into Company pursuant to the Agreement
and as described in the Proxy Statement/S-4 dated ____________, 1998 filed by
the Company and Parent (the "Proxy Statement") are true, correct and complete
in all respects as of the date hereof and will be true, correct and complete
in all respects at the Effective Time and that:
[FN]
- ----------------------
(1) References contained in this Certificate to the Agreement
include, unless the context otherwise requires, each document
attached as an exhibit or annex thereto. All defined terms used
herein and not otherwise defined herein have the meaning ascribed
to them in the Agreement.
1. The consideration to be received in the Merger by holders of Company
Common Stock was determined by arm's length negotiations between the
managements of Parent and Company. To the best of the knowledge of the
management of Company, no holder of Company Common Stock will in connection
with the Merger receive in exchange for such stock, directly or indirectly,
any consideration other than Parent Common Stock.
2. The fair market value of the Parent Common Stock to be received by
each Company shareholder will be approximately equal to the fair market value
of the Company Common Stock surrendered in the exchange.
3. To the best of the knowledge of the management of Company, there is
no plan or intention on the part of the holders of Company Common Stock to
sell, exchange, or otherwise transfer ownership (including by derivative
transactions such as an equity swap which would have the economic effect of a
transfer of ownership) to Parent or any person related to Parent (within the
meaning of Treasury Regulation Section 1.368-1(e)(3)), directly or indirectly
(including through partnerships or through third parties in connection with a
plan to so transfer ownership), of a number of shares of Parent Common Stock
to be received by Company shareholders in connection with the Merger that
would reduce the Company shareholders' ownership of Parent Common Stock to a
number of shares having a value, as of the Effective Time, of less than 50%
of the total value of all of the Company Common Stock immediately prior to the
Effective Time. Shares of Company Common Stock that are redeemed or sold or
otherwise transferred to Company, Parent, or any person related to Company or
Parent prior to the Merger and in contemplation or as part of the Merger will
be taken into account for purposes of this representation.
4. There currently does not, and at the time of the Merger there will
not, exist any no options, warrants, convertible securities or other rights to
acquire Company Common Stock that, if exercised or converted, would affect
Parent's acquisition or retention of control of Company, as defined in Section
368(c)(1) of the Code.
5. Following the Merger, Company has no plan or intention to issue
additional shares of stock that would result in Parent losing control of
Company within the meaning of Section 368(c) of the Code.
6. In the Merger, to the knowledge of the management of Company, Merger
Subsidiary will have no liabilities (other than immaterial liabilities related
to its incorporation) assumed by Company and will not transfer to Company any
assets subject to liabilities.
7. In contemplation or as part of the Merger the Company has not sold,
transferred or otherwise disposed of any of its assets to an extent which
would prevent Parent from continuing the historic business of Company or from
using a significant portion of Company's historic business assets in a
business following the Merger and, following the Merger, Company intends to
continue its historic business or use a significant portion of its historic
business assets in a business.
8. After the Merger, to the knowledge of the management of Company,
Company will hold at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets held by Merger
Subsidiary immediately prior to the Merger and at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by Company immediately prior to the Merger. For purposes of this
representation, assets of Merger Subsidiary or Company held immediately prior
to the Merger include amounts paid or incurred by Merger Subsidiary or Company
in connection with the Merger, including amounts used to pay reorganization
expenses and all payments, redemptions and distributions (except for regular,
normal dividends) made in contemplation or as part of the Merger.
9. Company and the holders of Company Common Stock each will pay its or
their own expenses, if any, incurred in connection with or as part of the
Merger or related transactions. Company has not paid or will not pay,
directly or indirectly, any expenses incurred by any holder of Company Common
Stock in connection with or as part of the Merger or any related transactions.
Company has not agreed to assume, nor will it directly or indirectly assume,
any expense or other liability, whether fixed or contingent, of any holder of
Company Common Stock.
10. There is no intercorporate indebtedness existing between Parent and
Company or between Merger Subsidiary and Company that was issued, acquired or
will be settled at a discount.
11. At the date hereof (and at the Effective Time), the only capital
stock of Company issued and outstanding is (and will be) Company Common Stock.
12. Since the date of the Agreement, Company has not issued any
additional shares of Company Common Stock.
13. In the Merger, all of the outstanding stock of Company Common Stock
will be exchanged solely for Parent Company Stock and no cash or other
property of Parent will be utilized, directly or indirectly, to purchase or
redeem any Company Common Stock. As a result, in the Merger, shares of
Company Common Stock representing "control" of Company, as defined in Section
368(c) of the Code, will be exchanged solely for voting stock of Parent.
14. In the Merger, no liabilities of shareholders of Company will be
assumed by Parent, and none of the Company Common Stock acquired by Parent
will be subject to liabilities. Furthermore, to the knowledge of the
management of Company, there is no plan or intention for Parent to assume any
liabilities of Company.
15. Company is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
16. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
17. At the Effective Time, the total fair market value of the assets of
Company will exceed the total liabilities of Company, including the amount of
any liabilities to which the assets of Company are subject.
18. None of the employee compensation received by any
shareholder-employees of Company is or will be separate consideration for, or
allocable to, any of their shares of Company Common Stock to be surrendered in
the Merger; none of the shares of Parent Common Stock to be received by any
shareholder-employee of Company in the Merger is or will be separate
consideration for, or allocable to, any employment, consulting or similar
arrangement; and any compensation paid or to be paid to any shareholder of
Company, who will be an employee of or perform advisory services for Parent,
Company, or any affiliate thereof after the Merger, will be determined by
bargaining at arm's length.
19. No holders of Company Common Stock have dissenters' rights with
respect to the Merger under applicable laws.
20. Prior to and in connection with the Merger, except for Company
Common Stock, if any, owned by Parent or any of its subsidiaries, no Company
Common Stock has been (i) redeemed by Company, (ii) acquired by a person
related to Company (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) for consideration other than Company Common Stock, or (iii) the
subject of any extraordinary distribution by Company.
21. The Merger is being effected for bona fide business reasons as
described in the Proxy Statement, and will be carried out strictly in
accordance with the Agreement, and none of the material terms and conditions
therein has been or will be waived or modified.
22. The Merger is not pursuant to an agreement that was binding on or
before January 28, 1998.
23. The Agreement and the documents described in the Agreement represent
the entire understanding of Parent, Merger Subsidiary, and Company with
respect to the Merger and there are no other written or oral agreements
regarding the Merger other than those expressly referred to in the Agreement.
We understand that you will rely on this Certificate in
rendering your opinion as to certain United States Federal income tax
consequences of the Merger and we will promptly and timely inform you if, after
signing this Certificate, we have reason to believe that any of the facts
described herein or in the Proxy Statement or any of the representations made
in this Certificate are untrue, incorrect or incomplete in any respect.
Very truly yours,
ARBOR DRUGS, INC.
By:
----------------------------
Title:
----------------------------
ANNEX B
[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- -------------------------
February 8, 1998
Board of Directors
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value
$0.01 per share (the "Shares"), of Arbor Drugs, Inc. (the "Company") of
the Exchange Ratio (as defined below) of shares of Common Stock, par value
$0.01 per share, of CVS Corporation ("Parent", and such shares being
referred to as "Parent Common Stock") to be received for each Share
pursuant to the Agreement and Plan of Merger, dated as of February 8, 1998,
among Parent, the Company and Red Acquisition, Inc., a wholly-owned
subsidiary of Parent (the "Agreement"). Pursuant to the Agreement, the
Exchange Ratio is defined as the number (rounded to the nearest ten-
thousandth) determined by dividing $23.00 by the Parent Average Closing
Price (defined in the Agreement as the average closing price per share of
Parent Common Stock on the New York Stock Exchange, Inc. for the ten
trading days selected by lot out of the twenty trading days ending on and
including the fifth day preceding the date of the Company Stockholders
Meeting (as defined in the Agreement)), provided that the Exchange Ratio
shall not be less than 0.3182 and shall not exceed 0.3660.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with the Company having acted as its
financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K
of the Company for the five fiscal years ended July 31, 1997; Annual
Reports to Stockholders on Form 10-K of Parent, and its predecessor
corporation, Melville Corporation, for the five years ended December 31,
1996; the Joint Proxy Statement/Prospectus dated as of April 21, 1997
relating to the annual meeting of stockholders of Parent held in connection
with the merger of Parent and Revco D.S., Inc.; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company and Parent;
certain other communications from the Company and Parent to their
respective stockholders; and certain internal financial analyses and
forecasts for the Company and Parent prepared by their respective
managements. We also have held discussions with members of the senior
management of the Company and Parent regarding the strategic rationale for,
and the potential benefits of, the transaction contemplated by the
Agreement and the past and current business operations, financial condition
and future prospects of their respective companies. In addition, we have
reviewed the reported price and trading activity for the Shares and the
Parent Common Stock, compared certain financial and stock market
information for the Company and Parent with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the drug
retailing industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have
not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Parent or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal. Our
advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how
any holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio is fair from a financial point of view to holders of the
Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------------
(Goldman, Sachs & Co.)
ANNEX C
OPTION AND VOTING AGREEMENT
AGREEMENT dated as of February 8, 1998 among CVS Corporation, a
Delaware corporation ("Buyer"), and the holders (the "Stockholders") of the
shares of common stock, $0.01 par value (the "Shares") of Arbor Drugs, Inc., a
Michigan corporation ("Company"), listed on the signature pages hereof.
WHEREAS, in order to induce Buyer to enter into the Agreement
and Plan of Merger (the "Merger Agreement") with Company dated as of the date
hereof, Buyer has requested the Stockholders, and the Stockholders have
agreed, to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Defined Terms; Stock Option
Section 1.1. Defined Terms. Capitalized terms used but not
defined in this Agreement are used as defined in the Merger Agreement.
Section 1.2. Grant of Stock Option. Each Stockholder hereby
grants to Buyer an irrevocable option (the "Option") to purchase all Shares
presently owned by such Stockholder as set forth on the signature page hereto
and any additional Shares acquired by the Stockholder (whether by purchase or
otherwise) after the date of this Agreement (the "Stockholder Shares") at a
purchase price of $23 per Stockholder Share (the "Purchase Price"); provided
that the Stockholders may retain an aggregate of 600,000 Shares for purposes
of donation to charity, which shall not be Stockholder Shares subject to the
Option.
Section 1.3. Exercise of Option. (a) Subject to the
conditions set forth in Section 1.05 hereof, the Option may be exercised by
Buyer, in whole but not in part, at any time after the occurrence of a Trigger
Event (as defined below) and prior to the first anniversary after the
termination of the Merger Agreement in accordance with the terms thereof. In
the event Buyer wishes to exercise the Option for all of the Stockholder
Shares, Buyer shall send a written notice (the "Exercise Notice") to the
Stockholders specifying the place, the date (not less than one nor more than
20 business days from the date of the Exercise Notice), and the time for the
closing of such purchase, provided that such date and time may be earlier than
one day after the Exercise Notice if reasonably practicable. The closing of
the purchase of Stockholder Shares (the "Closing") shall take place at the
place, on the date and at the time designated by Buyer in its Exercise Notice,
provided that if, at the date of the Closing herein provided for, the
conditions set forth in Section 1.05 shall not have been satisfied (or waived
by the Stockholders), Buyer may postpone the Closing until a date within five
business days after such conditions are satisfied.
(b) Buyer shall not be under any obligation to deliver any
Exercise Notice and may allow the Option to terminate without purchasing
any Stockholder Shares hereunder; provided, however, that once Buyer has
delivered to the Stockholders an Exercise Notice, subject to the terms and
conditions of this Agreement, Buyer shall be bound to effect the purchase
as described in such Exercise Notice.
Section 1.4. Closing. Each Stockholder shall deliver to Buyer
a certificate or certificates (the "Certificates") representing (or cause to be
made book entry delivery to an account designated by Buyer) such Stockholder
Shares, in the case of certificates, duly endorsed or accompanied by stock
powers duly executed in blank and at Buyer's election, Buyer shall deliver to
such Stockholder either (x) a certified or bank cashier's check or checks
payable to or upon the order of such Stockholder in an amount equal to (i) the
number of Stockholder Shares being purchased at such Closing multiplied by (ii)
the Purchase Price (the "Purchase Amount") or (y) the number of shares of the
Parent Common Stock equal to the Purchase Amount divided by the closing price
on the NYSE of Parent Common Stock on the trading day prior to delivery of the
Exercise Notice. If Buyer elects to deliver the Parent Common Stock pursuant
to the immediately preceding sentence, Buyer shall concurrently enter into a
Registration Rights Agreement with the Stockholders in respect of shares of
Parent Common Stock delivered to the Stockholders hereunder. Such agreement
shall be substantially in the form of Exhibit B to the Merger Agreement.
Section 1.5. Conditions to the Stockholder's Obligations. The
obligation of any Stockholder to sell Stockholder Shares at the Closing is
subject to the following conditions:
(a) The representations and warranties of Buyer contained
in Article 4 shall be true and correct in all material respects on the date
thereof and Buyer shall not be in material breach of its obligations under the
Merger Agreement.
(b) All waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act") applicable to such
exercise of the Option shall have expired or been terminated.
(c) There shall be no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, nor any statute, rule, regulation or order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
such exercise of the Option.
(d) (i) the Merger Agreement has been terminated by
Company pursuant to Section 7.01(e) of the Merger Agreement; (ii) the
Merger Agreement has been terminated by Buyer pursuant to Section 7.01(d)
of the Merger Agreement or (iii) a termination fee is payable under Section
8.04(b)(z)(1) of the Merger Agreement (each of (i), (ii) and (iii) being a
"Trigger Event").
Section 1.6. Adjustment Upon Change in Capitalization or
Merger. (a) In the event of any change in Company's capital stock by reason
of stock dividends, stock splits, mergers, consolidations,
recapitalizations, combinations, conversions, exchanges of shares,
extraordinary or liquidating dividends, or other changes in the corporate
or capital structure of Company which would have the effect of diluting or
changing Buyer's rights hereunder, the number and kind of shares or
securities subject to the Option and the purchase price per Stockholder
Share (but not the total purchase price) shall be appropriately and
equitably adjusted so that Buyer shall receive upon exercise of the Option
the number and class of shares or other securities or property that Buyer
would have received in respect of the Stockholders Shares purchasable upon
exercise of the Option if the Option had been exercised immediately prior
to such event. The Shareholders shall take such steps in connection with
such consolidation, merger, liquidation or other such action as may be
necessary to assure that the provisions hereof shall thereafter apply as
nearly as possible to any securities or property thereafter deliverable
upon exercise of the Option.
(b) In the event the consideration per Share to be paid by
Buyer pursuant to the Merger is increased, the Purchase Price shall be
similarly increased and in the event the Closing hereunder shall have
occurred, Buyer shall promptly pay to the Stockholder the product of the
amount of such increase in the Purchase Price multiplied by the number of
Stockholder Shares as to which the Stockholder Option has been exercised.
ARTICLE 2
Voting
Section 2.1. Voting of Company Common Stock. Each
Stockholder hereby agrees that at any meeting (whether annual or special
and whether or not an adjourned or postponed meeting) of the holders of
Company Common Stock, however called, or in connection with any written
consent of the holders of Company Common Stock, such Stockholder will
appear at the meeting or otherwise cause the Stockholder Shares to be
counted as present thereat for purposes of establishing a quorum and such
Stockholder shall vote or consent (or cause to be voted or consented) the
Stockholder Shares in favor of the Merger, the execution and delivery by
Company of the Merger Agreement and the approval and adoption of the terms
thereof and each of the other actions contemplated by the Merger Agreement
and this Agreement and any actions required in furtherance thereof and
hereof.
ARTICLE 3
Representations and Warranties of the Stockholders
Each of the Stockholders represents and warrants to Buyer as
to itself that:
Section 3.1. Ownership of Shares. Such Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Articles 1 and 2 hereof, sole power of disposition,
sole power to demand appraisal rights and sole power to agree to all of the
matters set forth in this Agreement, in each case with respect to all of
the Stockholder Shares held by such Stockholder with no limitations,
qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement.
Section 3.2. Authorization. This Agreement has been duly
and validly executed and delivered by such Stockholder and constitutes a
valid and binding agreement enforceable against such Stockholder in
accordance with its terms except to the extent such enforcement may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights and the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
Section 3.3. No Conflicts. Except for filings,
authorizations, consents and approvals as may be required under the HSR
Act, the 1934 Act and the 1933 Act, no filing with, and no permit,
authorization, consent or approval of, any state or federal governmental
body or authority is necessary for the execution and delivery of this
Agreement by the Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby and none of the execution and delivery of
this Agreement by the Stockholder, the consummation by the Stockholder of
the transactions contemplated hereby or compliance by the Stockholder with
any of the provisions hereof shall conflict with or result in any breach of
the organizational documents of the Stockholder, result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which the Stockholder is a party or by which the Stockholder or any of its
properties or assets may be bound, or violate any order, writ, injunction,
decree, judgment, statute, law, rule or regulation applicable to the
Stockholder or any of its properties or assets.
Section 3.4. No Encumbrances. Except as expressly provided
in this Agreement, the Stockholder Shares and the Certificates are now, and
at all times during the term hereof, will be, held by the Stockholder, or
by a nominee or custodian for the benefit of the Stockholder, free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder
and other than liens arising from securities margin accounts.
Section 3.5. No Finder's Fees. Other than as contemplated
by the Merger Agreement with respect to fees payable by Company, no broker,
investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission
in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Stockholder.
Section 3.6. Reliance by Buyer. The Stockholder
understands and acknowledges that Buyer is entering into the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
ARTICLE 4
Representations and Warranties of Buyer
Buyer represents and warrants to each of the Stockholders:
Section 4.1. Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to
execute and deliver this Agreement and perform its obligations hereunder.
The execution and delivery by Buyer of this Agreement and the performance
by Buyer of its obligations hereunder have been duly and validly authorized
by the Board of Directors of Buyer and no other corporate proceedings on
the part of Buyer are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
Section 4.2. Corporate Authorization. This Agreement has
been duly and validly executed and delivered by Buyer and constitutes a
valid and binding agreement of Buyer enforceable against Buyer in
accordance with its terms except to the extent (i) such enforcement may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
Section 4.3. No Conflicts. Except for filings,
authorizations, consents and approvals as may be required under the HSR
Act, the 1934 Act and the 1933 Act, (i) no filing with, and no permit,
authorization, consent or approval of, any state or federal governmental
body or authority is necessary for the execution and delivery of this
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by Buyer, the consummation by Buyer of the transactions
contemplated hereby or compliance by Buyer with any of the provisions
hereof shall (A) conflict with or result in any breach of the certificate
of incorporation or by-laws of Buyer, (B) result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which Buyer is a party or its properties or assets may be bound, or (C)
violate any order, writ, injunction, decree, judgment, statute, law, rule
or regulation applicable to Buyer or any of its properties or assets.
Section 4.4. No Finder's Fees. Except for Credit Suisse
First Boston Corporation, whose fees will be paid by Buyer, no broker,
investment banker, financial adviser or other Person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission
in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Buyer.
ARTICLE 5
Covenants of the Stockholders
Each of the Stockholders hereby covenants and agrees that:
Section 5.1. Restriction on Transfer; Proxies; Non-
Interference. The Stockholder shall not, directly or indirectly: offer for
sale, sell, transfer, tender, pledge, encumber (other than by operation of
law), assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Stockholder Shares or any interest
therein; except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit the Stockholder Shares into a voting trust or
enter into a voting agreement with respect to the Stockholder Shares; or
take any action that would make any representation or warranty of the
Stockholder contained herein untrue or incorrect or would result in a
breach by the Stockholder of its obligations under this Agreement or a
breach by Company of its obligations under the Merger Agreement or the
effect of which would be inconsistent or violative of any provision or
agreement contained in this Agreement.
Section 5.2. No Solicitation. The Stockholder shall not,
and shall cause its Affiliates and officers, directors, employees,
investment bankers, consultants and other agents of the Stockholder and
such Affiliates (such Affiliates, officers, directors, employees,
investment bankers, consultants and other agents of any Person are
hereinafter collectively referred to as the "Representatives" of such
Person) not to, directly or indirectly, take any action to initiate,
solicit, encourage or facilitate the making of any Acquisition Proposal or
any inquiry with respect thereto, or engage in discussions or negotiations
with any Person (other than Buyer or any of its Affiliates or
Representatives) relating to any Acquisition Proposal or disclose any non-
public information relating to Company or any Subsidiary of Company, or
afford access to the properties, books or records of Company or any
Subsidiary of Company, to any Person that is considering making or has made
any Acquisition Proposal. The Stockholder shall notify Buyer orally and in
writing of any offers, proposals or inquiries received by the Stockholder
relating to the purchase or acquisition by any Person of the Shares and of
any Acquisition Proposal actually known to the Stockholder (including in
each case the material terms and conditions thereof and the identity of the
Person making it), within 24 hours of the receipt thereof. The Stockholder
shall, and shall cause its Representatives to, immediately cease and cause
to be terminated any and all existing activities, discussions or
negotiations, if any, with any parties conducted heretofore with respect to
any Acquisition Proposal, other than discussions or negotiations with Buyer
and its Affiliates. Notwithstanding the restrictions set forth in this
Section 5.02, each of Company and any Person who is an officer or director
of Company, including any individual Stockholder serving in capacity of
director or officer, may take any action in such capacity consistent with
the terms of the Merger Agreement.
Section 5.3. Stop Transfer; Legend. (a) Each Stockholder
agrees with, and covenants to, Buyer that the Stockholder shall not request
that Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of the Stockholder
Shares unless such transfer is made in compliance with this Agreement.
(b) Each Stockholder will, prior to the Effective Time,
duly execute and deliver to Buyer the Affiliate's letter contemplated in
Section 5.11 of the Merger Agreement substantially in the form of Exhibit
C-3 to the Merger Agreement.
(c) Each Stockholder shall promptly after the date hereof
surrender to Company all certificates representing the Stockholder Shares, and
Company shall place the following legend on such certificates:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION
AND VOTING AGREEMENT DATED AS OF FEBRUARY 8, 1998 BY AND BETWEEN CVS
CORPORATION AND [STOCKHOLDERS] WHICH AMONG OTHER THINGS RESTRICTS THE
TRANSFER AND VOTING THEREOF."
ARTICLE 6
Miscellaneous
Section 6.1. Termination of Agreement. The provisions of
Section 1.02 shall terminate at the Effective Time of the Merger Agreement
or upon the termination of the Merger Agreement; provided that Section 1.02
shall not terminate upon termination of the Merger Agreement (i) pursuant
to Section 7.01(d) or 7.01(e) of the Merger Agreement, or (ii) pursuant to
Section 7.01(b) of the Merger Agreement where the Board of Directors of
Company has failed to recommend the Merger or modified such recommendation
in a manner adverse to Buyer.
Section 6.2. Indemnity. (a) Buyer agrees that it will
indemnify each Stockholder from and against any costs, liabilities or
expenses (including reasonable attorneys' fees and expenses) arising out of
any claim or action brought by or on behalf of any shareholder of Company
(other than any Stockholder), alleging damage by reason of the grant by
such Stockholder of the Option contemplated hereby, or the exercise of the
Option, provided that (i) such indemnity shall apply if and only to the
extent that the Company's directors and officers liability insurance
policies are insufficient to cover any such cost, liability or expense or
said insurer fails to pay under such policy upon request (it being
understood that in the case of any payment by Buyer or Company hereunder,
any such payment shall not waive or otherwise affect any rights of Buyer or
Company) and (ii) Buyer shall not be obligated to indemnify any
Stockholder hereunder for any cost, liability or expense arising from the
wilful misconduct of such Stockholder.
(b) Each Stockholder indemnified under paragraph (a) above
shall, promptly after receipt of notice of a claim or action against such
Stockholder in respect of which indemnity may be sought hereunder, notify
Buyer in writing of such claim or action; provided that the failure to
notify Buyer shall not relieve it from any liability that it may have to
such Stockholder on account of the indemnity contained in paragraph (a)
above except to the extent that Buyer was actually prejudiced by such
failure. Buyer shall be entitled to assume the defense of such claim or
action with counsel of its choice at Buyer's expense. Buyer shall not be
liable to indemnify any Stockholder if such Stockholder settles such claim
or action without the consent of Buyer. Buyer may not agree to any
settlement of any such claim or action unless such settlement includes an
unconditional release of Stockholder from all claims thereunder. In any
action hereunder as to which Buyer has assumed the defense thereof, the
Stockholder shall continue to be entitled to participate in the defense
thereof, with counsel of its own choice reasonably acceptable to Buyer and
at the expense of Buyer.
Section 6.3. Expenses. All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such
cost or expense.
Section 6.4. Further Assurances. In the event Buyer
exercises the Option, Buyer and the Stockholders will each execute and
deliver or cause to be executed and delivered all further documents and
instruments and use its best efforts to secure such consents and take all
such further action as may be reasonably necessary in order to consummate
the transactions contemplated hereby or to enable Buyer to exercise and
enjoy all benefits and rights of the Stockholders with respect to the
Stockholder Shares acquired pursuant to exercise of the Option.
Section 6.5. Additional Agreements. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations and which may be required under any
agreements, contracts, commitments, instruments, understandings,
arrangements or restrictions of any kind to which such party is a party or
by which such party is governed or bound, to consummate and make effective
the transactions contemplated by this Agreement, to obtain all necessary
waivers, consents and approvals and effect all necessary registrations and
filings, including, but not limited to, filings under the HSR Act,
responses to requests for additional information related to such filings,
and submission of information requested by governmental authorities, and to
rectify any event or circumstances which could impede consummation of the
transactions contemplated hereby.
Section 6.6. Specific Performance. The parties hereto
agree that Buyer would be irreparably damaged if for any reason the
Stockholders failed to sell the Stockholder Shares upon exercise of the
Option or to perform any of its other obligations under this Agreement, and
that Buyer would not have an adequate remedy at law for money damages in
such event. Accordingly, Buyer shall be entitled to specific performance
and injunctive and other equitable relief to enforce the performance of
this Agreement by the Stockholders. This provision is without prejudice to
any other rights that Buyer may have against the Stockholders for any
failure to perform its obligations under this Agreement.
Section 6.7. Notices. All notices, requests, claims,
demands and other communications hereunder shall be deemed to have been
duly given when delivered in person, by cable, telegram or telecopy, or by
registered or certified mail (postage prepaid, return receipt requested) to
such party at its address set forth on the signature page hereto.
Section 6.8. Survival of Representations and Warranties.
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Stockholder Shares.
Section 6.9. Amendments. This Agreement may not be
modified, amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto.
Section 6.10. Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided that
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties
hereto.
Section 6.11. Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State of
Michigan without giving effect to the principles of conflicts of laws
thereof.
Section 6.12. Further Assurances. From time to time, at
the other party's request and without further consideration, each party
hereto shall execute and deliver such additional documents and take all
such further lawful action as may be necessary or desirable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
Section 6.13. Descriptive Headings. The descriptive
headings used herein are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation of
this Agreement.
Section 6.14. Counterparts; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the
other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CVS CORPORATION
By: /s/ Thomas M. Ryan
---------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice
Chairman and Chief
Operating Officer
Class of Shares EUGENE APPLEBAUM LIVING TRUST
Stock Owned
-------- ----------
common 13,275,555 By: /s/ Eugene Applebaum
-----------------------------
Name: Eugene Applebaum
Title: Trustee
Class of Shares
Stock Owned
-------- ----------
common 265,780 /s/ Marcia C. Applebaum
-----------------------------
Marcia C. Applebaum
Class of Shares TRUST FOR THE BENEFIT OF
Stock Owned LISA S. APPLEBAUM
-------- ----------
common 493,593 By: /s/ Marcia C. Applebaum
-----------------------------
Name: Marcia Applebaum
Title: Trustee
Class of Shares TRUST FOR THE BENEFIT OF
Stock Owned PAMELA A. APPLEBAUM
-------- ----------
common 493,593 By: /s/ Marcia C. Applebaum
----------------------------
Name: Marcia Applebaum
Title: Trustee
Stockholder notices shall be given to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Fax: (313) 962-0176
Attention: Alan S. Schwartz, Esq.
[CVS LOGO]
[ARBOR LOGO]1999
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Exculpation. Section 102(b)(7) of the Delaware General Corporations Law
("Delaware Law") permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision may not eliminate
or limit the liability of a director for any breach of the director's duty of
loyalty to the corporation or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for the payment of unlawful dividends, or for any transaction from which
the director derived an improper personal benefit.
The CVS Chartercertificate of incorporation (the "CVS Charter") limits the
personal liability of a director to CVS and its stockholders for monetary
damages for a breach of fiduciary duty as a director to the fullest extent
permitted by law.
Indemnification. Section 145 of the Delaware Law permits a corporation to
indemnify any of its directors or officers who was or is a party, or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorneys'attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe that such person's conduct was unlawful. In
a derivative action, i.e., one by or in the right of a corporation, the
corporation is permitted to indemnify directors and officers against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of an action or suit if they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged liable to the corporation,
unless and only to the extent that the court in which the action or suit was
brought shall determine upon application that the defendant directors or
officers are fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Expenses, including attorneys' fees, incurred by any such person in
defending any such action, suit or proceeding shall be paid or reimbursed by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Company.
The CVS Charter provides for indemnification of directors and officers of
CVS against liability they may incur in their capacities as such to the fullest
extent permitted under the Delaware Law.
Insurance. CVS has in effect Directors and Officers Liability Insurance
with a limit of $100,000,000 and pension trust liability insurance with a limit
of $50,000,000. This insurance was purchased in layers from National Union Fire
Insurance Company of Pittsburgh, Pennsylvania; Federal Insurance Company of
Warren, New Jersey; Royal Indemnity Company of Charlotte, North Carolina;
Columbia Casualty Insurance Company of Chicago, Illinois; St. Paul Surplus Lines
Company of St. Paul, Minnesota; and Reliance Insurance Company of Philadelphia,
Pennsylvania. The pension trust liability insurance covers actions of
directors and officers as well as other employees with fiduciary
responsibilities under ERISA.
Revco Directors and Officers. The Revco merger agreement provides that CVS
will cause Revco and its Subsidiaries to indemnify (including the payment of
reasonable fees and expenses of legal counsel) the current or former directors
or officers of Revco to the fullest extent permitted by law for damages and
liabilities arising out of facts and circumstances occurring at or prior to the
merger. The Revco merger agreement also provides that for a period of six years
after the merger CVS will cause to be maintained in effect Revco's existing
policies of directors' and officers' liability insurance as in effect on
February 6, 1997 (provided that CVS may substitute policies with reputable and
financially sound carriers having at least the same coverage and amounts and
containing terms and conditions that are no less advantageous) with respect to
facts or circumstances occurring at or prior to the merger; provided that if the
annual premium for such insurance during such six-year period exceeds 200% of
the annual
II-1
premiums paid by Revco as of February 6, 1997 for such insurance (such 200%
amount, the "Maximum Premium") then CVS will cause Revco to provide the most
advantageous directors' and officers' insurance coverage then available for an
annual premium equal to the Maximum Premium.
Arbor Directors and Officers. The Merger AgreementArbor merger agreement provides that
after the Effective Time (as defined in the Arbor merger agreement), CVS will
cause Arbor to indemnify (including the payment of reasonable fees and expenses
of legal counsel) each person who was a director or officer of Arbor or its
subsidiaries at or prior to the date of the Merger AgreementArbor merger agreement to the
fullest extent permitted by law for damages and liabilities arising out of facts
and circumstances occurring at or prior to the Effective Time. The Merger AgreementArbor merger
agreement also provides that, for a period of six years after the Effective
Time, CVS will maintain in effect Arbor's existing policies of directors' and
officers' liability insurance as in effect on February 8, 1998 (provided that
CVS may substitute policies with reputable and financially sound carriers having
at least the same coverage and amounts and containing terms and conditions that
are no less advantageous to the covered persons) with respect to facts or
circumstances occurring at or prior to the Effective Time; provided that if the
aggregate annual premium for such insurance during such six-year period exceeds
200% of the aggregate annual premium paid by Arbor as of February 8, 1998 for
such insurance, then CVS will cause Arbor to provide the most advantageous
directors' and officers' insurance coverage then available for an annual premium
equal to such 200% of such aggregate annual premium in effect as ofthe February 8, 1998.
II-11998 premiums.
Item 21. Exhibits and Financial Statement Schedules.
Exhibit
Number Description Page
------- ----------- ----
2 Agreement and Plan of Merger dated as of February 8,
1998 as amended as of March 2, 1998 among the
Registrant, Arbor Drugs, Inc. and Red Acquisition, Inc.
(included as Annex ASchedules
(a) Exhibits (see index to the Proxy Statement/Prospectus
contained in this Registration Statement)exhibits at E-1).
3(a) Amended and Restated Certificate of Incorporation of
the Registrant (incorporated herein by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 (the "CVS
1996 Form 10-K")).
3(b) By-Laws of the Registrant (incorporated by reference
to Exhibit 3.2 to the CVS 1996 Form 10-K)
4 Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4-1 to the Registrant's
Registration Statement on Form 8-B dated November 4,
1996).
5 Opinion of Davis Polk & Wardwell regarding the
validity of the securities being registered.
8 Opinion of Weil, Gotshal & Manges LLP regarding
certain federal income tax consequences relating to
the Merger.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of Coopers & Lybrand L.L.P.
23(c) Consent of Davis Polk & Wardwell (included in the
opinion filed as Exhibits 5 to this Registration
Statement).
23(d) Consent of Weil, Gotshal & Manges LLP (included in
the opinion filed as Exhibit 8 to this Registration
Statement).
23(e) Consent of Goldman, Sachs & Co.
24 Powers of Attorney.
99(a) Consent of Eugene Applebaum to be named as a nominee
for director of CVS Corporation.
99(b) Form of Arbor Drugs, Inc. Proxy Card.
99(c) Option and Voting Agreement dated as of February 8,
1998 between CVS Corporation and certain Arbor
stockholders (included as Annex C to the Proxy
Statement/Prospectus contained in this Registration
Statement).
99(d) Consulting Agreement between CVS Corporation and
Eugene Applebaum.
II-2
Item 22. Undertakings.Undertakings
(a) The undersigned registrantRegistrant hereby undertakes:
(1) That priorTo file during any period in which offers or sales are being made,
a post-effective amendment to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration statement,statement: (i) to include any
prospectus required by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used1933; (ii) to
reflect in connection
with an offeringthe prospectus any facts or events arising after the effective date
of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and willany deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (iii) to include any material information
with respect to the plan of distribution not be used untilpreviously disclosed in the
registration statement or any material change to such amendment is effective, and that,information in the
registration statement;
(2) That, for purposesthe purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) That,To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
II-2
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant'sRegistrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrantRegistrant pursuant to the foregoing provisions, or otherwise, the
registrantRegistrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrantRegistrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrantRegistrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b) or 11 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and CVS being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CVS Corporation
certifies that it has reasonable grounds to believe that it meets all of the
Registrantrequirements for filing on Form S-4 and has duly caused this Registration Statementregistration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Citycity of Woonsocket, Statestate of Rhode Island, on March 2, 1998.May 11, 1999.
CVS CORPORATION
(Registrant)
Date: March 2, 1998 By: /s/ Charles C. Conaway
--------------------------
Charles C. Conaway
Executive Vice PresidentThomas M. Ryan
------------------------------------
Thomas M. Ryan
Chairman of the Board and Chief FinancialExecutive
Officer
The registrant and each person whose signature appears below constitutes
and appoints Thomas M. Ryan, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign and file (i) any and all
amendments (including post-effective amendments) to this registration statement,
with all exhibits thereto, and other documents in connection therewith, and (ii)
a registration statement, and any and all amendments, thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statementregistration statement has been signed below by the following persons on behalf
of the Registrant in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas M. Ryan Chairman of the Board and Chief May 10, 1999
- ---------------------------------------- Executive Officer (Principal Executive
Thomas M. Ryan Officer)
Vice President and Controller May 10, 1999
/s/ Larry D. Solberg (Principal Financial and Accounting
- ---------------------------------------- Officer)
Larry D. Solberg
/s/ Eugene Applebaum Director May 5, 1999
- ----------------------------------------
Eugene Applebaum
/s/ Allan J. Bloostein Director May 6, 1999
- ----------------------------------------
Allan J. Bloostein
/s/ W. Don Cornwell Director May 10, 1999
- ----------------------------------------
W. Don Cornwel
II-4
Signature Title Date
--------- ----- ----
/s/ Thomas P. Gerrity Director May 10, 1999
- ----------------------------------------
Thomas P. Gerrity
/s/ Stanley P. Goldstein Director May 10, 1999
- ----------------------------------------
Stanley P. Goldstein
/s/ William H. Joyce Director May 5, 1999
- ----------------------------------------
William H. Joyce
/s/ Terry R. Lautenbach Director May 5, 1999
- ----------------------------------------
Terry R. Lautenbach
/s/ Terrence Murray Director May 10, 1999
- ----------------------------------------
Terrence Murray
/s/ Sheli Z. Rosenberg Director May 10, 1999
- ----------------------------------------
Sheli Z. Rosenberg
/s/ Ivan G. Seidenberg Director May 10, 1999
- ----------------------------------------
Ivan G. Seidenberg
Director May 10, 1999
- ----------------------------------------
Thomas O. Thorsen
II-5
EXHIBIT INDEX
Exhibit No. Document
----------- --------
1.1 Registration Rights Agreement dated as of February 8,1999
between CVS and Credit Suisse First Boston Corporation,
Bear, Stearns & Co. Inc. and BNY Capital Markets, Inc., as
Initial Purchasers
4.1 Indenture, dated as of February 11, 1999 between CVS and the
Trustee
5.1* Opinion of Davis Polk & Wardwell with respect to the
new notes
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2 Consent of KPMG LLP.
24.1 Power of Attorney (Included on the signature page of this
registration statement)
25.1 Statement of Eligibility of The Bank of New York
on Form T-1.
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Clients
99.4* Form of Letter to Nominees
99.5* Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- -------------------
* Chairman of the Board, Chief March 2, 1998
- ------------------------- Executive Officer-and-Director-
(Stanley P. Goldstein) (Principal-Executive Officer)
/s/ Charles C. Conaway Executive Vice President and March 2, 1998
- ------------------------- Chief Financial-Officer-
(Charles C. Conaway) (Principal-Financial-and
Accounting Officer)
* Director March 2, 1998
- -------------------------
(Allan J. Bloostein)
* Director March 2, 1998
- -------------------------
(W. Don Cornwell)
* Director March 2, 1998
- -------------------------
(Thomas P. Gerrity)
* Director March 2, 1998
- -------------------------
(William H. Joyce)
* Director March 2, 1998
- -------------------------
(Terry R. Lautenbach)
* Director March 2, 1998
- -------------------------
(Terrence Murray)
* Director March 2, 1998
- -------------------------
(Sheli Rosenberg)
II-4
Signature Title Date
--------- ----- ----
* Vice Chairman of the Board, March 2, 1998
- ------------------------- Chief Operating Officer and
(Thomas M. Ryan) Director
* Director March 2, 1998
- -------------------------
(Ivan G. Seidenberg)
* Director March 2, 1998
- -------------------------
(Patricia Carry Stewart)
* Director March 2, 1998
- -------------------------
(Thomas Thorsen)
* Director March 2, 1998
- -------------------------
(M. Cabell Woodward, Jr.)
/s/ Charles C. Conaway March 2, 1998
- -------------------------
(Charles C. Conaway)
Attorney-in-Fact
* An asterisk denotes executionTo be filed by Charles C. Conaway as Attorney-in-Fact.
II-5
amendment.
E-1