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ASSET PURCHASE AGREEMENT
among
CVS PHARMACY, INC.
CVS CORPORATION
J.C. PENNEY COMPANY, INC. and
SELLERS LISTED ON EXHIBIT A ATTACHED HERETO
dated as of April 4, 2004
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TABLE OF CONTENTS
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PAGE
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ARTICLE 1
PURCHASE AND SALE
Section 1.01. Purchase and Sale of Purchased
Assets...........................2
Section 1.02. Excluded
Assets.................................................5
Section 1.03. Assumed
Liabilities.............................................6
Section 1.04. Excluded
Liabilities............................................7
Section 1.05. Purchase of Southern Entity
Shares..............................8
Section 1.06. Financial
Statements............................................8
Section 1.07. Unadjusted Purchase
Price.......................................8
Section 1.08. Conditional Purchase Price
Adjustment...........................9
Section 1.09. Estimated Purchase
Price........................................9
Section 1.10. Physical
Inventory..............................................9
Section 1.11. Closing Working Capital
Adjustment.............................10
Section 1.12. Intercompany
Obligations.......................................12
Section 1.13. Failed Landlord
Consents.......................................12
Section 1.14.
Closing........................................................14
Section 1.15. Deliveries At The
Closing......................................14
Section 1.16. Nonassignable Leases and
Contracts.............................17
Section 1.17. Obligation of the Purchaser to
Perform.........................18
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE PARENT
Section 2.01. Representations and Warranties
Regarding the Parent
and the Sellers..............................................18
Section 2.02. Representations and Warranties
Regarding the
Southern Business............................................20
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CVS AND THE PURCHASER
Section 3.01. Organization, Standing and
Corporate Power.....................34
Section 3.02. Authority of Purchaser;
Noncontravention.......................34
Section 3.03. Authority of CVS;
Noncontravention.............................35
Section 3.04. Governmental Consents and
Approvals............................36
Section 3.05.
Brokers........................................................36
Section 3.06.
Financing......................................................36
Section 3.07. Investment
Intent..............................................36
Section 3.08. Sophistication of the
Purchaser................................37
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ARTICLE 4
COVENANTS
Section 4.01. Conduct of
Business............................................37
Section 4.02. Casualty;
Condemnation.........................................42
Section 4.03. Acquisition Proposals;
Inconsistent Activities.................42
Section 4.04. Access To Information;
Confidentiality; Data
Bridge Development...........................................43
Section 4.05. Reasonable Best Efforts;
Regulatory Matters....................44
Section 4.06. Public
Announcements...........................................47
Section 4.07. Further Assurances; No
Hindrances..............................48
Section 4.08. Notices of Certain
Events......................................48
Section 4.09. Notice of Possible
Breach......................................48
Section 4.10. Prescription
Files.............................................48
Section 4.11. Tax
Matters....................................................48
Section 4.12. Tax Matters Relating To The
Southern Entities..................53
Section 4.13. Employee
Matters...............................................59
Section 4.14. Guarantee Releases under Certain
Contracts.....................63
Section 4.15. Contractual
Overpayments.......................................63
Section 4.16. Framework
Agreement............................................63
Section 4.17. Parent PBM
Agreement...........................................64
Section 4.18. Title and
Survey...............................................64
Section 4.19. Environmental
Inspections......................................65
Section 4.20.
Prorations.....................................................66
Section 4.21. Medicare And Medicaid Provider
Numbers.........................66
Section 4.22.
Non-solicitation...............................................66
Section 4.23. Monthly Financial
Reports......................................67
Section 4.24. Texas
Certifications...........................................67
Section 4.25. Northern
Sites.................................................67
Section 4.26. Insurance Claims
Administration................................67
Section 4.27. Controlled Substances
Inventory................................67
Section 4.28. JCP Telemarketing
Agreement....................................67
Section 4.29. Sharing of Net Real Estate Costs
in CN States..................68
Section 4.30. EDC Licensing,
Inc.............................................68
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.01. Conditions to Each Party's
Obligation..........................68
Section 5.02. Conditions to Obligations of the
Parent and the Sellers........69
Section 5.03. Conditions to Obligations of the
Purchaser.....................69
ARTICLE 6
TERMINATION, AMENDMENT AND WAIVER
Section 6.01.
Termination....................................................70
Section 6.02. Effect of
Termination..........................................71
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Section 6.03.
Amendment......................................................71
Section 6.04. Extension;
Waiver..............................................71
ARTICLE 7
INDEMNIFICATION
Section 7.01. Indemnification By The
Parent..................................72
Section 7.02. Indemnification by
CVS.........................................73
Section 7.03. Notice And Resolution of
Claims................................74
Section 7.04. Limits on
Indemnification......................................75
Section 7.05. Indemnity
Payments.............................................76
Section 7.06. Coordination With Tax
Covenant.................................76
Section 7.07.
Knowledge......................................................76
ARTICLE 8
MISCELLANEOUS
Section 8.01.
Reliance.......................................................77
Section 8.02. Fees and
Expenses..............................................77
Section 8.03. Certain
Definitions............................................77
Section 8.04.
Notices........................................................89
Section 8.05.
Interpretation.................................................90
Section 8.06. Entire Agreement; Third Party
Beneficiaries....................91
Section 8.07. Governing Law;
Venue...........................................91
Section 8.08.
Assignment.....................................................92
Section 8.09. Alternative
Structure..........................................92
Section 8.10.
Enforcement....................................................93
Section 8.11.
Severability...................................................93
Section 8.12.
Counterparts...................................................94
Section 8.13. Bulk Sales
Laws................................................94
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ASSET PURCHASE AGREEMENT
This ASSET
PURCHASE AGREEMENT, dated as of April 4, 2004 (this
"Agreement"), is made and entered into
among CVS Pharmacy, Inc., a Rhode Island
corporation (the "Purchaser"), CVS
Corporation, a Delaware corporation ("CVS"),
J.C. Penney Company, Inc., a Delaware
corporation (the "Parent"), and the
Sellers listed on Exhibit A attached hereto
(including, Eckerd Corporation, a
Delaware corporation ("Eckerd"), Thrift
Drug, Inc., a Delaware corporation
("Thrift") and Genovese Drug Stores, Inc.,
a Delaware corporation ("Genovese")
collectively, the "Sellers").
RECITALS:
A. TDI
Consolidated Corporation, a Delaware corporation and an
indirect
wholly owned subsidiary of the Parent, owns
all of the issued and outstanding
shares (the "TDI Shares") of the capital
stock of the companies listed on
Exhibit B hereto (the "TDI Companies").
B. The TDI
Companies and TDI Subsidiaries are engaged in the business of
owning and operating a chain of retail
drugstores, pharmacy benefit
administration and management services,
mail order pharmacy services, specialty
pharmacy and related businesses (the
"Business").
C. Upon the
terms and subject to the conditions contained herein, the
Purchaser desires to purchase from the
Sellers, and the Sellers desire to sell
to the Purchaser, the Purchased Assets (as
defined in Section 1.01) and the
Southern Entity Shares (as defined in
Section 1.05).
D. On the terms and
subject to the conditions contained herein, the Sellers
desire to assign to the Purchaser, and the
Purchaser is willing to assume, the
Assumed Liabilities.
E. Immediately
following the consummation of the sale of the Purchased
Assets and the Southern Entity Shares, the
TDI Shares will be sold to The Jean
Coutu Group (PJC) Inc. (the "Stock
Purchaser") pursuant to a stock purchase
agreement dated as of the date hereof (the
"Stock Purchase Agreement").
F. Concurrently
with the execution and delivery of this Agreement, the
Sellers have delivered to the Purchaser a
Disclosure Schedule, dated as of the
date hereof (the "Disclosure
Schedule").
G. Capitalized
terms used but not defined have the meanings assigned to
such terms in Section 8.03.
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NOW, THEREFORE, in consideration of the representations,
warranties,
agreements and covenants contained in this
Agreement, the parties hereto hereby
agree as follows:
ARTICLE 1
PURCHASE AND SALE
Section 1.01.
Purchase and Sale of Purchased Assets. Except as otherwise
provided below, upon the terms and subject
to the conditions set forth in this
Agreement, the Purchaser agrees to purchase
from the Sellers at the Closing, and
the Sellers agree to sell, convey, assign,
transfer and deliver ("Transfer"), or
cause to be Transferred to the Purchaser at
the Closing (as defined in Section
1.14), free and clear of any mortgage,
lien, pledge, charge, security interest,
claim, preemptive right, covenant, right of
way, easement, restriction,
encumbrance or other adverse claim of any
kind ("Liens or Encumbrances"), other
than Permitted Liens, all of the Sellers'
right, title and interest in, to and
under all assets and properties relating
primarily to the Southern Business, as
the same shall exist on the Closing Date
(as defined in Section 1.14), including
all assets shown on the Balance Sheet and
all assets relating primarily to the
Southern Business acquired by the Sellers
between the date of the Balance Sheet
and the Closing Date (and not disposed of
in the ordinary course of business as
permitted by this Agreement) (the
"Purchased Assets"), including, without
limitation, the following:
(a) Inventory.
All pharmaceutical and non-pharmaceutical inventories at the
Southern Sites and owned by a Seller
(including private label inventory),
including inventory ordered and earmarked
for, but not yet delivered to, the
Southern Sites (collectively, the
"Inventory");
(b) Fixed
Assets; Personal Property. All of the fixed assets and tangible
personal property (other than the
Inventory) located at the Southern Sites and
owned by the Sellers;
(c) Prescription
Files. All of the prescription files owned and used
primarily in connection with the operation
of the Southern Business and all of
the patient profiles, customer lists,
transferable licenses, phone numbers,
goodwill and other intangible assets owned
and used primarily in connection with
the Southern Sites (the "Prescription
Files");
(d) Southern
Site Leases. The Southern Site Leases set forth on Section
1.01(d) of the Disclosure Schedule (the
real property leased pursuant to the
Southern Site Leases is referred to
collectively as the "Leased Real Property")
and buildings and other improvements owned
by the Sellers located on Leased Real
Property subject to ground lease, and all
commitments to lease stores in any of
the Southern States (x) binding as of the
date of this Agreement and disclosed
in writing to the Purchaser's counsel prior
to the date hereof or (y) consented
to in
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writing by Purchaser in accordance with
Section 4.01 (and all Leased Real
Property documents, related construction
plans and documents and related real
estate files);
(e) Owned Real
Property. The real property owned by the Sellers and set
forth on Section 1.01(e) of the Disclosure
Schedule (the "Owned Real Property"
and together with the Leased Real Property,
the "Real Property"), together with
all buildings, fixtures, and improvements
erected thereon and buildings and
other improvements owned by the Sellers and
located on the Owned Real Property
(and all title documents, surveys, related
construction plans and documents and
related real estate files with respect to
the Owned Real Property);
(f) Deposits.
All of the Sellers' security deposits relating to the
Southern Site Leases where the landlord
thereunder has consented in writing to
the transfer of the deposits to the
Purchaser and, to the extent transferable,
all utility deposits relating to the
Southern Sites;
(g) Permits. All
Permits (as defined in Section 2.02(f)(ii)) relating
primarily to the operation of the Southern
Business, to the extent such Permits
are transferable;
(h) Telephone
and Fax Numbers. The right to use the telephone and fax
machine numbers assigned to each of the
Southern Sites;
(i) Claims
Relating to Purchased Assets. All claims, credits, causes of
action, rights of recovery and rights of
setoff of every type and kind relating
solely to the Purchased Assets, including
suppliers' and manufacturer's
warranties with respect to the Purchased
Assets, in each case, whether accruing
before or after the Closing;
(j) Shared
Claims. An amount of any recoveries received by the Sellers
after the Closing and allocable to the
Southern Business based upon the Agreed
Sharing Proportion from any claims, causes
of action, rights of recovery and
rights of set off relating to both the
Southern Business and the Northern
Business, except as otherwise set forth in
the Framework Agreement;
(k) Other
Tangible Property. All other tangible property, real, personal
or
mixed, located at the Southern Sites that
the Sellers own and utilize primarily
in connection with the operation of the
Southern Business;
(l) Goodwill.
All goodwill associated with the Purchased Assets;
(m) Assigned
Contracts. All Contracts (as defined in Section 2.02(n))
relating primarily to the Southern Business
(the "Assigned Contracts");
(n) Split
Contracts. The benefits of the Contracts which are apportioned
to
the Purchaser pursuant to the Framework
Agreement;
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(o) Scanning and
Computer Equipment. Any of the point-of-sale scanning
systems, computer equipment and pharmacy
and hardware systems owned by the
Sellers and located at any of the Southern
Sites;
(p) Petty Cash.
Petty cash in an aggregate amount equal to $2,500 per
Southern Store ("Petty Cash");
(q) Repair and
Replacement Equipment. A share of all repair or replacement
equipment and tools of the Business, which
will be allocable to the Southern
Business for this purpose based upon the
Agreed Sharing Proportion, except as
otherwise set forth in the Framework
Agreement;
(r) Certain
Intellectual Property Rights. All Intellectual Property Rights
owned by the Sellers (or a Subsidiary of a
Seller) and associated solely with
the Southern Drugstore Business, PBM
Business, Specialty Pharmacy Business or
the Mail Order Business, except as
otherwise set forth in the Framework
Agreement;
(s) Shared
Intellectual Property Rights. Intellectual Property Rights
allocated to the Southern Business pursuant
to the Framework Agreement;
(t) Receivables.
Receivables attributable to the Southern Business (to be
delivered to the Purchaser in the manner
contemplated in the Framework
Agreement);
(u) Shared
Receivables. Receivables apportioned to the Purchaser pursuant
to the Framework Agreement.
(v) Books and
Records. All books, records, files and papers, whether in
hard copy or computer format, located at
the Southern Sites or relating
primarily to the Purchased Assets and/or
the Southern Business (and copies of
other books, records, files and papers
relating to the Southern Business),
including engineering information, sales
and promotional literature, manuals and
data, sales and purchase correspondence,
lists of present and former suppliers,
lists of present and former customers,
personnel and employment records and any
information relating to any Taxes imposed
on the Purchased Assets or the
Southern Business;
(w) Vehicles.
The vehicles, trucks and other rolling stock used primarily
in connection with the Southern Sites;
(x) Largo Mail
Order Site. The right to rent the Largo Mail Order Site for
a lease period of thirty-six (36) months
after the Closing Date at a rate of
$3.00 with such rights of ingress and
egress (including parking spaces) as are
currently used by the Largo Mail Order
Site; and
(y) CN Real
Estate Interests. If the CN Trigger occurs prior to Closing,
the CN Real Estate Interests.
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provided, however, that the definition of
Purchased Assets shall not include any
items defined as Excluded Assets in Section
1.02.
Section 1.02.
Excluded Assets. The Purchaser expressly understands and
agrees that all other assets and property
of the Sellers, the Parent and of the
Business, other than the assets owned by
any of the Southern Entities (all such
other assets except the assets of any of
the Southern Entities hereafter
referred to as the "Excluded Assets"),
shall be excluded from the Purchased
Assets. Excluded Assets include, without
limitation, the following:
(a) Cash and
Cash Equivalents. All of the Sellers' cash and cash
equivalents on hand and in banks, other
than Petty Cash;
(b) Northern
Receivables. All receivables not attributable to the Southern
Business and those receivables apportioned
to the Stock Purchaser pursuant to
the Framework Agreement;
(c) Intellectual
Property Rights. The Sellers' and the Parent's
Intellectual Property Rights owned or used
in connection with the operation of
the Business (other than the Intellectual
Property Rights referred to in Section
1.01(r) or Section 1.01(s)), including the
names "Eckerd," "Thrift Drug",
"Genovese" and "JCPenney" and all similar
or related names, marks and logos;
(d) Insurance
Policies. Any insurance policies relating to the Southern
Sites or the Purchased Assets but not
insurance proceeds, condemnation awards
and other compensation or reimbursement
under Section 4.02;
(e) Tax Refunds.
Any refund of Taxes attributable to any Pre-Closing Tax
Period, however generated, including, to
the extent provided in Section 4.12(i),
any refund received as a result of the
carry back of a net operating or capital
loss arising in a Post-Closing Tax
Period;
(f) Leased
Equipment. All leased equipment located at or used in the
Southern Sites (for the avoidance of doubt,
all leased equipment will be dealt
with as described in the Framework
Agreement);
(g) Contracts.
All rights under contracts except the contracts referenced
in Section 1.01(d), Section 1.01(m) or
Section 1.01(n);
(h) Disposed
Assets. Any Purchased Assets sold or otherwise disposed of in
the ordinary course and not in violation of
any provision of this Agreement
during the period from the date hereof
until the Closing Date;
(i) Equity Interests.
The TDI Shares or other equity interests in the
Sellers or any of their affiliates (other
than the Southern Entity Shares);
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(j) Books and
Records. All books, records, files and papers, whether in
hard copy or computer format, relating to
any Excluded Asset or primarily to the
Northern Business;
(k) Airplanes.
All Airplanes owned by the Sellers;
(l) Domain
Names. All domain names listed on Section 1.02(l) of the
Disclosure Schedule including those
employing the name "J. C. Penney,"
"JCPenney," "Penney" or "JCP," "Eckerd,"
"Thrift Drug" or "Genovese";
(m) Internet
Protocol Address. All internet protocol address spaces;
(n) Phone
Network. The Parent's and the Sellers' phone networks, the
Parent's and the Sellers' internet mail and
the Parent's and the Sellers'
computer networks except as referenced in
Section 1.01(h);
(o) Medicare and
Medicaid Numbers. All Medicare and Medicaid provider
numbers;
(p) Excluded
Items. Any item which is excluded pursuant to Section 4.01(C);
and
(q) CN State
Assets. All assets and properties of the Sellers in or with
respect to the CN States except, if the CN
Trigger occurs prior to Closing, the
CN Real Estate Interests.
Section 1.03.
Assumed Liabilities. Upon the terms and subject to the
conditions contained in this Agreement, the
Purchaser agrees, effective at the
Closing, to assume, and to pay, perform or
otherwise discharge when due, all
liabilities and obligations arising out of
the Southern Business or the
Purchased Assets but excluding any Excluded
Liabilities (as defined in Section
1.04) (the "Assumed Liabilities"), and the
Assumed Liabilities for the purposes
of this Agreement include, without
limitation:
(a) all
liabilities and obligations set forth or reserved on the
Balance
Sheet (other than any liabilities excluded
under Section 4.11, Section 4.12 or
Section 4.13);
(b) all
liabilities and obligations incurred after the Balance Sheet
Date
arising out of the Purchased Assets or the
Southern Business (other than
Excluded Liabilities);
(c) all
liabilities and obligations of the Sellers under the Assigned
Contracts or the Southern Site Leases or
liabilities and obligations under Split
Contracts apportioned to the Purchaser
under the Framework Agreement;
(d) all
liabilities and obligations assumed by the Purchaser under
Section
4.11, Section 4.12 and Section 4.13 hereof;
and
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(e) if the CN
Trigger has occurred prior to Closing, 50% of the Aggregate
CN Net Real Estate Liability (as defined in
Section 4.29).
Any liabilities or obligations (other than
Excluded Liabilities) that relate to
both the Northern Business and the Southern
Business (including the Split
Contracts) shall be apportioned between the
Purchaser and the Stock Purchaser
based upon the Agreed Sharing Proportion or
as otherwise provided for in the
Framework Agreement.
Section 1.04.
Excluded Liabilities. Notwithstanding any provision in this
Agreement or any other writing to the
contrary, the Purchaser is assuming only
the Assumed Liabilities and is not assuming
any other liability or obligation of
the Parent, the Sellers or any of their
affiliates (or any predecessor of the
Parent, the Sellers or any prior owner of
all or part of their businesses and
assets) of whatever nature, whether
presently in existence or arising hereafter.
All such other liabilities and obligations
shall be retained by and remain
obligations and liabilities of the Parent
or the Sellers, as applicable (all
such liabilities, claims and obligations
not being assumed and for which the
Purchaser and Southern Entities will not be
responsible being herein referred to
as the "Excluded Liabilities"), and,
notwithstanding anything to the contrary in
this Agreement, the Excluded Liabilities
for the purposes of this Agreement
include, without limitation:
(a) any
liability or obligation of the Sellers or any Southern Entity,
or
any member of any consolidated, affiliated,
combined or unitary group of which
any Seller or any of the Southern Entities
is or has been a member, for Taxes
except to the extent provided in Section
4.11(d) and Section 4.12 hereof;
(b) any
liability for which the Parent is responsible under Section
4.11,
Section 4.12 or Section 4.13 hereof;
and
(c) any
Environmental Liability (including any contract relating to the
investigation, cleanup, abatement,
remediation or similar actions in connection
with Environmental Liabilities);
(d) any
liability for or arising out of Actions under the Fair Labor
Standards Act (or any comparable state law)
pending as of the Closing Date,
including those listed on Section 1.04(d)
of the Disclosure Schedule;
(e) any
liability or obligation excluded pursuant to Section 4.01(C);
(f) any
liability or obligation relating to an Excluded Asset;
(g) any
liability or obligation (other than liabilities or obligations
for
which the Purchaser or any of the Southern
Entities is responsible under Section
4.11, Section 4.12 or Section 4.13) (i)
that is imposed on the Southern Business
or any Southern Entity based on a
consolidated group liability or a similar
principle of liability where such
liabilities are primarily attributable to the
Parent or (ii) that does not arise out of
the Business or the Purchased Assets;
and
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(h) any
liability relating to the CN States including the Aggregate CN
Net
Real Estate Liability, other than, if the
CN Trigger has occurred prior to
Closing, 50% of the Aggregate CN Net Real
Estate Liability.
For the
avoidance of doubt, the occurrence of an Excluded Liability
item
(for example taxes) on the Balance Sheet,
the Related Financials, the Audited
Financial Statements or the Unaudited
Quarterly Financial Statements does not
mean that such item is not an Excluded
Liability.
Section 1.05.
Purchase of Southern Entity Shares. Upon the terms and
subject to the conditions of this
Agreement, at the Closing, the Stock Sellers
shall sell and deliver to the Purchaser,
and the Purchaser shall purchase and
acquire from the Stock Sellers, all of the
issued and outstanding shares of
capital stock of each Southern Entity
(collectively, "Southern Entity Shares")
free and clear of all Liens or
Encumbrances, other than any Liens or
Encumbrances created by the Purchaser and
any restrictions on transferability
under applicable securities Laws.
Section 1.06.
Financial Statements. (a) Prior to the Closing Parent will
deliver to the Purchaser true and complete
copies of the financial statements of
the Southern Business as of and for the
fiscal year ended on the Balance Sheet
Date, together with the notes relating
thereto prepared and audited in
accordance with Regulation S-X (the
"Audited Financial Statements"). The Audited
Financial Statements will be prepared on a
basis consistent with the Balance
Sheet and Related Financials and in
accordance with United States Generally
Accepted Accounting Principles ("GAAP") and
adhering to the Balance Sheet
Principles.
(b) Promptly
after the applicable Quarter Date (but in no event later than
45 calendar days after the Closing Date),
Parent will deliver to the Purchaser
true and complete copies of the financial
statements of the Southern Business as
of and for the last day of any fiscal
quarter of the Southern Business ended
after the Balance Sheet Date but prior to
the Closing Date ("Quarter Date"),
together with the notes relating thereto,
which may be condensed in accordance
with the rules of the Securities and
Exchange Commission (the "Unaudited
Quarterly Financial Statements") prepared
on a basis consistent with the Balance
Sheet and Related Financials and in
accordance with GAAP and adhering to the
Balance Sheet Principles. The Parent will
require its independent auditors to
review the Unaudited Quarterly Financial
Statements in accordance with guidance
provided in Statement on Auditing Standards
No. 100.
(c) The Audited
Financial Statements and the Unaudited Quarterly Financial
Statements shall comply with all of the
requirements of Regulation S-X
promulgated under the Securities Act of
1933, as amended ("Securities Act") and
as applicable to the Purchaser.
Section 1.07.
Unadjusted Purchase Price. The unadjusted purchase price for
the Purchased Assets and the Southern
Entity Shares shall be $2,150,000,000
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(Two Billion One Hundred Fifty Million
Dollars) in cash (the "Unadjusted
Purchase Price").
Section 1.08. Conditional Purchase
Price Adjustment. If the Stock Purchase
Agreement contains, or is amended after the
date of this Agreement to contain, a
provision adjusting the payment of the
"purchase price" set forth in the Stock
Purchase Agreement as of the date hereof
based upon a multiple of EBITDA or
similar earnings or other financial
measure, or if there is any similar
agreement or arrangement between the Parent
or its affiliates or agents on the
one hand or the Stock Purchaser or its
affiliates or agents on the other, then a
substantially similar provision shall be
deemed to be a part of this Agreement
and the Estimated Purchase Price and
Purchase Price hereunder shall be adjusted
by using a substantially similar principle
modified as necessary to be
applicable to the Southern Business. In the
event of a dispute between the
parties with respect to the adjustment, the
Purchaser shall wire transfer the
Estimated Purchase Price, and the amount of
any adjustment shall be determined
in accordance with the provisions of
Section 1.11(b) and Section 1.11(c), and
any payments following such determination
shall be in accordance with Section
1.11(e), and such provisions shall apply
mutatis mutandis to matters covered by
this Section 1.08.
Section 1.09.
Estimated Purchase Price.
(a) Not later
than the third business day prior to the Closing Date, the
Parent shall deliver to the Purchaser a
statement (the "Estimated Closing
Working Capital Statement") setting forth
the Parent's estimate of Closing
Working Capital ("Estimated Closing Working
Capital") and the Parent's
calculation thereof in reasonable detail.
The Estimated Closing Working Capital
Statement shall be prepared in good faith
in accordance with GAAP using the same
accounting principles, methodologies,
policies and practices used in the
preparation of the Balance Sheet (including
the Balance Sheet Principles) and
shall be based upon Parent's review of the
financial information then available
to it.
(b) "Estimated
Purchase Price" shall mean a cash amount equal to the
Unadjusted Purchase Price plus or minus the
amount by which Estimated Closing
Working Capital is greater or less,
respectively, than the Baseline Number. The
Baseline Number was calculated by the
Parent (as described on Schedule A) and
represents the Working Capital as of
January 31, 2004.
Section 1.10.
Physical Inventory. In the period between the date of this
Agreement and the Closing Date, Parent will
cause RGIS Inventory Specialists
(the "Inventory Firm") to undertake a UPC
item-level physical inventory in (i)
each of the two hundred (200) Southern
Stores listed on Section 1.10 of the
Disclosure Schedule and (ii) Southern
Distribution Centers. These physical
inventories will be in addition to Parent's
normal recurring physical
inventories taken by the Inventory Firm
which will include approximately ten
percent (10%) of the Southern Stores per
month and in addition include normal
recurring
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physical inventories of the PBM Business,
the Mail Order Business and the
Specialty Pharmacy Business. Parent will
provide Purchaser ten (10) calendar
days prior notice of the date on which the
physical inventory will be taken at
the applicable Southern Site and each party
will have an employee and/or agent
present during each physical inventory at
each Southern Site taken by the
Inventory Firm. Purchaser will be entitled
to receive a copy of the electronic
UPC item-level physical inventory file for
each inventory taken by the Inventory
Firm. The results of the physical inventory
will be recorded in the Closing Date
Balance Sheet (as defined in Section 1.11)
and the Closing Working Capital
Statement (as defined in Section 1.11) on
all relevant items including
"Merchandise Inventory-FIFO" and "Inventory
Reserves". In addition, Parent and
Purchaser will use the aggregate shrink
rate trend calculated from physical
inventories taken in all of the two hundred
(200) Southern Stores listed on
Section 1.10 of the Disclosure Schedule to
adjust the shrink reserves for the
remaining Southern Stores and reflect the
projected physical inventory number
for such Southern Stores in the Closing
Date Balance Sheet and the Closing
Working Capital Statement on all relevant
items including "Merchandise
Inventory-FIFO" and "Inventory Reserves".
The Purchaser and the Parent agree
that, absent manifest error, the physical
inventory counts of the Inventory Firm
shall be final and binding on each of the
parties.
Section 1.11.
Closing Working Capital Adjustment.
(a) Closing
Working Capital Statement. As promptly as practicable, and in
any event within 90 calendar days after the
Closing Date, the Purchaser shall
deliver or cause to be delivered to the
Parent (i) a statement of assets
acquired and liabilities assumed of the
Southern Business as of and including
the Closing Date (the "Closing Date Balance
Sheet"), prepared using the same
accounting principles, methodologies,
policies and practices used in the
preparation of the Balance Sheet (including
the Balance Sheet Principles), and
(ii) a statement setting forth the
Purchaser's calculation of Closing Working
Capital (the "Closing Working Capital
Statement"). Each of the Closing Date
Balance Sheet and the Closing Working
Capital Statement shall include items that
are updated in accordance with Section
1.10.
(b) Review of
Closing Working Capital Statement. Within 45 calendar days
after the delivery to the Parent of the
Closing Date Balance Sheet and the
Closing Working Capital Statement (the
"Parent Review Period"), the Parent shall
notify the Purchaser of its agreement or
disagreement with the Closing Working
Capital Statement. If the Parent in good
faith disagrees with the Purchaser's
determination of Closing Working Capital,
the Parent may deliver to the
Purchaser, prior to the expiration of the
Parent Review Period, a notice (the
"Parent Objection Notice") setting forth in
reasonable detail (i) the items or
amounts with which the Parent disagrees and
the basis for such disagreement and
(ii) the Parent's proposed corrections to
the Closing Working Capital Statement
(collectively, the "Parent Objection"). If
the Parent does not deliver a Parent
Objection Notice within the Parent Review
Period, the Parent shall be deemed to
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agree in all respects with the Closing
Working Capital Statement and the items
and amounts reflected thereon shall be
final and binding upon the Purchaser and
the Parent.
(c) Review by
Accountants. If a Parent Objection Notice is properly and
timely delivered and the Purchaser and the
Parent are unable to resolve any
disagreement between them with respect to
the determination of Closing Working
Capital within 30 calendar days after
delivery of a Parent Objection Notice, the
Purchaser and the Parent shall cause
PriceWaterhouseCoopers (or, if they are
unable or unwilling to serve, a firm of
accountants of nationally recognized
standing reasonably satisfactory to the
Purchaser and the Parent) (the
"Accountants") to promptly review this
Agreement and the disputed items or
amounts in the Closing Working Capital
Statement for the purpose of resolving
such dispute. The Accountants shall
consider only those items or amounts in the
Closing Working Capital Statement as to
which the Parent has, in the Parent
Objection Notice, disagreed and such other
issues as may reasonably be affected
by the items to which the Parent has so
disagreed. The Accountants shall be
required to deliver to the Purchaser and
the Parent, as promptly as practicable,
but no later than 60 calendar days after
the Accountants are engaged, a written
report setting forth their resolution and,
if applicable, their calculation of
the disputed items or amounts. In no event
shall the Accountants' determination
result in Closing Working Capital that is
greater than that set forth in the
Parent Objection Notice or less than that
set forth in the Closing Working
Capital Statement. The parties shall
promptly comply with all reasonable
requests by the Accountants for
information, books, records and similar items.
Upon delivery of the Accountants' report,
such report and the calculations set
forth therein shall be final and binding
upon the Purchaser and the Parent
absent manifest error. The cost of such
review and report shall be split equally
by the Purchaser and the Parent.
(d) Cooperation.
Each of the Purchaser, the Sellers and the Parent shall
cooperate and assist each other in the
preparation of the Closing Date Balance
Sheet and the Closing Working Capital
Statement and in the conduct of the
reviews referred to in this Section 1.11,
and the Purchaser and the Sellers
shall cooperate and assist the Parent and
the Stock Purchaser in the review of
the Closing Date Balance Sheet and Closing
Working Capital Statement described
in the Stock Purchase Agreement, including
without limitation (i) the Purchaser
making available to the extent necessary or
helpful books, records, workpapers
and personnel of the Southern Business,
(ii) the Parent making available to the
extent necessary or helpful books and
records of the Parent (as they relate to
the Business), and (iii) the Sellers making
available to the extent necessary or
helpful books, records, workpapers and
personnel of the Northern Business (and
any books, records and workpapers relating
to the Southern Business in their
possession).
(e) Final
Payment. Within three business days after the calculation of
Closing Working Capital becoming final
pursuant to Section 1.11(b) or Section
1.11(c), as applicable, (i) the Purchaser
shall pay to the Parent, by wire
transfer of
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immediately available funds to an account
designated by the Parent, an amount
equal to the amount, if any, by which
Closing Working Capital (as finally
determined pursuant to Section 1.11(b) or
Section 1.11(c), as applicable) minus
$44,000,000 exceeds Estimated Closing
Working Capital, together with interest
thereon at the Applicable Rate from and
including the Closing Date to, but
excluding, the date of such payment, or
(ii) the Parent shall pay to the
Purchaser, by wire transfer of immediately
available funds to an account
designated by the Purchaser, an amount
equal to the amount, if any, by which
Estimated Closing Working Capital plus
$44,000,000 exceeds Closing Working
Capital (as finally determined pursuant to
Section 1.11(b) or Section 1.11(c),
as applicable), together with interest
thereon at the Applicable Rate from and
including the Closing Date to, but
excluding, the date of such payment.
Section 1.12.
Intercompany Obligations. Prior to the Closing, the Parent
and the Sellers shall, and shall cause
their affiliates to, eliminate all
intercompany obligations of the Southern
Entities other than trade payables and
trade receivables. Notwithstanding anything
to the contrary contained in this
Agreement, and regardless of their being
reflected on the Balance Sheet,
intercompany obligations attributable to
the Southern Business (if any) other
than trade receivables and payables shall
not be included in any of the
Purchased Assets, Assumed Liabilities,
Working Capital, Estimated Closing
Working Capital Statement or Closing
Working Capital Statement.
Section 1.13.
Failed Landlord Consents.
(a) From and
after the date of this Agreement, Parent and Sellers will seek
to obtain the consents of all landlords
whose consent is required to assign an
applicable Southern Site Lease to Purchaser
and will provide notices to all
landlords whose Southern Site Leases
require notice in connection with an
assignment. As part of such effort, Parent
and Sellers shall make its lease
files available to Purchaser at Sellers'
offices or at such other location as
the parties may agree for such purpose.
Purchaser shall cooperate in such
efforts and shall provide Parent and
Sellers with any required documents or
deliveries required under the applicable
Southern Site Leases to effect such
lease assignments. If within a nine month
period following the Closing Date (the
"Landlord Consent Period"), a Landlord
Objection is received with respect to any
Southern Site Lease (any such Southern
Site, a "Problem Site"), and such
Landlord Objection is not withdrawn despite
the Purchaser or its affiliates
making all good faith efforts, other than
agreeing to pay increased rent or
agreeing to vacate the Problem Site or
agreeing to any other restriction on use
of such Problem Site, then the Purchaser
may at its reasonable option:
(i) vacate such Problem Site and close the business and operations
at
such Problem
Site (the aggregate costs associated with all such vacations
and closures of
all such Problem Sites, the "Closure Costs");
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<PAGE>
(ii) vacate such Problem Site and lease an alternative site on
at-market terms
("New Site") (the aggregate amount by which the rent for
all New Sites
(for the same term as the remainder of the term for the
applicable
Problem Site) and vacation and relocation costs exceed the
aggregate rent
for the remaining term of all applicable Problem Sites, the
"Replacement
Site Costs"); or
(iii) negotiate with the applicable landlord and agree to
modified
lease terms for
the applicable Problem Site, which reflect fair market
terms and
conditions, subject to providing notice to Parent and Sellers
of
such modified
terms (the aggregate amounts by which the new rent/occupancy
costs for all
Problem Sites (for the same term as the remainder of the term
for the
applicable Problem Site) exceed the aggregate rent for the
remaining term
of all applicable Problem Sites, the "Increased Occupancy
Costs", and
together with the Replacement Site Costs and Closure Costs, on
a pre-tax basis,
the "Increased Costs").
provided that in the first instance,
Purchaser shall make commercially
reasonable efforts to negotiate with the
applicable landlord and agree to
modified lease terms for the applicable
Problem Site pursuant to clause (iii)
above and only upon failing to reach
agreement with the applicable landlord on
commercially reasonable terms, the
Purchaser will use its rights under clauses
(i) or (ii) at its sole option; and
provided further that "commercially
reasonable efforts" and "commercially
reasonable terms" shall not require the
Purchaser, in its reasonable judgment, to
accept other than a "de minimis"
restriction on the use, access, signage,
visibility or parking associated with
the applicable Problem Site. For the
avoidance of doubt, references to "de
minimis" under this Section 1.13 shall not
be construed by reference to the
definition of a "De Minimis Matter" in
Section 7.04(a).
(b) If the net
present value (using the Applicable Rate as of the Closing
Date as the discount rate) of the Increased
Costs exceeds $1,000,000 (such
amount, the "Excess Amount"), the Purchaser
shall, within 60 calendar days of
the end of the Landlord Consent Period,
deliver to the Parent a statement of the
Purchaser's calculation of the Excess
Amount. The Parent shall have 45 calendar
days to dispute such Excess Amount
("Dispute"), and in the event of a Dispute,
the provisions of Section 1.11(b) and
Section 1.11(c) shall apply mutatis
mutandis.
(c) Within three
business days after the calculation of Excess Amount
becoming final after resolution of the
dispute in accordance with Section
1.13(b), the Parent shall pay to the
Purchaser, by wire transfer of immediately
available funds to an account designated by
the Purchaser, an amount equal to
one-half of the Excess Amount (if any, as
finally determined pursuant to Section
1.13(b)) together with interest thereon at
the Applicable Rate from and
including the date of delivery of the
statement of Excess Amount by the
Purchaser to, but excluding, the date of
such payment.
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(d) Any party
receiving a Landlord Objection shall notify all other parties
in accordance with Section 8.04.
(e) Purchaser
will keep Parent reasonably informed of developments and
circumstances regarding the foregoing
matters in Section 1.13 and will act in
good faith with respect to such
matters.
(f)
Notwithstanding the provisions of this Section 1.13, if the Parent
or
the Sellers and the Purchaser are able to
mutually agree upon any reasonable and
lawful arrangement pursuant to Section 1.16
which would provide Purchaser with
the benefits under any applicable Southern
Site Lease, without any increased
rent or material inconvenience or other
than a "de minimis" restriction referred
to in Section 1.13(a), and which does not
cause the affected Southern Site Lease
to be terminated or to be declared in
default by the applicable landlord,
Purchaser shall not have the right to
exercise any of the remedies set forth in
Section 1.13 and such Southern Site will
not be considered a Problem Site.
Section 1.14.
Closing. Unless this Agreement shall have been terminated and
the transactions contemplated hereby shall
have been abandoned pursuant to
Article 6, and subject to the satisfaction
or waiver of all of the conditions
set forth in Article 5, the closing of the
purchase and sale of the Purchased
Assets and the Southern Entity Shares and
the assumption of the Assumed
Liabilities hereunder (the "Closing") will
take place as soon as practicable,
but in no event later than 10:00 a.m.,
Dallas time, on the fifth business day
following satisfaction or waiver of all of
the conditions set forth in Article
5, other than those conditions that by
their nature are to be satisfied at the
Closing (which includes the condition set
forth in Section 5.01(c)), but subject
to the fulfillment or waiver of those
conditions, at the offices of Jones Day,
Dallas, Texas, unless another date, time or
place is agreed to in writing by the
parties hereto (the date on which the
Closing occurs, the "Closing Date").
Section 1.15.
Deliveries At The Closing.
(a) Deliveries
by the Purchaser. At the Closing, the Purchaser shall
deliver to the Sellers:
(i) the Estimated Purchase Price by wire transfer of
immediately
available funds
to one or more accounts designated by the Sellers provided
that the wiring
of funds to two or more separate accounts will not be for
the purpose of,
and shall not have the effect of, allocating the Purchase
Price amongst
the Purchased Assets and the Southern Entity Shares, which
allocation shall
be in accordance with Section 4.11(e), or otherwise have
an adverse
economic effect on the Purchaser;
(ii) a certificate of the Purchaser, dated the Closing Date and
signed
by an authorized
officer of the Purchaser, certifying that the conditions
set forth in
Section 5.02(a) have been satisfied;
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<PAGE>
(iii) executed counterparts to the "Penney Transition Services
Agreement"
substantially in the form attached hereto as Exhibit C1;
(iv) executed counterparts to the "Penney Information
Technology
Services
Agreement" substantially on the terms specified on Exhibit C2
of
this Agreement
and in form and substance reasonably satisfactory to the
Parent and the
Purchaser;
(v) executed counterparts to the "Eckerd Transition Services
Agreement"
substantially in the form attached hereto as Exhibit C3;
(vi) executed counterparts to an insurance instrument relating to
the
Parent's general
liability insurance programs referred to in Section 4.26
in form,
substance and obligation amount reasonably satisfactory to the
Parent and the
Purchaser (the "Insurance Assignment Agreement");]
(vii) executed counterparts to an assignment and assumption
agreement
substantially in
the form attached hereto as Exhibit E (the "Assignment and
Assumption
Agreement");
(viii) subject to Section 1.16, executed counterparts to
instruments
of assignment
and assumption (the "Lease Assignment and Assumption
Agreements"),
pursuant to which the Sellers shall assign the Southern Site
Leases and the
Purchaser shall assume all obligations thereunder (which
shall be
substantially in the form of Exhibit F hereto); and
(ix) executed counterparts to a Management Agreement pursuant to
which
the Purchaser
will manage the Southern Business under the DEA Powers of
Attorney,
substantially in the form attached hereto as Exhibit G (the
"Management
Agreement").
(b) Deliveries
by the Parent and the Sellers. At the Closing, the Parent
and the Sellers shall deliver to the
Purchaser:
(i) certificates representing all of the issued and outstanding
Southern Entity
Shares, duly endorsed in blank for transfer or accompanied
by stock powers
duly endorsed in blank, together with requisite transfer
tax stamps, if
any required by Law, attached;
(ii) a certificate of the Parent, dated the Closing Date and signed
by
an authorized
officer of the Parent, certifying that the conditions set
forth in Section
5.03(a) have been satisfied;
(iii) all minute books, stock record books (or similar registries)
and
corporate
records and seals of the Southern Entities;
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<PAGE>
(iv) written resignations, effective as of Closing, or other
evidence
of removal of
those individuals listed on Section 1.15(b)(iv) of the
Disclosure
Schedule identified by the Purchaser no later than 10 days
before the
Closing Date from all of their positions as directors and/or
officers of the
Southern Entities;
(v) executed counterparts to the Assignment and Assumption
Agreement;
(vi) one or more deeds, bills of sale, endorsements, assignments
and
other
instruments of conveyance and assignment (the "Conveyance
Documents")
as the parties
and their respective counsel shall deem reasonably necessary
or appropriate
to vest in the Purchaser all right, title and interest in,
to and under the
Purchased Assets in form and substance reasonably
satisfactory to
the Purchaser and the Parent;
(vii) executed counterparts to the Lease Assignment and
Assumption
Agreements;
(viii) executed counterparts to the Management Agreement;
(ix) DEA Powers of Attorney in substantially the forms attached
hereto
as Exhibit
H;
(x) with respect to the Owned Real Property: (A) a limited or
special
warranty deed
conveying the Owned Real Property to the Purchaser in fee
simple title
free and clear of all Liens or Encumbrances, except Permitted
Liens, (B)
marked Commitments (as defined in Section 4.18) (or pro forma
title policies)
obligating the title company to issue to the Purchaser an
owner policy of
title insurance for each parcel of Owned Real Property (the
"Owner Title
Policies"), each of which shall provide coverage in the amount
of the Purchase
Price allocated to each parcel of Owned Real Property,
effective as of
the date of the recording of the limited or special
warranty deeds,
subject only to the Permitted Liens and those matters set
forth in the
"Exclusions from Coverage" and "Conditions and Stipulations"
sections of the
Owner Title Policy jackets, with such endorsements and
modifications to
the promulgated policy form as have been requested and
paid for by the
Purchaser, and (C) New Surveys (as defined in Section 4.18)
for the Owned
Real Property;
(xi) with respect to Designated Leased Properties: marked
Commitments
(as defined in
Section 4.18) (or pro forma title policies) obligating the
title company to
issue to the Purchaser a leasehold policy of title
insurance for
each parcel of Designated Leased Properties (the "Leasehold
Title
Policies"), each of which shall provide coverage in the amount of
the
Purchase Price
allocated to each parcel of Designated Leased Properties;
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<PAGE>
(xii) a certificate signed by each Seller that such Seller is not
a
"foreign person"
as defined in Section 1445 of the Code (as defined in
Section
2.02(q));
(xiii) executed counterparts to the Transition Services Agreements
to
which the Parent
or the Sellers are a party;
(xiv) completed and signed Oklahoma Tax Commission disclosure
certificates for
each Southern Site in Oklahoma;
(xv) executed counterparts to the Insurance Assignment Agreement;
and
(xvi) a receipt acknowledging payment of the Estimated Purchase
Price
by the
Purchaser.
Section 1.16.
Nonassignable Leases and Contracts. Notwithstanding anything
to the contrary contained in this
Agreement, to the extent that the Transfer, or
attempted Transfer, of any Southern Site
Lease or Assigned Contract would
constitute a breach thereof, nothing in
this Agreement or in any document,
agreement or instrument delivered pursuant
to this Agreement will constitute a
Transfer or attempted Transfer thereof
prior to the time at which all consents,
waivers, approvals or authorizations
("Consents") necessary for such Transfer
have been obtained. Notwithstanding
anything to the contrary contained in this
Agreement, Assumed Liabilities with respect
to Contracts shall consist only of
Contracts that are either Transferred
pursuant to this Agreement or whose
benefit is provided to the Purchaser either
under this Section 1.16 or under
Section 1.13(a) or under the Framework
Agreement. To the extent such Consents
are not obtained by the Closing, the
Sellers will, from and after the Closing
and until such Consents are obtained, use
commercially reasonable efforts during
the term of the affected Southern Site
Lease or Assigned Contract, to (a)
provide to the Purchaser the benefits under
any such Southern Site Lease or
Assigned Contract, (b) cooperate in any
reasonable and lawful arrangement
designed to provide such benefits to the
Purchaser, including subcontracting,
sublicensing or subleasing to the
Purchaser, and (c) enforce, at the written
request of the Purchaser, for the account
of the Purchaser, any rights of the
Sellers under the affected Southern Site
Lease or Assigned Contract. The
Purchaser will cooperate with the Sellers
in order to enable the Sellers to
provide to the Purchaser the benefits
contemplated by this Section 1.16 and
shall pay reasonable administrative
expenses associated with provision of
benefits under the Assigned Contracts
through the arrangements contemplated in
this Section 1.16. The obligations of the
Sellers in this Section 1.16 are
complementary to the obligations of the
Sellers under the Framework Agreement.
The Parent shall use its commercially
reasonable efforts to cooperate with the
Sellers and the Purchaser in obtaining
Consents and facilitating the matters
contemplated by this Section 1.16.
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Section 1.17.
Obligation of the Purchaser to Perform. From and after the
Closing, the Purchaser will perform the
obligations of the Sellers under the
Assigned Contracts and the Southern Site
Leases, and the obligations with
respect to Split Contracts (to the extent
the Split Contracts constitute
Purchased Assets) provided for under the
Framework Agreement including such
obligations arising under the affected
Southern Site Leases, Assigned Contracts
and Split Contracts referred to in Section
1.16 whose benefit is provided to the
Purchaser under Section 1.16 or under the
Framework Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE PARENT
The Parent
hereby represents and warrants to the Purchaser and to CVS as
follows:
Section 2.01.
Representations and Warranties Regarding the Parent and the
Sellers.
(a)
Organization, Standing and Corporate Power. Each of the Parent,
the
Sellers and each of the Southern Entities
is duly organized, validly existing
and in good standing as a corporation under
the laws of the jurisdiction in
which it is incorporated and has the
requisite corporate power and authority to
carry on its business as now being
conducted. Each of the Parent, the Sellers
and the Southern Entities is duly qualified
or licensed to do business and is in
good standing in each jurisdiction in which
the nature of its business or the
ownership or leasing of its properties
makes such qualification or licensing
necessary, other than in such jurisdictions
where the failure to be so qualified
or licensed would not reasonably be
expected to have, individually or in the
aggregate, a material effect on the ability
of either the Parent or the Sellers
to perform their obligations under this
Agreement or Ancillary Agreements or to
consummate the transactions contemplated
hereby or thereby.
(b) Authority of
Sellers; Noncontravention. Each Seller has the requisite
corporate power and authority to enter into
this Agreement and the Ancillary
Agreements to which it is a party and to
consummate the transactions
contemplated hereby and thereby. The
execution, delivery and performance by each
Seller of this Agreement and the Ancillary
Agreements to which it is a party and
the consummation by each Seller of the
transactions contemplated hereby and
thereby have been duly authorized by all
necessary corporate action on the part
of such Seller. This Agreement has been
duly executed and delivered by each
Seller and, assuming that this Agreement
constitutes a valid and binding
obligation of the Purchaser, constitutes a
valid and binding obligation of each
Seller, enforceable against it in
accordance with its terms, subject to
applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization,
moratorium and similar Laws affecting
creditors' rights and remedies generally
and to general principles of equity. When
the Ancillary Agreements to which a
Seller is a party
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<PAGE>
have been duly executed and delivered by
such Seller and, assuming that such
Ancillary Agreement constitutes a valid and
binding obligation of the Purchaser,
such Ancillary Agreement will constitute a
valid and binding obligation of such
Seller, enforceable against it in
accordance with its terms, subject to
applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization,
moratorium and similar Laws affecting
creditors' rights and remedies generally
and to general principles of equity. The
execution, delivery and performance of
this Agreement and the Ancillary Agreements
do not, and the consummation of the
transactions contemplated hereby and
thereby and compliance with the provisions
hereof and thereof will not, (i) conflict
with any of the provisions of the
certificates of incorporation or bylaws of
the Sellers or the Southern Entities,
(ii) result in the creation or imposition
of any Lien or Encumbrance on the
Southern Entity Shares or any Purchased
Assets or assets of the Southern
Entities except for Liens or Encumbrances
created by this Agreement, (iii)
subject to the governmental filings and
other matters referred to in Section
2.01(d) and except for Consents required
under Southern Site Leases, Split
Contracts and Assigned Contracts, conflict
with, result in a breach of or
default under (with or without notice or
lapse of time, or both) in any material
respect any material contract, agreement,
indenture, mortgage, deed of trust,
lease or other instrument to which any
Seller is a party or by which any Seller
or any of its assets is bound or subject,
or (iv) subject to the governmental
filings and other matters referred to in
Section 2.01(d), contravene any Law or
Order currently in effect.
(c) Authority of
Parent; Noncontravention. The Parent has the requisite
corporate power and authority to enter into
this Agreement and each Ancillary
Agreement to which it is a party and to
consummate the transactions contemplated
hereby and thereby. The execution, delivery
and performance by the Parent of
this Agreement and each Ancillary Agreement
to which it is a party and the
consummation by the Parent of the
transactions contemplated hereby and thereby
have been duly authorized by all necessary
corporate action on the part of the
Parent. This Agreement has been duly
executed and delivered by the Parent and,
assuming that this Agreement constitutes a
valid and binding obligation of the
Purchaser, constitutes a valid and binding
obligation of the Parent, enforceable
against it in accordance with its terms,
subject to applicable bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws
affecting creditors' rights and remedies
generally and to general principles of
equity. When the Ancillary Agreements to
which the Parent is a party have been
duly executed and delivered by the Parent
and, assuming that such Ancillary
Agreements constitute valid and binding
obligations of the Purchaser and any
affiliates of the Purchaser, such Ancillary
Agreements will constitute valid and
binding obligations of the Parent,
enforceable against it in accordance with its
terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws
affecting creditors' rights and
remedies generally and to general
principles of equity. The execution, delivery
and performance of this Agreement and the
Ancillary Agreements to which the
Parent is a party do not, and the
consummation of the transactions contemplated
hereby and thereby and compliance with the
provisions hereof and thereof will
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not, (i) conflict with any of the
provisions of the certificate of incorporation
or bylaws of the Parent, (ii) subject to
the governmental filings and other
matters referred to in Section 2.01(d), and
except for Consents required under
Southern Site Leases, Split Contracts and
Assigned Contracts, conflict with,
result in a breach of or default under
(with or without notice or lapse of time,
or both) in any material respect any
contract, agreement, indenture, mortgage,
deed of trust, lease or other instrument to
which the Parent is a party or by
which the Parent or any of its assets is
bound or subject, or (iii) subject to
the governmental filings and other matters
referred to in Section 2.01(d),
contravene any Law or Order currently in
effect, which, in the case of clauses
(ii) or (iii) above would reasonably be
expected to have, individually or in the
aggregate, a material effect on the
Parent's ability to perform its obligations
under this Agreement or Ancillary
Agreements or to consummate the transactions
contemplated hereby or thereby.
(d) Consents and
Approvals. No Approval of any domestic (including without
limitation, any federal, state or local) or
foreign governmental agency,
quasi-governmental agency or regulatory
authority (a "Governmental Entity")
which has not been received or made is
required by or with respect to any Seller
or the Parent or any of the Southern
Entities in connection with the execution,
delivery and performance of this Agreement
or the Ancillary Agreements by the
Parent or any Seller or the consummation by
the Parent or any Seller of the
transactions contemplated hereby or thereby
except for (i) compliance with the
Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR
Act"), (ii) any reports required to be
filed with the Securities and Exchange
Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended
(the "Exchange Act"), (iii) any required
state "blue-sky" notices or filings,
(iv) applicable Food and Drug
Administration, Drug Enforcement Administration,
Medicare/Medicaid, state boards of pharmacy
and governmental controlled
substances, durable medical equipment,
third party administrator and liquor
authorities approvals (the "Pharmacy
Approvals"), and (v) any other Approvals
which, if not made or obtained, would not
reasonably be expected to have,
individually or in the aggregate, a
material effect on the Southern Business or
otherwise materially adversely affect the
ability of either the Parent or the
Sellers to perform their obligations under
this Agreement or Ancillary
Agreements or to consummate the
transactions contemplated hereby or thereby.
Section 2.02.
Representations and Warranties Regarding the Southern
Business.
(a) Title to and
Sufficiency of Purchased Assets. The Purchaser recognizes
that none of the Parent or the Sellers have
conducted the Southern Business as a
separate business and the following in
(ii)-(v) are qualified by knowledge of
the persons listed on Section 2.02(a) of
the Disclosure Schedule:
(i) Except as set forth on Section 2.02(a)(i) of the Disclosure
Schedule, the
Sellers hereunder own, have valid and enforceable leasehold
interests in or
(in the case of assets that are not susceptible to title
20
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ownership) have
the valid right to use all of the assets primarily used or
held for use in
the Southern Business;
(ii) Except as set forth on Section 2.02(a)(ii) of the
Disclosure
Schedule, and
subject to the Transition Services Agreements and the
Framework
Agreement, the Purchaser, by acquiring the shares of the PBM
Entity, Genplus
Managed Care, Inc., and Eckerd Corporation Of Florida, Inc.
and the
Purchased Assets will acquire all assets necessary to carry on
the
PBM Business as
presently conducted;
(iii) Except as set forth on Section 2.02(a)(iii) of the
Disclosure
Schedule, and
subject to the Transition Services Agreements and the
Framework
Agreement, the Purchaser, by acquiring the Purchased Assets
will
acquire all
assets necessary to carry on the Specialty Pharmacy Business as
presently
conducted;
(iv) Except as set forth on Section 2.02(a)(iv) of the
Disclosure
Schedule, and
subject to the Transition Services Agreements and the
Framework
Agreement, the Purchaser, by acquiring the Purchased Assets
will
acquire all
assets necessary to carry on the Mail Order Business as
presently
conducted; and
(v) Except as set forth on Section 2.02(a)(v) of the Disclosure
Schedule, and
subject to the Transition Services Agreements and the
Framework
Agreement, the Purchaser, by acquiring the Purchased Assets and
the shares of
the Southern Entities will acquire all assets necessary to
carry on the
Southern Drugstore Business as presently conducted.
(b) Title to
Purchased Assets. Subject to obtaining all necessary Consents
and Approvals, upon consummation of the
transactions contemplated hereby, the
Purchaser will acquire (i) good and
marketable title in or to the Purchased
Assets in which the Sellers currently hold
title, (ii) a valid leasehold
interest in or to the Purchased Assets that
are currently leased to the Sellers,
and (iii) the valid right to use
Intellectual Property Rights that form part of
the Purchased Assets, in each case free and
clear of any Lien or Encumbrance,
except for Permitted Liens.
(c) Financial
Statements. The Balance Sheet fairly presents, in conformity
with GAAP applied on a consistent basis (as
modified by the Balance Sheet
Principles), the financial position of the
Southern Business as of the Balance
Sheet Date. The Related Financials fairly
present, in conformity with GAAP
applied on a consistent basis (as modified
by the Balance Sheet Principles), the
results of operations of the Southern
Business for the period ended the Balance
Sheet Date. The Audited Financial
Statements, when delivered, shall fairly
present in accordance with GAAP (as
modified by the Balance Sheet Principles)
the financial position of the Southern
Business as of the Balance Sheet Date and
the Southern Business's results of
operations and cash flows for the
21
<PAGE>
period then ended. The Unaudited Quarterly
Financial Statements, when delivered,
shall fairly present in accordance with
GAAP (as modified by the Balance Sheet
Principles) the financial position of the
Southern Business as of the Quarter
Date and the Southern Business's results of
operations and cash flows for the
period then ended.
(d) No
Undisclosed Liabilities. Except for (i) liabilities set forth
in
Section 2.02(d) of the Disclosure Schedule,
(ii) liabilities that are reflected
on the Balance Sheet or for which adequate
reserves were established on the
Balance Sheet, (iii) liabilities incurred
in the ordinary course of business
consistent with past practice (and not
resulting from breaches thereof) since
the Balance Sheet Date under Assigned
Contracts, Split Contracts or Southern
Site Leases, and (iv) liabilities arising
under this Agreement, there are no
liabilities, debts, or obligations of any
nature (whether accrued, asserted,
unasserted, absolute, contingent, known or
unknown or otherwise, whether or not
of a type required to be reflected on a
balance sheet prepared in accordance
with GAAP) relating to any Southern Entity
or the Southern Business, other than
liabilities, debts or obligations which
would not reasonably be expected to
have, individually or in the aggregate, a
Material Adverse Effect.
(e) Conduct of
the Business; No Material Adverse Change. Except as set
forth in Section 2.02(e) of the Disclosure
Schedule and for matters arising out
of or relating to this Agreement and the
transactions contemplated hereby, from
the Balance Sheet Date to the date of this
Agreement, (i) the Sellers and the
Southern Entities have conducted the
Southern Business in the ordinary course
consistent with past practice, (ii) none of
the Parent, the Sellers or the
Southern Entities has taken any action
which would have constituted a violation
of the provisions of Section 4.01 that
apply to it if Section 4.01 had applied
since the Balance Sheet Date, and (iii)
there has not been any change, event or
occurrence which has had or would
reasonably be expected to have, individually
or in the aggregate, a Material Adverse
Effect.
(f) Compliance
with Laws; Permits.
(i) Except as set forth in Section 2.02(f)(i) of the Disclosure
Schedule, the
Sellers and the Southern Entities are in compliance with all
Laws applicable
to them in the case of the Southern Entities or applicable
to the Southern
Business in the case of the Sellers, and to the knowledge
of Parent, none
of the Sellers or the Southern Entities are under any
investigation with respect
to, have been questioned regarding, or have been
threatened to be
charged with or given notice of any violation of, any Law
or Order
applicable to the Purchased Assets or to the assets of the
Southern
Entities, or the conduct of the Southern Business, except for
any
non-compliance
or violations which would not reasonably be expected to
have,
individually or in the aggregate, a material effect on the
Southern
Entities or the
Southern Business.
22
<PAGE>
(ii) Except as set forth in Section 2.02(f)(ii) of the
Disclosure
Schedule, the
Sellers and the Southern Entities hold all approvals,
authorizations,
certificates, licenses and permits of Governmental Entities
("Permits")
necessary for the Sellers and the Southern Entities to own,
lease and
operate their respective properties and assets with respect to
the Southern
Business and to carry on the Southern Business as currently
conducted, the Permits are
valid and in full force and effect, and no
default exists
under any such Permit, except where the failure to hold any
such Permit, the
invalidity of such Permit or the existence of any such
default would
not reasonably be expected to have, individually or in the
aggregate, a
material effect on the Southern Entities or the Southern
Business.
(iii) Except as set forth in Section 2.02(f)(iii) of the
Disclosure
Schedule, to
Parent's knowledge, no action has been taken or recommended by
any Governmental
Entity either to revoke, withdraw or suspend any Permit
and there is no
investigation or proceeding, threatened or pending, that
could result in
termination, revocation, suspension or impairment of any of
the Permits or
the imposition of any fine, penalty or other sanctions for
violation of any
legal or regulatory requirements relating to any of the
Permits other
than actions that would not reasonably be expected to have,
individually or
in the aggregate, a material effect on the Southern
Entities or the
Southern Business.
(g) Regulatory
Compliance. Without limiting the generality of Section
2.02(f), except as set forth in Section
2.02(g) of the Disclosure Schedule:
(i) There is no pending or, to Parent's knowledge, threatened,
Legal
Proceeding
relating to the Sellers' or the Southern Entities'
participation
in any payment
program, including without limitation Medicare, TRICARE,
Medicaid, worker's
compensation, Blue Cross/Blue Shield programs, and all
other health
maintenance organizations, preferred provider organizations,
health benefit
plans, health insurance plans, and other third party
reimbursement
and payment programs (the "Payment Programs"); to Parent's
knowledge, no
Payment Program has requested or threatened any recoupment,
refund, or
set-off from Sellers or the Southern Entities except in the
ordinary course
of business; since January 1, 2001, no Payment Program has
imposed a fine,
penalty or other sanction on Sellers or the Southern
Entities and
none of the Sellers has been excluded or suspended from
participation in
any Payment Program, other than in each case under this
subsection (i) such as
would not be reasonably expected to have,
individually or
in the aggregate, a material effect on the Sellers, the
Southern
Entities or the Southern Business.
(ii) Since January 1, 2001, none of the Sellers or the Southern
Entities, nor
any director, officer, employee, or agent thereof, with
respect to
actions taken on behalf of the Sellers or the Southern
Entities,
(A) has
23
<PAGE>
been assessed a
civil money penalty under Section 1128A of the Social
Security Act or
any regulations promulgated thereunder, (B) has been
excluded from
participation in any federal health care program or state
health care
program (as such terms are defined by the Social Security Act),
(C) has been
convicted of any criminal offense relating to the delivery of
any item or
service under a federal health care program relating to the
unlawful
manufacture, distribution, prescription, or dispensing of a
prescription
drug or a controlled substance or (D) has been a party to or
subject to any
Legal Proceedings concerning any of the matters described
above in clauses
(A) through (C) other than in each case such as would not
be reasonably
expected to have, individually or in the aggregate, a
material effect
on the Southern Entities or the Southern Business.
(iii) To the Parent's knowledge, the Sellers and the Southern
Entities
(A) are in
compliance in all material respects with all Laws relating to
the operation of
pharmacies, the repackaging of drug products, the
wholesale
distribution of prescription drugs or controlled substances,
and
the dispensing
of prescription drugs or controlled substances, (B) are in
compliance in
all material respects with all Laws relating to the labeling,
packaging,
advertising, or adulteration of prescription drugs or
controlled
substances and
(C) are not subject to any sanction, Order or other adverse
Action by any Governmental Entity
for the matters described above in
clauses (A) and
(B) other than in each case such as would not be reasonably
expected to
have, individually or in the aggregate, a material effect on
the Southern
Entities or the Southern Business.
(h) Required
Consents. Section 2.02(h) of the Disclosure Schedule sets
forth each material Contract and material
Permit requiring a consent or other
action by any Person as a result of the
execution, delivery and performance of
this Agreement or the Ancillary Agreements,
except such consents or actions as
would not be material to the Southern
Business if not received or taken by the
Closing Date (the "Required Consents").
(i) Litigation.
Except as set forth in Section 2.02(i) of the Disclosure
Schedule, there are no claims, actions,
lawsuits, investigations or
administrative or other legal proceedings
or arbitrations pending before any
Governmental Entity or arbitrators (other
than any claims in respect of Taxes)
("Legal Proceedings") or, to the knowledge
of the Parent, threatened against any
of the Sellers or any Southern Entity or in
any way relating to or affecting the
Southern Business other than Legal
Proceedings that would not reasonably be
expected to have, individually or in the
aggregate, a material effect on the
Southern Entities or the Southern Business.
None of the Sellers or the Southern
Entities is in default under the terms of
any Order of any Governmental Entity
related to the Southern Business. Except as
set forth in Section 2.02(i)(ii) of
the Disclosure Schedule, none of the
Sellers, the Southern Entities or the
Southern Business is bound by
24
<PAGE>
any Order of any Governmental Entity that
would materially restrict the ability
of the Purchaser to conduct the Southern
Business in the ordinary course
consistent with past practices.
(j) Collective
Bargaining; or Labor Matters. Except as set forth in Section
2.02(j)(i) of the Disclosure Schedule, no
Seller or Seller's Subsidiary nor any
of the Southern Entities is a party to any
collective bargaining agreement or
other labor union contract, and to the
knowledge of the Parent, there are no
organizational campaigns, petitions or
other unionization activities seeking
recognition of a collective bargaining unit
with respect to any of the Southern
Business Employees. Except as set forth in
Section 2.02(j)(ii) of the Disclosure
Schedule or as would not be reasonably be
expected to have, individually or in
the aggregate, a material effect on the
Southern Business, (i) there are no
labor related controversies, strikes or
work stoppages pending or, to the
knowledge of Parent, threatened, between
any Seller or Seller's Subsidiary or
the Southern Entities and any of the
Southern Business Employees, and no Seller
or Seller's Subsidiary or the Southern
Entities has experienced any such labor
related controversy, strike, slowdown or
work stoppage within the past three
years, (ii) there are no unfair labor
practice complaints pending against any
Seller or any Seller's Subsidiary before
any Governmental Entity or any current
union representation questions involving
Southern Business Employees, (iii) each
of Sellers and the Southern Entities is in
compliance in all material respects
with all applicable Laws, and the
applicable Southern Entity's policies,
practices, agreements, plans and programs
relating to employment, employment
practices, wages, hours, terms and
conditions of employment relating to Southern
Business Employees, (iv) no Seller or
Seller's Subsidiary or any of the Southern
Entities is a party to, or otherwise bound
by, any consent decree with, or
citation by, any Governmental Entity
relating to the Southern Business Employees
or employment practices and (v) none of the
Sellers or the Sellers' Subsidiaries
has closed any plant or facility,
effectuated any layoffs of employees or
implemented any early retirement,
separation or window program within the past
90 days except for store closings or store
sales, none of which, together with
any Southern Site, would constitute the
same single site of employment or part
of the same single site of employment
within the meaning of the Workers
Adjustment Retraining and Notification Act
("WARN"), nor has any of the Sellers
or the Sellers' Subsidiaries planned or
announced any such action or program for
the future.
(k) Tangible
Personal Property. Except (i) as set forth on Section 2.02(k)
of the Disclosure Schedule, (ii) with
respect to the Owned Real Property and the
Leased Real Property (which are the subject
of Section 2.02(l)) and (iii) for
assets sold in the ordinary course of
business consistent with past practices
since the Balance Sheet Date, the Sellers
or the Southern Entities own (x) all
material tangible assets that constitute
Purchased Assets or the assets of the
Southern Entities, as applicable, and that
are reflected on the Balance Sheet as
being owned by the Sellers or the Southern
Entities, as applicable and (y) all
material tangible assets purchased or
acquired by a Seller or the Southern
Entities since the Balance Sheet Date and
that constitute the Purchased Assets
or the
25
<PAGE>
assets of the Southern Entities, as
applicable; and all such assets are free and
clear of any Lien or Encumbrance, except
for Permitted Liens.
(l) Real
Property. Except as disclosed in Section 2.02(l)(i) of the
Disclosure Schedule, each Seller has good
and indefeasible, fee simple title to
the Owned Real Property and valid leasehold
interests in the Leased Real
Property (subject to the terms of the
applicable leases, subleases and related
instruments governing its interests
therein), free and clear of all Liens or
Encumbrances other than Permitted Liens.
Except as disclosed in Section
2.02(l)(ii) of the Disclosure Schedule or
as would not reasonably be expected to
have a material effect on the applicable
Southern Site Lease, no Seller is in
default under any Southern Site Lease and,
to the knowledge of the Parent, no
landlord is in default under any Southern
Site Lease. Prior to the Closing Date
the Sellers will have delivered or made
available to the Purchaser true and
complete copies of all applicable lease and
title documents relating to the Real
Property included in the Purchased Assets
and all Existing Surveys (as defined
in Section 4.18) of the Real Property
included in the Purchased Assets and in
the Sellers' possession or control. Except
as disclosed in Section 2.02(l)(iii)
of the Disclosure Schedule, no Southern
Entity owns or leases any Real Property.
(m)
Environmental Matters. Except as disclosed in Section 2.02(m) of
the
Disclosure Schedule and except for any
matters that would not reasonably be
expected to result, individually or in the
aggregate, in a Material Adverse
Effect, to Parent's knowledge (i) neither
the Parent nor any of its Subsidiaries
has violated any Environmental Laws at or
affecting the Purchased Assets or
assets of the Southern Entities, the
Southern Business, the Southern Sites or
the Real Property; (ii) neither Parent nor
any of its Subsidiaries has received
any notices, citations, demands,
directives, requests for information, summons
or orders, and no penalty has been
assessed, and no investigation, claim,
action, suit, writ, injunction, decree,
order, judgment, proceeding or review is
pending or threatened by any Governmental
Entity or Person, in each case, in
connection with the Purchased Assets or
assets of the Southern Entities, the
Southern Business, the Southern Sites or
the Real Property and relating to any
matter arising out of or in respect of any
Environmental Law; and (iii) there
are no liabilities or obligations arising
in connection with or in any way
relating to the Purchased Assets or assets
of the Southern Entities, the
Southern Business, the Southern Sites or
the Real Property (including, without
limitation, those relating to releases of
Hazardous Materials or off-site
disposal) of any kind whatsoever, whether
accrued, contingent, absolute,
determined, determinable or otherwise,
arising under or relating to any
Environmental Law or contract with any
Governmental Entity or Person with
respect to environmental matters, and there
are no facts, events, conditions,
situations or set of circumstances which
could reasonably be expected to result
in or be the basis for any such liability
or obligation. As of Closing, the only
real property in New Jersey owned, leased
or operated by a Southern Entity is an
office property leased by a Southern Entity
and used solely for administrative
purposes located at One Maynard Drive,
Suite #158, Park Ridge, New Jersey. As of
the Closing, none of the Owned Real
Property or Leased Real
26
<PAGE>
Property will be located in New Jersey
except as disclosed in the immediately
preceding sentence. For purposes of this
Section, the terms "Parent", or
"Subsidiaries" shall include any entity
which is, in whole or in part, a
predecessor of such entities.
(n) Contracts.
(A) Section 2.02(n) of the Disclosure Schedule lists or
describes as of the date of this Agreement
each legally binding agreement, lease
or license (collectively, "Contracts") (but
excluding purchase orders) relating
to the Southern Business, including those
that would be Southern Site Leases or
Assigned Contracts or Split Contracts, that
are of a type described below:
(i) Any employment, severance or consulting Contract with an
employee
or former
employee that is not terminable at will by the Sellers or any
Southern Entity,
as the case may be (other than any Contract for the
employment of
any such employee or former employee implied in Law), and
which would
require the payment of amounts by any Seller or the Southern
Entity or the
Purchaser, as applicable, after the date hereof in excess of
$100,000 per
annum in base pay;
(ii) Any lease for any Real Property.
(iii) Any collective bargaining Contract with any labor union;
(iv) Any Contract for capital expenditures or the acquisition
or
construction of
fixed assets which requires aggregate future payments in
excess of
$500,000;
(v) Any Contract containing covenants of a Seller or a Subsidiary
of a
Seller
(including the Southern Entities) not to compete with any person,
or
otherwise restrict its operations
(including, without limitation, in
connection with
settlement of actions or Legal Proceedings) in any line of
business in any
of the Southern States or with respect to any portion of
the Southern
Business (including the PBM Business);
(vi) Any Contract (or group of Contracts related to the same
site)
requiring
aggregate future payments or expenditures in excess of $250,000
and relating to
investigation, cleanup, abatement, remediation or similar
actions in
connection with Environmental Liabilities;
(vii) Any license, royalty Contract or other Contract with respect
to
Intellectual
Property Rights which, pursuant to the terms thereof, requires
future payments
in excess of $100,000 per annum;
(viii) Any Contract pursuant to which any of the Southern Entities
has
entered into or
formed, or has committed to enter into or form, a
partnership,
joint venture or limited liability company or similar
arrangement with any other
Person;
27
<PAGE>
(ix) Any indenture, mortgage, loan or credit Contract under which
a
Seller or any
Southern Entity has outstanding indebtedness or any
outstanding
note, bond, indenture or other evidence of indebtedness for
borrowed money,
or guaranteed indebtedness for money borrowed by others, in
an amount
greater than $100,000;
(x) Any Contract relating to the acquisition of goods and
services,
other than any
Contract that is cancelable upon 90 days notice or less
without penalty,
in connection with any commitment to open new stores in
the Southern
States which requires payments in an aggregate amount
exceeding
$100,000;
(xi) Any Contract under which a Seller or any of the Southern
Entities
is (A) a lessee
of, or holds or uses, any machinery, equipment, vehicle or
other tangible
personal property owned by a third person or entity or (B) a
lessor of any
real property owned by a Seller or the Southern Entities, in
either case
which requires annual payments in excess of $100,000;
(xii) Any Contract for supply of goods and services which
requires
annual payments
by or for the account of the Southern Business in excess of
$500,000;
(xiii) Third Party Payor Contracts involving amounts in excess
of
$100,000 per
annum;
(xiv) Network Contracts involving amounts in excess of $100,000
per
annum;
(xv) Any sponsor Contract or rebate Contract;
(xvi) Any Contracts (other than Contracts of the type described
in
subclauses (i) -
(xv) above) relating to the provision of services or
purchase of
pharmaceutical or other supplies by or to the Southern
Entities,
including without limitation any service Contracts, management
Contracts or any
other Contracts with any entity in each case requiring
annual payments
in excess of $500,000; and
(xvii) Any Contract (other than Contracts of the type described
in
subclauses (i)
through (xvi) above) that requires aggregate future payments
by or to any of
the Sellers or any Southern Entity in excess of $500,000
per annum or is
otherwise material to the Sellers or the Southern Entities
or the Southern
Business, other than (under this clause (xvii)) a purchase
or sales order
or other Contract entered into in the ordinary course of
business
consistent with past practice.
(B) The applicable Seller and each
applicable Southern Entity, as the case may
be, has performed in all material respects
the obligations required to be
performed by
28
<PAGE>
it under each Assigned Contract, Split
Contract or Southern Site Lease to which
it is a party or by which it is bound.
Neither the applicable Seller nor any of
the Southern Entities is in breach or
default (with or without the lapse of time
or the giving of notice or both) in any
material respect of or under any
Assigned Contract, Split Contract or
Southern Site Lease.
(o)
[Reserved]
(p) Top 25 PBM
Contracts. Each Contract listed on Section 2.02(p) of the
Disclosure Schedule (the "PBM Contracts")
is in effect as of the date of this
Agreement. To the Parent's knowledge, as of
the date of this Agreement, no
termination notice has been received from
any counterparty under any PBM
Contract. To the Parent's knowledge, as of
the date of this Agreement, no
counterparty to any PBM Contract has
invited any competing bids from any third
party pharmacy benefits providers. During
the period from the date of this
Agreement to the Closing, the Parent will
deliver or cause to be delivered to
the Purchaser any notice it receives that
the counterparty thereto intends to
terminate, or invite competing bids for,
any PBM Contract.
(q) Benefit
Plans. As used in this Agreement, the term "Benefit Plan" means
each employee benefit plan (as defined in
Section 3(3) of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA")), and each other
material benefit or compensation plan,
program, agreement or arrangement, that
is maintained, administered or contributed
to by the Parent or a Seller or the
Southern Entities (or to which a Seller or
any of the Southern Entities is
obligated to contribute) for the benefit of
any current or former Southern
Business Employee, other than (i) any plan,
program, agreement or arrangement
mandated by applicable Laws and (ii) a
multiemployer plan as defined in Section
3(37) of ERISA (a "Multiemployer Plan").
Section 2.02(q) of the Disclosure
Schedule separately lists each Benefit Plan
and each other employee benefit plan
for which a Seller or Seller's Subsidiary
could reasonably be expected to incur
any liability, including any liability
under Title IV of ERISA. The Parent has
furnished or made available to the
Purchaser a complete and accurate copy of the
plan document and summary plan description
of each Benefit Plan. In addition,
with respect to any Benefit Plan that is
sponsored solely by a Seller or a
Seller's Subsidiary or the Southern
Entities (a "Company Plan"), the Parent has
furnished or made available to the
Purchaser the most recent annual report,
financial statement and actuarial
valuation, if any, with respect to such
Company Plan, and each summary of material
modifications, the most recently
filed Form 5500 and the most recent
determination letter from the Internal
Revenue Service ("IRS"). No Seller or
Subsidiary of a Seller or any of the
Southern Entities has any express or
implied commitment whether legally
enforceable or not to (x) create or incur
liability with respect to any other
employee benefit plan, program or
arrangement, (y) enter into any contract or
agreement to provide compensation or
benefits to any individual except in the
ordinary course or (z) modify, change or
terminate any Company Plan other than
as required by ERISA or the Internal
Revenue Code
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of 1986, as amended (the "Code"). Except as
specified in Section 2.02(q) of the
Disclosure Schedule or as would not
reasonably be expected to be material:
(i) neither the Parent nor any member of the Parent's
"controlled
group," within
the meaning of Sections 414(b) and (c) of the Code, has
incurred any
direct or indirect liability under ERISA or the Code in
connection with
the termination of, withdrawal from or failure to fund any
Benefit Plan or
Multiemployer Plan that could result in liability to a
Seller or a
Seller's Subsidiary or the Southern Entities, and no event has
occurred that
could reasonably be expected to give rise to such liability;
(ii) none of the Company Plans provides for the payment of a
benefit,
the increase of
a benefit amount, the payment of a contingent benefit or
the acceleration
of the payment or vesting of a benefit by reason of the
execution of
this Agreement or the consummation of the transactions
contemplated by
this Agreement;
(iii) there are no pending, threatened or to the knowledge of
the
Parent,
anticipated claims relating to any Company Plan, other than
routine
claims for
benefits;
(iv) each of the Company Plans has been operated and maintained in
all
material
respects in accordance with its terms and with the requirements
of
applicable
Law;
(v) none of the Company Plans is a Multiemployer Plan;
(vi) each Company Plan which is intended to be qualified under
Section
401(a) of the
Code or Section 401(k) of the Code has received a favorable
determination
letter from the IRS that it is so qualified, and each trust
established in
connection with any Company Plan which is intended to be
exempt from
federal income taxation under Section 501(a) of the Code has
received a
determination letter from the IRS that it is so exempt, and to
the knowledge of
the Parent, no fact or event has occurred since the date
of such
determination letter from the IRS to adversely affect the
qualified
status of any such
Plan or the exempt status of any such trust;
(vii) each trust maintained or contributed to by a Seller or a
Seller's
Subsidiary which is intended to be qualified as a voluntary
employees'
beneficiary association and exempt from federal income taxation
under Section
501(c)(9) of the Code has received a favorable determination
letter from the
IRS that it is so qualified and so exempt, and to the
knowledge of the
Parent, no fact or event has occurred since the date of
such
determination by the IRS to adversely affect such qualified or
exempt
status;
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(viii) all contributions, premiums or payments required to be
made
with respect to
any Company Plan have been made on or before their due
dates, and all
unpaid liabilities of a Seller or a Seller's Subsidiary with
respect to a
Company Plan that are not yet due have been properly accrued
in accordance
with GAAP; all such contributions have been fully deducted
for income tax
purposes and no such deduction has been challenged or
disallowed by
the IRS; and to the knowledge of the Parent no fact or event
exists which
could give rise to any such challenge or disallowance;
(ix) the Sellers and the Southern Entities are in compliance with
the
requirements of
WARN and have no outstanding liabilities that are payable
pursuant to WARN
or any similar state law;
(x) there is no current or projected liability in respect of
post-employment
or post-retirement health or medical or life insurance
benefits for
current or former Southern Business Employees, except as
required to
avoid excise tax under Section 4980B of the Code, that could
become a
liability of the Purchaser or of any of its affiliates;
(xi) no Transferred Employee (as defined in Section 4.13(a)(ii))
will
become entitled
to any bonus, retirement, severance, job security or
similar benefit,
or the enhancement of any such benefit, as a result of the
transactions
contemplated hereby; and
(xii) there is no contract, plan or arrangement (written or
otherwise)
covering any
Southern Business Employee that, individually or collectively,
could give rise
to the payment by Purchaser or any of its affiliates of any
amount that
would not be deductible pursuant to the terms of Sections 280G
or 162(m) of the
Code.
(r) Insurance.
The Purchased Assets and assets and business of the Southern
Entities are insured pursuant to insurance
policies and fidelity bonds (the
"Insurance Policies") that are commercially
reasonable and cover the reasonably
expected risks and contingencies and are on
such terms and conditions as are
consistent with industry practice. There is
no claim material to the Southern
Business by any of the Parent or any of its
Subsidiaries pending under any
Insurance Policy as to which coverage has
been questioned, denied or disputed by
the underwriters of such policies or bonds
or in respect of which such
underwriters have reserved their rights. To
the Parent's knowledge there has not
been any threatened termination of,
material premium increase with respect to,
or material alteration of coverage under,
any Insurance Policy. The properties,
assets, business, operations and employees
of the PBM Business are covered by
Insurance Policies that are commercially
reasonable and cover the reasonably
expected risks and contingencies and are on
such terms and conditions as are
consistent with industry practice. Except
as set forth in Section 2.02(r) of the
Disclosure Schedule, each Insurance Policy
relating to the PBM Business is
valid,
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enforceable, existing and binding, and the
premiums due thereon have been timely
paid and there will be coverage thereunder
after Closing in respect of acts and
events occurring prior to Closing.
(s) Inventories.
Subject to amounts reserved therefor on the Balance Sheet,
the values at which all Inventories are
carried on the Balance Sheet reflect the
historical inventory valuation policy of
the Sellers of stating such inventories
at the lower of cost (determined on the
last-in, first-out method) or market
value determined in accordance with GAAP
consistently maintained and applied by
the Sellers. Since the Balance Sheet Date,
the Inventory related to the Southern
Business has been maintained in the
ordinary course of business consistent with
past practices. All such Inventories are
owned free and clear of all Liens or
Encumbrances other than Permitted Liens and
purchase money liens. Substantially
all of the Inventories recorded on the
Balance Sheet consist of, and
substantially all Inventories related to
the Southern Business on the Closing
Date will consist of, items of a quality
usable or saleable in the normal course
of the Southern Business consistent with
past practices and are and will be in
quantities substantially sufficient for the
normal operation of the Southern
Business in accordance with past
practice.
(t) Books and
Records. The Parent, the Sellers and the Southern Entities
have maintained adequate business records
including, without limitation,
prescription records, with respect to the
operation of the Southern Business,
and to the knowledge of the Parent, there
are no material deficiencies in such
business records.
(u) Accounts
Receivable; Accounts Payable. (i) All accounts and notes
receivable on the Balance Sheet have arisen
in the ordinary course of business,
and the accounts receivable reserves
reflected on the Balance Sheet arose from
the sale of Inventory or other activities
in the ordinary course of business
consistent with past practice.
(ii) Except as set forth in Section 2.02(u)(ii) of the
Disclosure
Schedule, since
the Balance Sheet Date, none of the Southern Entities has,
with respect to
any material portion of its trade accounts payable, (A)
failed to pay
its trade accounts payable in the ordinary course or (B)
extended the
terms of payment, whether by contract, amendment, act, deed,
or course of
dealing, of any trade account payable.
(v) Affiliate
Transactions. Except as set forth in Section 2.02(v) of the
Disclosure Schedule, (i) all of the
Southern Site Leases are with Persons who
are not affiliates of the Sellers or the
Parent and (ii) none of the Southern
Site Leases, Assigned Contracts or Split
Contracts will, after Closing, be with
Parent or any of its affiliates.
(w) Title to
Southern Entity Shares. The sale and delivery of the Southern
Entity Shares as contemplated by this
Agreement is not subject to any
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preemptive right, right of first refusal or
similar right or restriction. Each
Stock Seller is the record and beneficial
owner of all of the Southern Entity
Shares being sold by it hereunder, free and
clear of any Lien or Encumbrance
(other than restrictions on transferability
under applicable securities Laws).
Upon the delivery of the Southern Entity
Shares as provided in Section
1.15(b)(i), the Purchaser will acquire
record and beneficial ownership of the
Southern Entity Shares, free and clear of
any Lien or Encumbrance (other than
any Liens or Encumbrances created by the
Purchaser and any restrictions on the
transferability by the Purchaser of the
Southern Entity Shares under applicable
securities Laws).
(x) Southern
Entities:
Capitalization; Subsidiaries.
(i) Each Southern Entity is a corporation duly organized,
validly
existing and in
good standing under the laws of its jurisdiction of
organization and
has the requisite corporate power and authority to own,
lease or operate
its properties and assets and to carry on its business as
now being
conducted. Each Southern Entity is duly qualified to do
business
and is in good
standing and is duly licensed, authorized or qualified to
transact
business 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, other than in such jurisdictions
where the
failure to be so qualified or licensed would not reasonably be
expected to
have, individually or in the aggregate, a material effect on
such Southern
Entity or the Southern Business.
(ii) The authorized and outstanding capital stock of each
Southern
Entity is set
forth on Section 2.02(x)(ii) of the Disclosure Schedule. The
Southern Entity
Shares with respect to the Southern Entity constitute all
the outstanding
shares of capital stock of such Southern Entity, and there
are no shares of
capital stock of any Southern Entity reserved for issuance
upon exercise of
outstanding stock options or otherwise. All of the
Southern Entity
Shares have been duly authorized and validly issued and are
fully paid,
nonassessable and free of preemptive rights, with no personal
liability
attaching to the ownership thereof. No Southern Entity has or
is
bound by any
outstanding subscriptions, options, warrants, calls,
commitments or
agreements of any character calling for the purchase or
issuance of any
shares of capital stock of such Southern Entity or any
other equity
security of such Southern Entity or any securities
representing the
right to purchase or otherwise receive any shares of
capital stock of
such Southern Entity or any other equity security of such
Southern
Entity.
(iii) No Southern Entity has any Subsidiaries.
(iv) The Parent has made available to the Purchaser true and
complete
copies of the
certificate of incorporation and bylaws of each of the
Southern
Entities as currently in effect.
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(y) Brokers. No
broker, finder or investment banker (other than Credit
Suisse First Boston LLC, the fees and
expenses of which will be paid by the
Parent) is entitled to any brokerage,
finder's or other fee or commission in
connection with the transactions
contemplated by this Agreement based upon
arrangements made by or on behalf of the
Parent, the Sellers or the Southern
Entities.
(z) No Side
Letters. There is no side letter, agreement or other
arrangement between the Parent, the
Sellers, their affiliates or their agents on
the one hand, and the Stock Purchaser, its
affiliates or its agents on the other
hand, relating to any matter connected with
matters contemplated by the Stock
Purchase Agreement (other than those that
have been disclosed and provided to
the Purchaser), and as of the date of this
Agreement, no such side letter,
agreement or arrangement is contemplated to
be entered into.
(aa) Working
Capital. The Baseline Number stated in Section 1.09(b)
represents the Working Capital as of
January 31, 2004.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CVS AND THE PURCHASER
CVS and the
Purchaser hereby represent and warrant to the Parent as
follows:
Section 3.01.
Organization, Standing and Corporate Power. Each of CVS and
the Purchaser is duly organized, validly
existing and in good standing as a
corporation under the laws of its
jurisdiction of incorporation and has the
requisite corporate power and authority to
carry on its business as now being
conducted. Each of CVS and the Purchaser is
duly qualified or licensed to do
business and is in good standing in each
jurisdiction in which the nature of its
business or the ownership or leasing of its
properties makes such qualification
or licensing necessary, other than in such
jurisdictions where the failure to be
so qualified or licensed would not
reasonably be expected to materially
adversely affect the ability of CVS and the
Purchaser to timely perform their
respective obligations under this Agreement
or to consummate the transactions
contemplated hereby (a "Purchaser
Effect").
Section 3.02.
Authority of Purchaser; Noncontravention. The Purchaser has
the requisite corporate power and authority
to enter into this Agreement and
each Ancillary Agreement to which it is a
party and to consummate the
transactions contemplated hereby and
thereby. The execution, delivery and
performance by the Purchaser of this
Agreement and the Ancillary Agreements to
which it is a party and the consummation by
the Purchaser of the transactions
contemplated hereby and thereby have been
duly authorized by all necessary
corporate action on the part of the
Purchaser. This Agreement has been duly
executed and delivered by the Purchaser
and, assuming that this Agreement
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constitutes a valid and binding obligation
of the Parent and the Sellers,
constitutes a valid and binding obligation
of the Purchaser, enforceable against
it in accordance with its terms, subject,
as to enforceability, to applicable
bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and
similar Laws affecting creditors' rights
and remedies generally and to general
principles of equity. When the Ancillary
Agreements to which the Purchaser is a
party have been duly executed and delivered
by the Purchaser and, assuming that
such Ancillary Agreements constitute valid
and binding obligations of the
Sellers and any other party thereto, such
Ancillary Agreements will constitute
valid and binding obligations of the
Purchaser, enforceable against it in
accordance with its terms, subject to
applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization,
moratorium and similar Laws affecting
creditor's rights and remedies generally
and to general principles of equity.
The execution, delivery and performance of
this Agreement and the Ancillary
Agreements do not, and the consummation of
the transactions contemplated hereby
and thereby and compliance with the
provisions hereof and thereof will not, (i)
conflict with any of the provisions of the
certificate of incorporation or
bylaws of the Purchaser, in each case as
amended, (ii) conflict with, result in
a breach of or default under, require any
consent or other action by any Person
under, or give rise to any penalty or right
of termination, cancellation or
acceleration of any right or obligation of
the Purchaser or to a loss of any
benefit to which the Purchaser is entitled
under (in each case, with or without
notice or lapse of time, or both) in any
material respect any contract to which
the Purchaser is a party or by which the
Purchaser or any of its assets is bound
or subject or (iii) contravene any Law or
Order currently in effect.
Section 3.03.
Authority of CVS; Noncontravention. CVS has the requisite
corporate power and authority to enter into
this Agreement and each Ancillary
Agreement to which it is a party and to
consummate the transactions contemplated
hereby and thereby. The execution, delivery
and performance by CVS of this
Agreement and each Ancillary Agreement to
which it is a party and the
consummation by CVS of the transactions
contemplated hereby and thereby have
been duly authorized by all necessary
corporate action on the part of CVS. This
Agreement has been duly executed and
delivered by CVS and, assuming that this
Agreement constitutes a valid and binding
obligation of the Parent and the
Sellers, constitutes a valid and binding
obligation of CVS, enforceable against
it in accordance with its terms, subject to
applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization,
moratorium and similar Laws affecting
creditors' rights and remedies generally
and to general principles of equity.
When the Ancillary Agreements to which CVS
is a party have been duly executed
and delivered by CVS and, assuming that
such Ancillary Agreements constitute
valid and binding obligations of the
Sellers and any other party thereto, such
Ancillary Agreements will constitute valid
and binding obligations of CVS,
enforceable against it in accordance with
its terms, subject to applicable
bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and
similar Laws affecting creditor's rights
and remedies generally and to general
principles of equity. The execution,
delivery and performance of this Agreement
and the
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Ancillary Agreements do not, and the
consummation of the transactions
contemplated hereby and thereby and
compliance with the provisions hereof and
thereof will not, (i) conflict with any of
the provisions of the certificate of
incorporation or bylaws of CVS, in each
case as amended to the date of this
Agreement, (ii) conflict with, result in a
breach of or default under (with or
without notice or lapse of time, or both)
in any material respect any contract,
agreement, indenture, mortgage, deed of
trust, lease or other instrument to
which CVS is a party or by which CVS or any
of its assets is bound or subject,
or (iii) contravene any Law or Order
currently in effect, which, in the case of
clauses (ii) and (iii) above would
reasonably be expected to have, individually
or in the aggregate, a Purchaser
Effect.
Section 3.04.
Governmental Consents and Approvals. No Approval of any
Governmental Entity is required by or with
respect to CVS or the Purchaser in
connection with the execution, delivery and
performance of this Agreement and
all other agreements and instruments
executed in connection herewith or
delivered pursuant hereto by CVS or the
Purchaser or the consummation by CVS or
the Purchaser of the transactions
contemplated hereby or thereby, except for (a)
compliance with the HSR Act, (b) any
reports required to be filed with the SEC
under the Exchange Act, (c) applicable Food
and Drug Administration, Drug
Enforcement Administration,
Medicare/Medicaid, state boards of pharmacy and
governmental liquor authorities approvals,
and (d) any other Approvals which, if
not made or obtained, would reasonably be
expected to have, individually or in
the aggregate, a Purchaser Effect.
Section 3.05.
Brokers. No broker, finder or investment banker or other
intermediary (other than Goldman, Sachs
& Co. and Evercore Partners, the fees
and expenses of which will be paid by CVS,
the Purchaser or their affiliates) is
or may be entitled to any brokerage,
finder's or other fee or commission in
connection with the transactions
contemplated by this Agreement based upon
arrangements made by or on behalf of CVS
and the Purchaser.
Section 3.06.
Financing. CVS or the Purchaser will have on or prior to the
Closing Date, cash on hand or credit
facilities with available borrowings with
financially responsible third parties, or a
combination thereof, in an aggregate
amount sufficient to enable it to timely
perform its obligations hereunder,
including to pay in full the Purchase Price
and all fees and exp
