ASSET PURCHASE AGREEMENT

EXHIBIT 10(i)(e)

 

 

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

 

 

TABLE OF CONTENTS

 

 

 

ii

 

iii

LIST OF SCHEDULE(S) AND EXHIBITS

 

 

iv

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.

 

NOW, THEREFORE, in consideration of the representations, warranties, agreements and covenants contained in this Agreement, the parties hereto hereby agree as follows:

 

ARTICLE 1

P URCHASE A ND S ALE

 

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

 

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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 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;

 

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(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;

 

(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;

 

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(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.

 

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);

 

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(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);

 

(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);

 

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(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

 

(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);

 

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(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

 

(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

 

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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 (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

 

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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 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

 

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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 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’

 

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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 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.

 

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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 ”);

 

(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

 

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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.

 

(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.

 

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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;

 

(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

 

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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;

 

(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

 

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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;

 

(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;

 

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(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.

 

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.

 

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ARTICLE 2

R EPRESENTATIONS AND W ARRANTIES OF THE P ARENT

 

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 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

 

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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 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

 

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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 ownership) have the valid right to use all of the assets primarily used or held for use in the Southern Business;

 

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(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 period then ended. The Unaudited Quarterly Financial Statements, when

 

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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.

 

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(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.

 

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(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 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,

 

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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 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)

 

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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 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,

 

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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 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

 

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$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;

 

(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

 

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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 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,

 

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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 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

 

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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;

 

(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

 

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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, 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.

 

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(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 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.

 

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(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.

 

(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.

 

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ARTICLE 3

R EPRESENTATIONS A ND W ARRANTIES OF CVS AND THE P URCHASER

 

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 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

 

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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 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

 

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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 expenses payable by CVS or the Purchaser in connection with this Agreement and the transactions contemplated hereby.

 

Section 3.07 . Investment Intent. The Southern Entity Shares will be acquired by the Purchaser for its own account without a view to a distribution or resale thereof. The Purchaser understands that the Southern Entity Shares may only be sold or otherwise disposed of by the Purchaser pursuant to a registration or an exemption therefrom under the Securities Act, and any other applicable securities Laws.

 

Section 3.08 . Sophistication of the Purchaser. The Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act, has knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of the transactions contemplated by this Agreement. The Parent and the Sellers have provided to CVS and the Purchaser the opportunity to ask questions of the officers and management of the Parent, the Sellers and the TDI Companies with respect to the business conducted by the Southern Entities. In making their decision to enter into this Agreement and to consummate the transactions contemplated hereby, CVS and the Purchaser have relied solely on their own independent investigation, analysis and evaluation of the Southern Entities and the Southern Business and the express representations, warranties and other undertakings of the Parent and the Sellers contained herein.

 

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ARTICLE 4

C OVENANTS

 

Section 4.01 . Conduct of