PROSPECTUS Filed pursuant to Rule 424(B)(3)
File No. 333-67362
RITE AID CORPORATION
Offer to Exchange 12.50% Senior Secured Notes Due 2006
for 12.50% Senior Secured Notes Due 2006
which have been registered under the Securities Act of 1933, as amended
guaranteed by the subsidiary guarantors listed on the
first page of this prospectus
The exchange offer will expire at 5:00 p.m., New York City time, on ,
2001, unless we extend the exchange offer in our sole and absolute discretion.
Terms of the exchange offer:
o We will exchange New Notes for all outstanding Old Notes that are validly
tendered and not withdrawn prior to the expiration or termination of the
exchange offer.
o You may withdraw tenders of Old Notes at any time prior to the expiration or
termination of the exchange offer.
o The terms of the New Notes are substantially identical to those of the
outstanding Old Notes, except that the transfer restrictions and registration
rights relating to the Old Notes do not apply to the New Notes.
o The exchange of Old Notes for New Notes will not be a taxable transaction for
U.S. federal income tax purposes, but you should see the discussion under the
caption "Material Federal Income Tax Considerations" beginning on page 42 for
more information.
o We will not receive any cash proceeds from the exchange offer.
o We issued the Old Notes in a transaction not requiring registration under the
Securities Act, and as a result, their transfer is restricted. We are making
the exchange offer to satisfy your registration rights, as a holder of the Old
Notes.
There is no established trading market for the New Notes or the Old Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the Expiration
Date (as defined herein), we will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
See "Risk Factors" beginning on page 15 for a discussion of risks you should
consider prior to tendering your outstanding Old Notes for exchange.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November 8, 2001.
TABLE OF CONTENTS
Page
--------
Subsidiary Guarantors .............................................. 1
Cautionary Note Regarding Forward Looking Statements ............... 2
Where You Can Find More Information ................................ 3
Incorporation Of Certain Documents By Reference .................... 3
Prospectus Summary ................................................. 4
Risk Factors ....................................................... 15
Use Of Proceeds .................................................... 22
Ratio Of Earnings To Fixed Charges ................................. 22
Selected Consolidated Financial Information ........................ 23
The Exchange Offer ................................................. 25
Description Of The New Notes ....................................... 32
Material Federal Income Tax Considerations ......................... 42
Plan Of Distribution ............................................... 43
Legal Matters ...................................................... 44
Experts ............................................................ 44
SUBSIDIARY GUARANTORS
Ann & Government Streets Mayfield & Chillicothe Roads - Rite Aid Rome Distribution
Mobile Alabama, LLC Chesterknol, LLC Center, Inc.
Apex Drug Stores, Inc. Munson & Andrews, LLC Rite Aid Transport, Inc.
Baltimore/Annapolis Boulevard Name Rite, LLC Rite Aid Venturer #1, Inc.
& Governor Richie Northline & Dix - Toledo - Rite Fund, Inc.
Highway - Glen Burnie, Southgate, LLC Rite Investments Corp.
Maryland, LLC Ocean Acquisition Corporation Fredericksburg, LLC
Broadview and Wallings- PDS-1 Michigan, Inc. RX Choice, Inc.
Broadview Heights Ohio, Inc. P.L.D. Enterprises, Inc. Script South, Inc.
Central Avenue & Main Street PL Xpress, Inc. Seven Mile & Evergreen -
Petal, MS, LLC Patton Drive and Navy Detroit, LLC
Dominion Action One Boulevard Property Silver Springs Road-Baltimore,
Corporation Corporation Maryland/One, LLC
Dominion Action Two Paw Paw Lake Road & Paw Silver Springs Road-Baltimore,
Corporation PawAvenue-Coloma, Maryland/Two, LLC
Dominion Action Three Michigan, LLC Sophie One Corp.
Corporation Perry Distributors, Inc. State & Fortification Streets -
Dominion Action Four Perry Drug Stores, Inc. Jackson, Mississippi, LLC
Corporation Portfolio Medical Services, Inc. State Street & Hill Road-Gerard,
Dominion Drug Stores Corp. RDS Detroit, Inc. Ohio, LLC
Drug Fair, Inc. Rack Rite Distributors, Inc. Super Distributors, Inc.
Drug Fair of PA, Inc. Ram-Utica, Inc. Super Ice Cream Suppliers, Inc.
Eagle Managed Care Corp. Reads, Inc. Super Laboratories, Inc.
Eighth & Water Streets- Rite Aid Drug Palace, Inc. Super Pharmacy Network, Inc.
Urichsville, Ohio, LLC Rite Aid Hdqtrs.Corp. Super Tobacco Distributors, Inc.
England Street-Asheland Rite Aid of Alabama, Inc. The Lane Drug Company
Corporation Rite Aid of Connecticut, Inc. The Muir Company
Fairground, LLC Rite Aid of Delaware, Inc. Thrifty Corporation
GDF, Inc. Rite Aid of Florida, Inc. Thrifty Payless, Inc.
Gettysburg and Hoover - Dayton, Rite Aid of Georgia, Inc. Thrifty Wilshire, Inc.
Ohio, LLC Rite Aid of Illinois, Inc. Tyler and Sanders Roads,
Gratiot & Center-Saginaw Rite Aid of Indiana, Inc. Birmingham-Alabama, LLC
Township, Michigan, LLC Rite Aid of Kentucky, Inc. Virginia Corporation
Harco, Inc. Rite Aid of Maine, Inc. W.R.A.C., Inc.
Jaime Nathan Travis Rite Aid of Maryland, Inc. 112 Burleigh Avenue Norfolk,
Corporation Rite Aid of Massachusetts, Inc. LLC
K&B, Incorporated Rite Aid of Michigan, Inc. 537 Elm Street Corporation
K&B Alabama Corporation Rite Aid of New Hampshire, Inc. 657-659 Broadway St. Corp.
K&B Florida Corporation Rite Aid of New Jersey, Inc. 764 South Broadway-Geneva,
K&B Louisiana Corporation Rite Aid of New York, Inc. Ohio, LLC
K&B Mississippi Corporation Rite Aid of North Carolina, Inc. 1515 West State Street Boise,
K&B Services, Incorporated Rite Aid of Ohio, Inc. Idaho, LLC
K&B Tennessee Corporation Rite Aid of Pennsylvania, Inc. 1525 Cortyou Road - Brooklyn
K&B Texas Corporation Rite Aid of South Carolina, Inc. 1740 Associates, LLC
K&B Trainees, Inc. Rite Aid of Tennessee, Inc. 3581 Carter Hill Road --
Katz & Besthoff, Inc. Rite Aid of Vermont, Inc. Montgomery Corp.
Keystone Centers, Inc. Rite Aid of Virginia, Inc. 4042 Warrensville Center Road
Lakehurst and Broadway Rite Aid of Washington, D.C., -- Warrensville Ohio, Inc.
Corporation Inc. 5277 Associates, Inc.
Laverdiere's Enterprises, Inc. Rite Aid of West Virginia, Inc. 5600 Superior Properties, Inc.
Leader Drugs, Inc. Rite Aid Realty Corp.
1
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are identified by terms and phrases such as "anticipate,"
"believe," "intend," "estimate," "expect," "continue," "should," "could,"
"may," "plan," "project," "predict," "will," and similar expressions and
include references to assumptions and relate to our future prospects,
developments and business strategies.
Factors that could cause our actual results to differ materially from those
expressed or implied in such forward-looking statements include, but are not
limited to:
o our high level of indebtedness;
o our ability to make interest and principal payment on our debt and
satisfy the other covenants contained in our credit facilities and other
debt agreements;
o our ability to improve the operating performance of our existing stores,
and, in particular, our new and relocated stores in accordance with our
management's long term strategy;
o the outcomes of pending lawsuits and governmental investigations, both
civil and criminal, involving our financial reporting and other matters;
o competitive pricing pressures, continued consolidation of the drugstore
industry;
o third-party prescription reimbursement levels, regulatory changes
governing pharmacy practices;
o general economic conditions, inflation and interest rate movements;
o merchandise supply constraints or disruptions;
o access to capital; and
o our ability to further develop, implement and maintain reliable and
adequate internal accounting systems and controls.
We undertake no obligation to revise the forward-looking statements included
in this prospectus to reflect any future events or circumstances. Our actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences are discussed in this prospectus
in the section titled "Risk Factors".
2
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. We also furnish to our
stockholders annual reports, which include financial statements audited by our
independent certified public accountants and other reports which the law
requires us to send to our stockholders. The public may read and copy any
reports, proxy statements or other information that we file at the SEC's
public reference room at Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549 and at the SEC's regional office at 505 West Madison Street, Suite
1400, Chicago, Illinois 60661. The public may obtain information on the public
reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov".
Our common stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange under the symbol "RAD". You can inspect and copy reports, proxy
statements and other information about us at the NYSE's offices at 20 Broad
Street, New York, New York 10005 and at the offices of the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104 and 618 South
Spring Street, Los Angeles, California 90014.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the New Notes. This prospectus does not contain
all of the information in the registration statement. You will find more
information about us and the New Notes in the registration statement. Any
statements made in this prospectus concerning the provisions of legal
documents are not necessarily complete and you should read the documents which
are filed as exhibits to the registration statement or otherwise filed with
the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference into this document the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we later file with the SEC will automatically update and
supersede the information contained or incorporated by reference in this
prospectus. Accordingly, we incorporate by reference:
o our annual report on Form 10-K for the fiscal year ended March 3, 2001,
filed on May 21, 2001;
o our proxy statement on Schedule 14A for our 2001 annual stockholders'
meeting, filed on May 31, 2001;
o our quarterly reports on Form 10-Q for the thirteen week periods ended
June 2, 2001 and September 1, 2001; and
o our current reports on Form 8-K dated June 21, 2001 and June 28, 2001.
All documents that we subsequently file pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 prior to the termination of
this exchange offer will be deemed to be incorporated by reference into this
prospectus from the date of filing of such documents. These documents are or
will be available for inspection or copying at the locations identified above
under the caption "Where you can find more information".
We will provide without charge to each person, including each beneficial
owner of Old Notes, to whom this prospectus is delivered, upon written or oral
request, a copy of any and all of the documents that have been incorporated by
reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference but not delivered with this
prospectus). You should direct requests for documents to 30 Hunter Lane, Camp
Hill, Pennsylvania 17011, attn: Senior Executive Vice President and General
Counsel. His telephone number is (717) 761-2633.
3
PROSPECTUS SUMMARY
The following information summarizes the detailed information and financial
statements included elsewhere and incorporated by reference in this
prospectus. We encourage you to read this entire prospectus and the
information we are incorporating by reference carefully. Unless otherwise
indicated or the context otherwise requires, dates in this prospectus that
refer to a particular fiscal year (e.g. fiscal 2001) refer to the fiscal year
ended on the Saturday closest to February 28 of that year. The fiscal year
ended March 3, 2001 included 53 weeks. The fiscal years ended February 26,
2000, February 27, 1999 and February 28, 1998 included 52 weeks.
Rite Aid Corporation
Our Business
We are the second largest retail drugstore chain in the United States,
based on number of stores, and the third largest based on revenues. As of
September 1, 2001, we operated 3,594 drugstores in 29 states across the
country and in the District of Columbia. We have a first or second place
market position, based on revenues, in 34 of the 65 major U.S. metropolitan
markets in which we operate. During fiscal 2001, we generated $14.5 billion in
revenues and we generated $7.4 billion in revenues in our first half of fiscal
2002. Since the beginning of fiscal 1997, we have purchased 1,554 stores,
relocated 952 stores, opened 469 new stores and remodeled 435 stores. As a
result, we believe we have one of the most modern store bases in the industry.
In our stores, we sell prescription drugs and a wide assortment of other
merchandise, which we call "front-end" products. In fiscal 2001, our
pharmacists filled more than 204 million prescriptions, which accounted for
59.5% of our total sales. In the first half of fiscal 2002, pharmacy sales
accounted for 61.3% of our total sales. We believe that our pharmacy
operations will continue to represent a significant part of our business due
to favorable industry trends, including an aging population, increased life
expectancy and the discovery of new and better drug therapies. We offer
approximately 24,600 front-end products, including over-the-counter
medications, health and beauty aids, personal care items, cosmetics, household
items, beverages, convenience foods, greeting cards, photo processing,
seasonal merchandise and numerous other everyday and convenience products,
which accounted for the remaining 40.5% of our total sales in fiscal 2001. We
distinguish our stores from other national chain drugstores, in part, through
our private label brands and our strategic alliance with General Nutrition
Companies, Inc. ("GNC"), a leading retailer of vitamin and mineral
supplements. We offer over 1,500 products under the Rite Aid private label
brand, which contributed approximately 10% of our front-end sales in fiscal
2001.
Background
Under prior management, we were engaged in an aggressive expansion program
from 1997 until 1999. During that period, we purchased 1,554 stores, relocated
866 stores, opened 445 new stores, remodeled 308 stores and acquired PCS
Health Systems, Inc. These activities had a significant negative impact on our
operating results and financial condition, severely strained our liquidity and
increased our indebtedness to $6.6 billion as of February 26, 2000, which
contributed to our inability to access the financial markets. A resulting
decrease in revenue due to inventory shortages, reduction in advertising and
uncompetitive prices on front-end products led to a decline in customer
traffic, which had a negative impact on our store operations. In October 1999,
we announced that we had identified accounting irregularities and our former
chairman and chief executive officer resigned. In November 1999, our former
auditors resigned and withdrew their previously issued opinions on our
financial statements for fiscal 1998 and fiscal 1999. We needed to restate our
financial statements and develop accounting systems and controls that would
allow us to manage our business and accurately report the results of our
operations.
4
In December 1999, a new management team was hired, and since that time we
have been addressing our business, operational and financial challenges. In
response to our situation, new management has:
o Reduced our indebtedness from $6.6 billion as of February 26, 2000 to
$3.7 billion as of September 1, 2001, after giving effect to the
Refinancing (described below);
o Improved front-end same store sales growth from a negative 2.2% in fiscal
2000 to a positive 6.5% in fiscal 2001 by improving store conditions and
product pricing and launching a competitive marketing program;
o Improved same store sales growth from 8.0% in the first half of fiscal
2001 to 9.1% in the first half of fiscal 2002 and front-end same store
sales growth from 4.8% in the first half of 2001 to 5.0% in the first
half of 2002;
o Restated our financial statements for fiscal 1998 and fiscal 1999, as
well as engaged Deloitte & Touche LLP as our new auditors to audit our
fiscal years beginning with fiscal 1998;
o Continued developing and implementing a comprehensive plan, which is
ongoing, to address problems with our accounting systems and controls,
and also resumed normal financial reporting;
o Significantly reduced the amount of our indebtedness maturing prior to
March 2005; and
o Addressed out-of-stock inventory levels and strengthened our vendor
relationships.
Refinancing Transactions
On June 27, 2001, we completed a comprehensive $3.2 billion refinancing
package (the "Refinancing") that includes a new $1.9 billion senior secured
credit facility underwritten by Citicorp North America, Inc., The Chase
Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance, Inc. As a
result of the Refinancing, we have significantly reduced our debt and the
amount of our debt maturing prior to March 2005.
Simultaneously with or prior to the closing of the new credit facility, we
completed the following transactions, which also form part of the Refinancing:
o $552.0 million in private placements of our common stock.
o An exchange with a financial institution of $152.025 million of our 10.5%
senior secured notes due 2002 for $152.025 million of new 12.5% senior
secured notes due 2006. The 12.5% senior secured notes due 2006 are
secured by a second lien on the collateral securing the new credit
facility.
o Private exchanges of common stock for $303.5 million of our bank debt and
10.5% senior secured notes due 2002.
o A synthetic lease transaction with respect to two of our distribution
centers in the amount of approximately $106.9 million.
o $150 million in a private placement of new 11.25% senior notes due 2008.
o The reclassification of $850.8 million of capital leases as operating
leases.
o An operating lease that we entered into with respect to our aircraft for
approximately $25.6 million.
o A tender offer whereby we accepted for payment $174.5 million of our
10.5% senior secured notes due 2002 at 103.25% of their principal amount.
With the proceeds of the Refinancing, we repaid our previous senior secured
credit facility, our PCS and RCF credit facilities and our secured exchange
debt. As a result of the Refinancing, our remaining debt due before March 2005
consists of $152.0 million of our 5.25% convertible subordinated notes due
2002, $107.8 million of our 6.00% dealer remarketable securities due 2003,
$21.9 million of our 10.5% senior secured
5
notes due 2002 and amortization of the new credit facility. We expect to use
internally generated funds to retire both the 5.25% notes and the dealer
remarketable securities at maturity and to meet the amortization payments
under the new credit facility.
Risk Factors
Prospective purchasers of our senior secured notes should carefully consider
the information set forth under the heading "Risk Factors", together with all
other information in this prospectus, including the information we are
incorporating by reference, before making an investment in the senior secured
notes offered by this prospectus.
Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania
17011, and our telephone number is (717) 761-2633. The address of our Web site
is www.riteaid.com. The information on our Web site is not part of this
prospectus. Our common stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange under the trading symbol "RAD". We were incorporated in
1968 and are a Delaware corporation.
6
THE EXCHANGE OFFER
Old Notes . . . . . . . . . . . . . . . . . 12.50% Senior Secured Notes due
2006, which we issued on June 27,
2001.
New Notes . . . . . . . . . . . . . . . . . 12.50% Senior Secured Notes due
2006, the issuance of which has
been registered under the
Securities Act of 1933. The form
and terms of the New Notes are
identical in all material respects
to those of the Old Notes, except
that the transfer restrictions and
registration rights relating to the
Old Notes do not apply to the New
Notes.
Exchange Offer. . . . . . . . . . . . . . . We are offering to issue up to
$152,025,000 aggregate principal
amount of the New Notes in exchange
for a like principal amount of the
Old Notes to satisfy our
obligations under the registration
rights agreement that we entered
into when the Old Notes were issued
in transactions in reliance upon
the exemption from registration
provided by Section 3(a)(9) of the
Securities Act.
Expiration Date; Tenders. . . . . . . . . . The exchange offer will expire at
5:00 p.m., New York City time, on
December 14, 2001, unless extended
in our sole and absolute
discretion. By tendering your Old
Notes, you represent to us that:
o you are not our "affiliate," as
defined in Rule 405 under the
Securities Act;
o any New Notes you receive in the
exchange offer are being
acquired by you in the ordinary
course of your business;
o at the time of commencement of
the exchange offer, neither you
nor, to your knowledge, anyone
receiving New Notes from you,
has any arrangement or
understanding with any person to
participate in the distribution,
as defined in the Securities
Act, of the New Notes in
violation of the Securities Act;
o if you are not a participating
broker- dealer, you are not
engaged in, and do not intend to
engage in, the distribution of
the New Notes, as defined in the
Securities Act; and
o if you are a broker- dealer, you
will receive the New Notes for
your own account in exchange for
Old Notes that were acquired by
you as a result of your market-
making or other trading
activities and that you will
deliver a prospectus in
connection with any resale of
the New Notes you receive. For
further information regarding
resales of the New Notes by
participating broker- dealers,
see the discussion under the
caption "Plan of Distribution"
beginning on page 42.
7
Withdrawal; Non-Acceptance. . . . . . . . . You may withdraw any Old Notes
tendered in the exchange offer at
any time prior to 5:00 p.m., New
York City time, on December 14,
2001. If we decide for any reason
not to accept any Old Notes
tendered for exchange, the Old
Notes will be returned to the
registered holder at our expense
promptly after the expiration or
termination of the exchange offer.
In the case of Old Notes tendered
by book-entry transfer into the
exchange agent's account at The
Depository Trust Company, any
withdrawn or unaccepted Old Notes
will be credited to the tendering
holder's account at DTC. For
further information regarding the
withdrawal of tendered Old Notes,
see the "The Exchange Offer--Terms
of the Exchange Offer; Period for
Tendering Old Notes" beginning on
page 25 and the "The Exchange
Offer--Withdrawal Rights" beginning
on page 28.
Conditions to the Exchange Offer. . . . . . The exchange offer is subject to
customary conditions, which we may
waive. See the discussion below
under the caption "The Exchange
Offer--Conditions to the Exchange
Offer" beginning on page 28 for
more information regarding the
conditions to the exchange offer.
Procedures for Tendering Old Notes. . . . . Unless you comply with the
procedures described below under
the caption "The Exchange
Offer--Guaranteed Delivery
Procedures" beginning on page 27,
you must do one of the following on
or prior to the expiration or
termination of the exchange offer
to participate in the exchange
offer:
o tender your Old Notes by sending
the certificates for your Old
Notes, in proper form for
transfer, a properly completed
and duly executed letter of
transmittal, with any required
signature guarantees, and all
other documents required by the
letter of transmittal, to State
Street Bank and Trust Company,
as exchange agent, at one of the
addresses listed below under the
caption "The Exchange
Offer--Exchange Agent" beginning
on page 30, or
o tender your Old Notes by using
the book- entry transfer
procedures described below and
transmitting a properly
completed and duly executed
letter of transmittal, with any
required signature guarantees,
or an agent's message instead of
the letter of transmittal, to
the exchange agent. In order for
a book-entry transfer to
constitute a valid tender of
your Old Notes in the exchange
offer, State Street Bank and
Trust Company, as exchange
agent, must receive a
confirmation of book- entry
transfer of your Old Notes into
the exchange agent's account at
DTC prior to the expiration or
termination of the exchange
offer. For more information
regarding the use of book-entry
transfer procedures,
8
including a description of the
required agent's message, see
the discussion below under the
caption "The Exchange
Offer--Book- Entry Transfers"
beginning on page 27.
Guaranteed Delivery Procedures. . . . . . . If you are a registered holder of
Old Notes and wish to tender your
Old Notes in the exchange offer,
but
o the Old Notes are not
immediately available,
o time will not permit your Old
Notes or other required
documents to reach the exchange
agent before the expiration or
termination of the exchange
offer, or
o the procedure for book-entry
transfer cannot be completed
prior to the expiration or
termination of the exchange
offer,
then you may tender Old Notes by
following the procedures described
below under the caption "The
Exchange Offer--Guaranteed Delivery
Procedures" on page 27.
Special Procedures for Beneficial Owners. . If you are a beneficial owner whose
Old Notes are registered in the
name of the broker, dealer,
commercial bank, trust company or
other nominee and you wish to
tender your Old Notes in the
exchange offer, you should promptly
contact the person in whose name
the Old Notes are registered and
instruct that person to tender on
your behalf. If you wish to tender
in the exchange offer on your
behalf, prior to completing and
executing the letter of transmittal
and delivering your Old Notes, you
must either make appropriate
arrangements to register ownership
of the Old Notes in your name or
obtain a properly completed bond
power from the person in whose name
the Old Notes are registered.
Material Federal Income Tax Considerations. The exchange of the Old Notes for
New Notes in the exchange offer
will not be a taxable transaction
for United States Federal income
tax purposes. See the discussion
below under the caption "Material
Federal Income Tax Considerations"
beginning on page 42 for more
information regarding the tax
consequences to you of the exchange
offer.
Use of Proceeds . . . . . . . . . . . . . . We will not receive any cash
proceeds from the exchange offer.
Exchange Agent. . . . . . . . . . . . . . . State Street Bank and Trust Company
is the exchange agent for the
exchange offer. You can find the
address and telephone number of the
exchange agent below under the
caption "The Exchange
Offer--Exchange Agent" beginning on
page 30.
Resales . . . . . . . . . . . . . . . . . . Based on interpretations by the
staff of the SEC, as set forth in
no- action letters issued to the
third parties, we believe that the
New Notes you receive in the
exchange
9
offer may be offered for resale,
resold or otherwise transferred
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act. However, you will
not be able to freely transfer the
New Notes if:
o you are our "affiliate," as
defined in Rule 405 under the
Securities Act;
o you are not acquiring the New
Notes in the exchange offer in
the ordinary course of your
business;
o you have an arrangement or
understanding with any person to
participate in the distribution,
as defined in the Securities
Act, of the New Notes, you will
receive in the exchange offer;
or
o you are a participating broker-
dealer that received New Notes
for its own account in the
exchange offer in exchange for
Old Notes that were acquired as
a result of market- making or
other trading activities.
If you fall within one of the
exceptions listed above, you must
comply with the registration and
prospectus delivery requirements of
the Securities Act in connection
with any resale transaction
involving the New Notes. See the
discussion below under the caption
"The Exchange Offer--Procedures for
Tendering Old Notes" beginning on
page 25 for more information.
10
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your Old Notes in the exchange offer, your Old Notes
will continue to be subject to the restrictions on transfer described in the
legend on the certificate for your Old Notes. In general, you may offer or
sell your Old Notes only:
o if they are registered under the Securities Act and applicable state
securities laws;
o if they are offered or sold under an exemption from registration under the
Securities Act and applicable state securities laws; or
o if they are offered or sold in a transaction not subject to the Securities
Act and applicable state securities laws.
We do not currently intend to register the Old Notes under the Securities
Act. Under some circumstances, however, holders of the Old Notes, including
holders who are not permitted to participate in the exchange offer or who may
not freely resell New Notes received in the exchange offer, may require us to
file, and to cause to become effective, a shelf registration statement
covering resales of Old Notes by these holders. For more information regarding
the consequences of not tendering your Old Notes and our obligation to file a
shelf registration statement, see "The Exchange Offer--Consequences of
Exchanging or Failing to Exchange Old Notes" beginning on page 30 and
"Description of the New Notes--Registration Rights Agreement" beginning on
page 35.
11
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and those of the outstanding Old Notes are
substantially identical, except that the transfer restrictions and
registration rights relating to the Old Notes do not apply to the New Notes.
In addition, if we do not have an effective registration statement on file
with the SEC to register the New Notes within 180 days of the filing of the
registration statement of which this prospectus forms a part, or if the
exchange offer is not completed on or before the 40th business day after the
registration statement becomes effective, we will be required to pay
liquidated damages to each holder of Old Notes until we cure the registration
default. See "Description of the New Notes--Registration Rights Agreement"
beginning on page 35.
Issuer. . . . . . . . . . . . . . . . . . . Rite Aid Corporation
Securities Offered. . . . . . . . . . . . . Up to $152,025,000 million
aggregate principal amount of
12.50% Senior Secured Notes due
2006.
Maturity Date . . . . . . . . . . . . . . . September 15, 2006
Interest. . . . . . . . . . . . . . . . . . Interest on the New Notes will
accrue at the rate of 12.50% per
annum and will be payable
semi-annually on March 15 and
September 15 of each year. Interest
will be paid to holders of record
as of March 1 or September 1
immediately preceding such payment
date.
Mandatory Redemption. . . . . . . . . . . . None.
Optional Redemption . . . . . . . . . . . . None.
Subsidiary Guarantees . . . . . . . . . . . Our obligations under the New Notes
will be guaranteed by substantially
all of our subsidiaries. This
guarantee will be subordinated to
the guarantee securing our secured
credit facility and 10.5% senior
secured notes due 2002. These
guarantees may be limited (and
subject to automatic reduction) to
prevent such guarantees and the
guarantees of certain of our other
indebtedness from constituting
fraudulent conveyances. In
addition, until we are subject to a
bankruptcy proceeding, the holders
of the New Notes and the other debt
guaranteed on a subordinated basis
may not make any demand for payment
under such guarantees or institute
any legal actions or bankruptcy
proceedings against the guarantors.
See "Description of the New
Notes--Ranking; Subsidiary
Guarantees; Security" on page 32.
12
Security. . . . . . . . . . . . . . . . . . The guarantees of the New Notes
will be secured by second priority
liens by our subsidiary guarantees
on substantially all of their
inventory, accounts receivable,
intellectual property and certain
of their owned real property.
The second priority liens will be
shared equally and ratably with our
creditors under certain of our
other indebtedness, and will be
subordinate to first priority liens
securing the guarantees in respect
of our secured credit facility and
10.5% senior secured notes due
2002. The lenders under the secured
credit facility will, at all times,
control all remedies or other
actions related to the Collateral.
See "Description of the New
Notes--Ranking; Subsidiary
Guarantees; Security" on page 32.
Change of Control . . . . . . . . . . . . . We are prohibited from merging with
another corporation or selling our
property substantially as an
entirety, except under limited
circumstances. See "Description of
the New Notes--Certain
Restrictions" beginning on page 35.
Ranking . . . . . . . . . . . . . . . . . . The New Notes will be pari passu in
right of payment with our other
unsecured senior debt. All of our
debt, other than our 5.25%
convertible notes, is senior debt.
As of September 1, 2001,
approximately 46% of this senior
debt, including the Old Notes, was
secured by some assets that will
also secure the New Notes. Our
subsidiaries conduct substantially
all our operations and have
substantial liabilities, including
trade payables. If the subsidiary
guarantees are invalid or
unenforceable or the limitations
under the guarantees are applied,
the New Notes will be structurally
subordinated to our substantial
subsidiary liabilities and the
liens on the collateral would be
invalid or unenforceable.
Covenants . . . . . . . . . . . . . . . . . The terms of the New Notes restrict
our ability, among other things, to
incur certain additional debt,
engage in sale-lease back
transactions and incur liens. These
limitations are subject to a number
of important qualifications and
exceptions. For further information
regarding the restrictions imposed
on us by the terms of the New
Notes, see the discussion under
"Description of the New
Notes--Certain Restrictions"
beginning on page 35.
Events of Default . . . . . . . . . . . . . The following events, among others,
constitute events of default under
the New Notes
o default for 30 days in any
payment of interest upon any New
Notes;
o default in any payment of
principal of (or premium, if
any) upon any New Notes when
due;
13
o default for 60 days after
appropriate notice in the
performance of any other
covenant in the New Notes or the
indenture governing the New
Notes;
o certain events in bankruptcy,
insolvency or reorganization;
o certain events of default
resulting in the acceleration of
the maturity of certain debt in
excess of $10 million; and
o other events described in the
indenture governing the New
Notes.
For further information
regarding events of default, see
the discussion under
"Description of the New
Notes--Events of Default"
beginning on page 37.
14
RISK FACTORS
You should consider carefully the following factors, as well as the other
information set forth or incorporated by reference in this prospectus, before
tendering your Old Notes in the exchange offer. When
we use the term "Notes" in this prospectus, the term includes the Old Notes
and the New Notes.
Risks related to the Exchange Offer and holding the New Notes
Holders who fail to exchange their Old Notes will continue to be subject to
restrictions on transfer.
If you do not exchange your Old Notes for New Notes in the exchange offer,
you will continue to be subject to the restrictions on transfer of your Old
Notes described in the legend on the certificates for your Old Notes. The
restrictions on transfer of your Old Notes arise because we issued the Old
Notes under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the Old Notes if they
are registered under the Securities Act and applicable state securities laws,
or offered and sold under an exemption from these requirements. We do not plan
to register the Old Notes under the Securities Act. For further information
regarding the consequences of tendering your Old Notes in the exchange offer,
see the discussions below under the captions "The Exchange Offer--Consequences
of Exchanging or Failing to Exchange Old Notes" and "Material Federal Income
Tax Considerations."
You must comply with the exchange offer procedures in order to receive new,
freely tradable notes.
Delivery of New Notes in exchange for Old Notes tendered and accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of the following:
o certificates for Old Notes or a book-entry confirmation of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC, New York,
New York as depository, including an Agent's Message (as defined) if the
tendering holder does not deliver a letter of transmittal,
o a completed and signed letter of transmittal (or facsimile thereof), with
any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message in lieu of the letter of transmittal, and
o any other documents required by the letter of transmittal.
Therefore, holders of Old Notes who would like to tender Old Notes in
exchange for New Notes should be sure to allow enough time for the Old Notes
to be delivered on time. We are not required to notify you of defects or
irregularities in tenders of Old Notes for exchange. Old Notes that are not
tendered or that are tendered but we do not accept for exchange will,
following consummation of the exchange offer, continue to be subject to the
existing transfer restrictions under the Securities Act and, upon consummation
of the exchange offer, certain registration and other rights under the
registration rights agreement will terminate. See "The Exchange
Offer--Procedures for Tendering Old Notes" and "The Exchange
Offer--Consequences of Exchanging or Failing to Exchange Old Notes."
Some holders who exchange their Old Notes may be deemed to be underwriters.
If you exchange your Old Notes in the exchange offer for the purpose of
participating in a distribution of the New Notes, you may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
You may find it difficult to sell your notes.
There is no existing trading market for the New Notes. We do not intend to
apply for listing or quotation of the New Notes on any exchange. Therefore, we
do not know the extent to which investor interest will lead to the development
of a trading market or how liquid that market might be, nor can we make any
assurances regarding the ability of New Note holders to sell their New Notes,
the amount of New Notes to be
15
outstanding following the exchange offer or the price at which the New Notes
might be sold. As a result, the market price of the New Notes could be
adversely affected. Historically, the market for non-investment grade debt,
such as the New Notes, has been subject to disruptions that have caused
substantial volatility in the prices of such securities. Any such disruptions
may have an adverse affect on holders of the New Notes.
If the guarantees of the New Notes and the liens that secure these guarantees
are held to be invalid or unenforceable or are limited in accordance with
their terms, the New Notes would be unsecured and structurally subordinated to
the debt of our subsidiaries.
We are a holding company with no direct operations. Our principal assets are
the equity interests we hold in our operating subsidies. As a result, we
depend on dividends and other payments from our subsidiaries to generate the
funds necessary to meet our financial obligations, including the payment of
principal of and interest on our outstanding debt. Our subsidiaries are
legally distinct from us and have no obligation to pay amounts due on our debt
to or to make funds available to us for such payment. Accordingly, any of our
debt that is not guaranteed by our subsidiaries is structurally subordinated
to the debt and other liabilities of our subsidiaries. As of March 3, 2001,
the indebtedness and other liabilities of our subsidiaries, excluding
guarantees of our indebtedness and lease obligations, was approximately $2.4
billion.
Substantially all of our subsidiaries will guarantee our obligations on the
New Notes. These guarantees will be secured by shared second priority liens on
assets of these subsidiaries. The terms of these guarantees will provide that
they are limited (and subject to automatic reduction) to the extent necessary
to prevent such guarantees and the guarantees of the senior facility from
constituting fraudulent conveyances.
Our creditors or the creditors of our subsidiaries could challenge these
guarantees and these liens as fraudulent conveyances or on other grounds. We
cannot assure you that a court would not conclude that the guarantees and
liens constitute fraudulent conveyances. In the event that a court declares
either these guarantees or these liens to be void, or in the event that the
guarantees must be limited or voided in accordance with their terms, any claim
you may make against for amounts payable on the New Notes would be unsecured
and subordinated to the debt of our subsidiaries, including trade payables.
The guarantees of the New Notes will be subordinated to the guarantees of our
senior indebtedness.
The guarantees of the New Notes given by our subsidiaries will be secured by
a second priority lien over the assets of substantially all of our
subsidiaries. These subsidiaries have given guarantees secured by first
priority liens in respect of certain of our senior indebtedness, including our
senior secured credit facility and our 10.5% senior secured notes due 2002.
The second priority lien held by the New Notes is also shared with the holders
of certain other of our indebtedness, including our other credit facilities.
As a result, the assets of our subsidiaries will only be available to
holders of the New Notes after we have fully satisfied our obligations under
our senior indebtedness. Furthermore, any surplus proceeds from the
liquidation of the collateral after satisfaction of our obligations to holders
of our senior debt must be shared with the holders of the other debt secured
by the second priority lien.
Consequently, our obligations under the New Notes are secured only to the
extent that: (i) our senior indebtedness is oversecured; and (ii) the
oversecured amount is sufficient to secure the New Notes and the other
indebtedness secured by the shared second priority lien.
The holders of the New Notes will be unable to control decisions regarding the
collateral.
The holders of the senior debt that has the benefit of the first priority
lien over the collateral control all matters related to the collateral, the
collateral agent, those holders may take actions with respect to the
collateral with which holders of the New Notes may disagree or that may be
contrary to the interests of holders of the New Notes. In addition, the
holders of the senior debt have the right to determine whether to waive any
prepayments with the proceeds of the liquidation of the collateral. In the
event of such a waiver, the holders would not be entitled to any prepayment of
the New Notes.
16
In addition, issues concerning the exercise of the second priority lien will
be determined by the approval of holders of a majority of the outstanding
principal amount of the debt that shares the second priority lien. The
aggregate principal amount of the New Notes (assuming that all Old Notes are
exchanged for New Notes pursuant to this exchange offer) will not represent a
majority of this debt.
Holders of the Old Notes participating in the exchange offer will not
recognize gain or loss in the exchange.
The exchange of Old Notes for New Notes in the exchange offer will not be a
taxable transaction to holders for U.S. federal income tax purposes. See the
discussion under the caption "Material Federal Income Tax Considerations".
Risks Related to Our Financial Condition
We are highly leveraged. Our substantial indebtedness will severely limit cash
flow available for our operations and could adversely affect our ability to
service debt or obtain additional financing if necessary.
After giving effect to the Refinancing, we had, as of September 1, 2001 $3.7
billion of outstanding indebtedness (including current maturities but
excluding letters of credit) and stockholders' equity of $453.2 million. We
also have additional borrowing capacity under our revolving credit facility of
$423.9 million. Our debt obligations will continue to adversely affect our
operations in a number of ways and our cash flow is insufficient to service
our debt, which may require us to borrow additional funds for that purpose,
restructure or otherwise refinance that debt. Our earnings were insufficient
to cover our fixed charges for fiscal 2001 by $1.2 billion. After giving
effect to the Refinancing on a pro forma basis, we estimate that our earnings
would have been insufficient to cover our fixed charges for fiscal 2001.
Our high level of indebtedness will continue to restrict our operations.
Among other things, our indebtedness will:
o limit our ability to obtain additional financing;
o limit our flexibility in planning for, or reacting to, changes in the
markets in which we compete;
o place us at a competitive disadvantage relative to our competitors with
less indebtedness;
o render us more vulnerable to general adverse economic and industry
conditions; and
o require us to dedicate substantially all of our cash flow to service our
debt.
In fiscal 2000 we experienced operational and financial difficulties,
resulting in disputes with suppliers and vendors. These disputes were based
primarily on our level of indebtedness and led to more restrictive vendor
contract terms. Although we believe that our prior disputes with suppliers and
vendors have been largely resolved, any future material deterioration in our
operational or our financial situation could again impact vendors' and
suppliers' willingness to do business with us. Our ability to make payments on
our debt, depends upon our ability to substantially improve our future
operating performance, which is subject to general economic and competitive
conditions and to financial, business and other factors, many of which we
cannot control. If our cash flow from our operating activities is
insufficient, we may take certain actions, including delaying or reducing
capital or other expenditures, attempting to restructure or refinance our
debt, selling assets or operations or seeking additional equity capital. We
may be unable to take any of these actions on satisfactory terms or in a
timely manner. Further, any of these actions may not be sufficient to allow us
to service our debt obligations or may have an adverse impact on our business.
Our existing debt agreements, limit our ability to take certain of these
actions. Our failure to earn enough to pay our debts or to successfully
undertake any of these actions could have a material adverse effect on us.
Some of our debt, including borrowings under our new credit facility, is based
upon variable rates of interest, which could result in higher interest expense
in the event of increases in interest rates.
Approximately $378.5 million of our outstanding indebtedness as of September
1, 2001, following the Refinancing, bears an interest rate that varies
depending upon LIBOR and is not covered by interest rate swap
17
contracts that expire in 2002. If we borrow additional amounts under our
senior secured facility, the interest rate on those borrowings will vary
depending upon LIBOR. If LIBOR rises, the interest rates on this outstanding
debt will also increase. Therefore an increase in LIBOR would increase our
interest payment obligations under these outstanding loans and have a negative
effect on our cash flow and financial condition.
The covenants in our outstanding indebtedness impose restrictions that may
limit our operating and financial flexibility.
The covenants in the instruments governing our outstanding indebtedness,
including our new credit facility, restrict our ability to incur liens and
debt, pay dividends, make redemptions and repurchases of capital stock, make
loans, investments and capital expenditures, prepay, redeem or repurchase
debt, engage in mergers, consolidations, asset dispositions, sale-leaseback
transactions and affiliate transactions, change our business, amend certain
debt and other material agreements, issue and sell capital stock of
subsidiaries, restrict distributions from subsidiaries and grant negative
pledges to other creditors.
Moreover, if we are unable to meet the terms of the financial covenants or
if we breach any of these covenants, a default could result under one or more
of these agreements. A default, if not waived by our lenders, could result in
the acceleration of our outstanding indebtedness and cause our debt to become
immediately due and payable. If acceleration occurs, we would not be able to
repay our debt and it is unlikely that we would be able to borrow sufficient
additional funds to refinance such debt. Even if new financing is made
available to us, it may not be available on terms acceptable to us.
If we were required to obtain waivers of defaults, we may incur significant
fees and transaction costs. In fiscal 2000, we were required to obtain waivers
of compliance with, and modifications to, certain of the covenants contained
in our senior credit and loan agreements and public indentures. In connection
with obtaining certain of such waivers and modifications, we paid significant
fees and transaction costs.
Risks Related to our Operations
Major lawsuits have been brought against us and certain of our subsidiaries,
and there are currently pending both civil and criminal investigations by the
U.S. Securities and Exchange Commission, the United States Attorney and an
investigation by the United States Department of Labor. In addition to any
fines or damages that we might have to pay, any criminal conviction against us
may result in the loss of licenses and contracts that are material to the
conduct of our business, which would have a negative effect on our results of
operations, financial condition and cash flows.
There are several major ongoing lawsuits and investigations in which we are
involved. These include, in addition to the investigations described below,
several class action lawsuits. While some of these lawsuits have been settled,
we are unable to predict the outcome of any of these matters at this time. If
any of these cases result in a substantial monetary judgment against us or is
settled on unfavorable terms, our results of operations, financial condition
and cash flows could be materially adversely affected.
There are currently pending both civil and criminal governmental
investigations by the SEC and the United States Attorney concerning our
financial reporting and other matters. In addition, an investigation has also
been commenced by the U.S. Department of Labor concerning our employee benefit
plans, including our principal 401(k) plan, which permitted employees to
purchase our common stock. Purchases of our common stock under the plan were
suspended in October 1999. In January 2001, we appointed an independent
trustee to represent the interests of these plans in relation to the company
and to investigate possible claims the plans may have against us. Both the
independent trustee and the Department of Labor have asserted that the plans
may have claims against us. These investigations are ongoing and we cannot
predict their outcomes. If we were convicted of any crime, certain licenses
and government contracts, such as Medicaid plan reimbursement agreements, that
are material to our operations may be revoked, which would have a material
adverse effect on our results of operations and financial condition. In
addition, substantial penalties, damages, or other monetary remedies assessed
against us could also have a material adverse effect on our results of
operations, financial condition and cash flows.
18
Given the size and nature of our business, we are subject from time to time
to various lawsuits which, depending on their outcome, may have a negative
impact on our results of operations, financial condition and cash flows.
We are substantially dependent on a single supplier of pharmaceutical products
to sell products to us on satisfactory terms. A disruption in this
relationship would have a negative effect on our results of operations,
financial condition and cash flows.
We obtain approximately 93% of our pharmaceutical supplies from a single
supplier, McKesson HBOC, Inc., pursuant to a long-term contract. Pharmacy
sales represented approximately 59.5% of our total sales during fiscal 2001,
and, therefore, our relationship with McKesson HBOC is important to us. Any
significant disruptions in our relationship with McKesson HBOC would make it
difficult for us to continue to operate our business, and would have a
material adverse effect on our results of operations, financial condition and
cash flows.
Our auditors have identified numerous "reportable conditions", which relate to
our internal accounting systems and controls, which systems and controls may
be insufficient. Improvements to our internal accounting systems and controls
could require substantial resources.
An audit of our financial statements for fiscal 1998 and fiscal 1999,
following a previous restatement, concluded in July 2000 and resulted in an
additional restatement of fiscal 1998 and fiscal 1999. Following its review of
our books and records, our management concluded that further steps were needed
to establish and maintain the adequacy of our internal accounting systems and
controls. In connection with the above audits of our financial statements,
Deloitte & Touche LLP advised us that it believed there were numerous
"reportable conditions" under the standards established by the American
Institute of Certified Public Accountants which relate to our accounting
systems and controls that could adversely affect our ability to record,
process, summarize and report financial data consistent with the assertions of
management in the financial statements. In order to address the reportable
conditions identified by Deloitte & Touche LLP, we are developing and
implementing comprehensive, adequate and reliable accounting systems and
controls. If, however, we determine that our internal accounting systems and
controls require additional improvements beyond those identified, or if the
changes we are implementing are inadequate, we may need to commit additional
substantial resources, including time from our management team, to implement
new systems and controls, which could affect the timeliness of our financial
or management reporting.
We need to continue to improve our operations in order to improve our
financial condition, but our operations will not improve if we cannot continue
to effectively implement our business strategy or if they are negatively
affected by general economic conditions.
Our operations during fiscal 2000 were adversely affected by a number of
factors, including our financial difficulties, inventory shortages,
allegations of violations of the law, including drug pricing issues, disputes
with suppliers and uncertainties regarding our ability to produce audited
financial statements. To improve operations, new management developed and in
fiscal 2001 began implementing and continues to implement, a business strategy
to improve our stores and enhance our relationships with our customers by
improving the pricing of products, providing more consistent advertising
through weekly circulars, eliminating inventory shortages and out-dated
inventory, resolving issues and disputes with our vendors, and developing
programs intended to provide better customer service and purchasing
prescription files and other means. If we are not successful in implementing
our business strategy, or if our business strategy is not effective, we may
not be able to continue to improve our operations. In addition, any adverse
change in general economic conditions can adversely affect consumer buying
practices and reduce our sales of front-end products, which are our higher
margin products, and cause a proportionately greater decrease in our
profitability. Failure to continue to improve operations or a decline in
general economic conditions would adversely affect our results of operations,
financial condition and cash flows and our ability to make principal or
interest payments on our debt.
19
We cannot assure you that management will be able to successfully manage our
business or successfully implement our strategic plan. This could have a
material adverse effect on our business and the results of our operations,
financial condition and cash flows.
In December 1999, we hired a new management team to address our business,
operational financial and accounting challenges. Our management team has
considerable experience in the retail industry. Nonetheless, we cannot assure
you that our management will be able successfully to manage our business or
successfully implement our strategic business plan. This could have a material
adverse effect on our results of operations, financial condition and cash
flows.
We are dependent on our management team, and the loss of their services could
have a material adverse effect on our business and the results of our
operations or financial condition.
The success of our business is materially dependent upon the continued
services of our chairman and chief executive officer, Robert G. Miller, and
the other members of our management team. The loss of Mr. Miller or other key
personnel could have a material adverse effect on the results of our
operations, financial condition and cash flows. Additionally, we cannot assure
you that we will be able to attract or retain other skilled personnel in the
future.
Risks Related to our Industry
The markets in which we operate are very competitive and further increases in
competition could adversely affect us.
We face intense competition with local, regional and national companies,
including other drugstore chains, independently owned drugstores,
supermarkets, mass merchandisers, discount stores and mail order pharmacies.
We may not be able to effectively compete against them because our existing or
potential competitors may have financial and other resources that are superior
to ours. In addition, we may be at a competitive disadvantage because we are
more highly leveraged than our competitors. Because many of our stores are
new, their ability to achieve profitability depends on their ability to
achieve a critical mass of customers. While customer growth is often achieved
through purchases of prescription files from existing pharmacies, our ability
to achieve this critical mass through purchases of prescription files could be
confined by liquidity constraints. Although in the recent past, our
competitiveness has been adversely affected by problems with inventory
shortages, uncompetitive pricing and customer service, we have taken steps to
address these issues. We believe that the continued consolidation of the
drugstore industry will further increase competitive pressures in the
industry. As competition increases, a significant increase in general pricing
pressures could occur which would require us to increase our sales volume and
to sell higher margin products and services in order to remain competitive. We
cannot assure you that we will be able to continue effectively to compete in
our markets or increase our sales volume in response to further increased
competition.
Changes in third-party reimbursement levels for prescription drugs could
reduce our margins and have a material adverse effect on our business.
Sales of prescription drugs, as a percentage of sales, and the percentage of
prescription sales reimbursed by third parties, have been increasing and we
expect them to continue to increase. In fiscal 2001, sales of prescription
drugs represented 59.5% of our sales and we were reimbursed by third-party
payors for approximately 90.3% of all of the prescription drugs that we sold.
In the first half of fiscal 2002, sales of prescription drugs represented
61.3% of our sales and we were reimbursed by third-party payors for
approximately 91.9% of all the prescription drugs that we sold. During fiscal
2001, the top five third-party payors accounted for approximately 26.4% of our
total sales. Any significant loss of third-party provider business could have
a material adverse effect on our business and results of operations. Also,
these third-party payors could reduce the levels at which they will reimburse
us for the prescription drugs that we provide to their members. Furthermore,
if Medicare is reformed to include prescription benefits, we may be reimbursed
for some prescription drugs at prices lower than our current retail prices. If
third-party payors reduce their reimbursement levels or if Medicare covers
prescription drugs at reimbursement levels lower than our current
20
retail prices, our margins on these sales would be reduced, and the
profitability of our business and our results of operations, financial
condition and cash flows could be adversely affected.
We are subject to governmental regulations, procedures and requirements; our
noncompliance or a significant regulatory change could adversely affect our
business, the results of our operations or our financial condition.
Our pharmacy business is subject to federal, state, and local regulation.
These include local registrations of pharmacies in the states where our
pharmacies are located, applicable Medicare and Medicaid regulations, and
prohibitions against paid referrals of patients. Failure to properly adhere to
these and other applicable regulations could result in the imposition of civil
and criminal penalties and could adversely affect the continued operation of
our business. Furthermore, our pharmacies could be affected by federal and
state reform programs, such as healthcare reform initiatives which could, in
turn, negatively affect our business. The passing of these initiatives or any
new federal or state programs could adversely affect our results of
operations, financial condition and cash flows.
Certain risks are inherent in the provision of pharmacy services; our
insurance may not be adequate to cover any claims against us.
Pharmacies are exposed to risks inherent in the packaging and distribution
of pharmaceuticals and other healthcare products, such as with respect to
improper filling of prescriptions, labeling of prescriptions and adequacy of
warnings. Although we maintain professional liability and errors and omissions
liability insurance from time to time, claims result in the payment of
significant amounts, some portions of which are not funded by insurance. We
cannot assure you that the coverage limits under our insurance programs will
be adequate to protect us against future claims, or that we will maintain this
insurance on acceptable terms in the future. Our results of operations,
financial condition or cash flows may be adversely affected if in the future
our insurance coverage proves to be inadequate or unavailable or there is an
increase in liability for which we self insure or we suffer reputational harm
as a result of an error or omission.
We will not be able to compete effectively if we are unable to attract, hire
and retain qualified pharmacists.
There is a nationwide shortage of qualified pharmacists. In response, we
have implemented improved benefits and training programs in order to attract,
hire and retain qualified pharmacists. However, we may not be able to attract,
hire and retain enough qualified pharmacists. This could adversely affect our
operations.
21
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. Any Old Notes
that are properly tendered and exchanged pursuant to the exchange offer will
be retired and cancelled.
RATIO OF EARNINGS TO FIXED CHARGES
We have calculated the ratio or earnings to fixed charges in the following
table by dividing earnings by fixed charges. For this purpose, earnings
include pre-tax income from continuing operations plus fixed charges. Fixed
charges include interest, whether expensed or capitalized, amortization of
debt expense, preferred stock dividend requirement and that portion of rental
expense which is representative of the interest factor in those rentals. The
ratio of earnings to fixed charges data is presented for four fiscal years. As
previously discussed in our Form 10-K dated May 21, 2001 and our Form 10-K/A
dated October 11, 2000, substantial time, effort and expense was required over
a six month period to review, assess, reconcile, prepare and audit our
financial statements for the 2000, 1999 and 1998 fiscal years. We believe it
would require an unreasonable effort and expense to conduct a similar process
related to the 1997 fiscal year.
Twenty-Six Week
Year Ended Period Ended
-------------------------------------------------------------------------- -----------------
March 3, 2001 February 27, 2000 February 27, 1999 February 28, 1998 September 1, 2001
(53 weeks) (52 weeks) (52 weeks) (52 weeks)
------------- ----------------- ----------------- ----------------- -----------------
(Dollars in thousands)
Fixed Charges:
Interest Expense ............ $ 649,926 $ 542,028 $ 274,826 $ 209,152 $ 231,066
Interest Portion of Net
Rental Expense (1)......... 159,066 146,852 139,104 121,694 93,236
----------- ----------- --------- --------- ---------
Fixed Charges Before
Capitalized Interest and
Preferred Stock Dividend
Requirements............... 808,992 688,880 413,930 330,846 324,302
Preferred Stock Dividend
Requirement (2)............ 42,445 15,554 965 -- 20,566
Capitalized Interest ........ 1,836 5,292 7,069 4,102 422
----------- ----------- --------- --------- ---------
Total Fixed Charges ......... $ 853,273 $ 709,726 $ 421,964 $ 334,948 $ 345,290
----------- ----------- --------- --------- ---------
Earnings:
Loss From Continuing
Operations Before Income
Taxes, Extraordinary Item
and Cumulative Effect of
Accounting Change.......... $(1,282,807) $(1,123,296) $(665,040) $(173,090) $(387,934)
Share of Loss From Equity
Method Investees........... 36,675 15,181 448 1,886 10,395
Fixed Charges Before
Capitalized Interest....... 851,437 704,434 414,895 330,846 344,868
----------- ----------- --------- --------- ---------
Total Adjusted Earnings
(Loss)..................... (394,695) (403,681) (249,697) 159,642 (32,671)
----------- ----------- --------- --------- ---------
Earnings to Fixed Charges,
Deficiency................. $(1,247,968) $(1,113,407) $(671,661) $(175,306) $(377,961)
=========== =========== ========= ========= =========
--------------------
(1) The Interest Portion of Net Rental Expense is estimated to be equal to one-
third of the minimum rental expense for the period.
(2) The Preferred Stock Dividend Requirement is computed as the pre-tax
earnings that would be required to cover preferred stock dividends.
22
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data should be read in
conjunction with the financial statements and related notes incorporated by
reference in this prospectus. Annual selected consolidated financial
information is presented for four fiscal years. The selected consolidated
financial data for the twenty-six week periods ended September 1, 2001 and
August 26, 2000 are unaudited and not necessarily indicative of the results to
be expected for the full year. The unaudited interim selected consolidated
financial data reflects all adjustments (consisting primarily of normal
recurring adjustments except as described in the footnotes to the interim
condensed consolidated financial statements) which are, in the opinion of our
management, necessary to present fairly the financial data for the interim
periods. As previously discussed in our Form 10-K dated May 21, 2001 and our
Form 10-K/A dated October 11, 2000, substantial time, effort and expense was
required over a six month period to review, assess, reconcile, prepare and
audit our financial statements for the 2000, 1999 and 1998 fiscal years. We
believe it would require an unreasonable effort and expense to conduct a
similar process related to the 1997 fiscal year. The following selected
consolidated financial information does not give pro forma effect to the
Refinancing.
Fiscal Year Ended
--------------------------------------------------------------------------
March 3, 2001 February 26, 2000 February 27, 1999 February 28, 1998
(53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)(1)
------------- ----------------- ----------------- -----------------
(Dollars in thousands, except per share amounts)
Operations Data:
Revenues ................................. $ 14,516,865 $ 13,338,947 $ 12,438,442 $ 11,352,637
Costs and expenses:
Cost of goods sold, including occupancy
costs ................................. 11,151,490 10,213,428 9,406,831 8,419,021
Selling, general and administrative
expenses .............................. 3,458,307 3,607,810 3,200,563 2,773,560
Goodwill amortization................... 20,670 24,457 26,055 26,169
Store closing and impairment charges
(credits) ............................. 388,078 139,448 195,359 155,024
Interest expense........................ 649,926 542,028 274,826 202,688
Interest rate swap contracts market
value adjustment ...................... -- -- -- --
Loss on debt and lease conversions and
modifications ......................... 100,556 -- -- --
Share of loss and lease from equity
investments............................ 36,675 15,181 448 1,886
(Gain) loss on sale of assets and
investments............................ (6,030) (80,109) -- (52,621)
------------ ------------ ------------ ------------
Total costs and expenses ................. 15,799,672 14,462,243 13,104,082 11,525,727
------------ ------------ ------------ ------------
Loss from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change (1,282,807) (1,123,296) (665,640) (173,090)
Income tax expense (benefit) ............. 148,957 (8,375) (216,941) (28,064)
------------ ------------ ------------ ------------
Loss from continuing operations before
extraordinary item and cumulative
effect of accounting change(2) ........ (1,431,764) (1,114,921) (448,699) (145,026)
Income (loss) from discontinued
operations, net(2)...................... 11,335 9,178 (12,823) (20,214)
Loss on disposal of discontinued
operations, net......................... (168,795) -- -- --
Extraordinary item, loss on early
extinguishment of debt, net............. -- -- -- --
Cumulative effect of accounting change,
net..................................... -- (27,300) -- --
------------ ------------ ------------ ------------
Net loss ................................ $ (1,589,224) $ (1,133,043) $ (461,522) $ (165,240)
============ ============ ============ ============
Basic and diluted (loss) income per share:
Loss from continuing operations......... $ (5.15) $ (4.34) $ (1.74) $ (0.58)
Income (loss) from discontinued
operations ............................ (0.50) 0.04 (0.05) (0.08)
Loss from extraordinary item............ -- -- -- --
Cumulative effect of accounting change,
net ................................... -- (0.11) -- --
------------ ------------ ------------ ------------
Net loss per share .................... $ (5.65) $ (4.41) $ (1.79) $ (0.66)
============ ============ ============ ============
Balance Sheet Data (at end of period):
Working capital (deficit)............... $ 1,955,877 $ 752,657 $ (892,115) $ 1,258,580
Property, plant and equipment (net)..... 3,041,008 3,445,828 3,328,499 2,460,513
Total assets............................ 7,913,911 9,845,566 9,778,451 7,392,147
Total debt and capital lease
obligations(3) ........................ 5,894,548 6,612,868 5,922,504 3,132,894
Redeemable preferred stock.............. 19,457 19,457 23,559 --
Stockholders' equity (deficit).......... (354,435) 432,509 1,339,617 1,898,203
Other Data:
Cash flows from continuing operations
provided by (used in):
Operating activities .................. $ (704,554) $ (623,098) $ 276,855 $ 622,865
Investing activities .................. 677,653 (504,112) (2,705,043) (1,050,322)
Financing activities .................. (64,324) 905,091 2,660,341 535,066
Capital expenditures(4)................. 132,504 573,287 1,222,674 716,052
Cash dividends declared per common share 0 .3450 .4375 .4075
Basic weighted average shares........... 314,189,000 259,139,000 258,516,000 250,659,000
Ratio of earnings to fixed charges(5)... -- -- -- --
Number of retail drugstores............. 3,648 3,802 3,870 3,975
Number of employees..................... 75,500 77,300 89,900 83,000
Pharmacy sales as a percentage of sales. 59.5% 58.4% 54.2% 50.2%
Twenty-Six Week Period Ended
-----------------------------------
September 1, 2001 August 26, 2000
----------------- ---------------
(Dollars in thousands, except per
share amounts)
Operations Data:
Revenues ................................. $ 7,401,207 $ 6,881,655
Costs and expenses:
Cost of goods sold, including occupancy
costs ................................. 5,713,130 5,264,711
Selling, general and administrative
expenses .............................. 1,667,999 1,706,965
Goodwill amortization................... 10,623 11,701
Store closing and impairment charges
(credits) ............................. 21,741 104,437
Interest expense........................ 231,066 353,483
Interest rate swap contracts market
value adjustment ...................... 31,047 --
Loss on debt and lease conversions and
modifications ......................... 154,595 83,789
Share of loss and lease from equity
investments............................ 10,395 24,070
(Gain) loss on sale of assets and
investments............................ (51,455) 16,526
------------ ------------
Total costs and expenses ................. 7,789,141 7,565,682
------------ ------------
Loss from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change (387,934) (684,027)
Income tax expense (benefit) ............. 2,500 144,382
------------ ------------
Loss from continuing operations before
extraordinary item and cumulative
effect of accounting change(2) ........ (390,434) (828,409)
Income (loss) from discontinued
operations, net(2)...................... -- 11,335
Loss on disposal of discontinued
operations, net......................... -- (334,763)
Extraordinary item, loss on early
extinguishment of debt, net............. (66,589) --
Cumulative effect of accounting change,
net..................................... -- --
------------ ------------
Net loss ................................ $ (457,023) $ (1,151,837)
============ ============
Basic and diluted (loss) income per share:
Loss from continuing operations......... $ (0.95) $ (3.48)
Income (loss) from discontinued
operations ............................ -- (1.12)
Loss from extraordinary item............ (0.15) --
Cumulative effect of accounting change,
net ................................... -- --
------------ ------------
Net loss per share .................... $ (1.10) $ (4.60)
============ ============
Balance Sheet Data (at end of period):
Working capital (deficit)............... $ 1,405,220 --
Property, plant and equipment (net)..... 2,313,772 --
Total assets............................ 6,834,284 --
Total debt and capital lease
obligations(3) ........................ 6,361,618 --
Redeemable preferred stock.............. 19,510 --
Stockholders' equity (deficit).......... 453,156 --
Other Data:
Cash flows from continuing operations
provided by (used in):
Operating activities .................. $ (48,321) $ (562,035)
Investing activities .................. 364,698 (20,230)
Financing activities .................. (299,527) 484,602
Capital expenditures(4)................. 127,300 59,930
Cash dividends declared per common share 0 0
Basic weighted average shares........... 432,390,000 288,093,000
Ratio of earnings to fixed charges(5)... -- --
Number of retail drugstores............. 3,594 --
Number of employees..................... 77,900 --
Pharmacy sales as a percentage of sales. 61.3% 59.6%
(Footnotes on next page)
23
---------------
(1) Includes the operations of K&B, Incorporated and Harco, Inc. from their
acquisition in August 1997.
(2) PCS was acquired on January 22, 1999 and sold on October 2, 2000 and
accordingly, reported as a discontinued operation for all periods
presented.
(3) Total debt includes capital lease obligations of $1.1 billion as of March
3, 2001, February 26, 2000, February 27, 1999, $0.6 billion as of February
28, 1998, and $0.2 billion as of September 1, 2001.
(4) Capital expenditures represent expenditures for property and equipment.
(5) Calculated by dividing earnings by fixed charges. For this purpose,
earnings include loss from continuing operations before income taxes,
extraordinary item and cumulative effect of accounting change plus fixed
charges. Fixed charges include interest, whether expensed or capitalized,
amortization of debt incurrence cost, preferred stock dividends and that
portion of rental expense which is representative of the interest factor in
those rentals. For fiscal 2001, fiscal 2000, fiscal 1999, fiscal 1998 and
the twenty-six week period ended September 1, 2001, earnings were
insufficient to cover fixed charges by approximately $1,248.0 million,
$1,113.4 million, $671.6 million, $175.3 million and $378.0 million,
respectively.
24
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Subject to terms and conditions, we will accept for exchange Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on December 14, 2001. We may, however, in our sole
discretion, extend the period of time during which the exchange offer is open.
The term "Expiration Date" means the latest time and date to which the
exchange offer is extended.
As of the date of this prospectus, $152.025 million principal amount of Old
Notes are outstanding. This prospectus, together with the letter of
transmittal, is first being sent on or about the date hereof, to all holders
of Old Notes known to us. Our obligation to accept Old Notes for exchange
pursuant to the exchange offer is subject to certain obligations as set forth
under "--Conditions to the Exchange Offer."
We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and delay acceptance for exchange of
any Old Notes, by giving oral or written notice of such extension to the
holders thereof as described below. During any such extension, all Old Notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
Old Notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange offer, and
not to accept for exchange any Old Notes, upon the occurrence of any of the
conditions of the exchange offer specified under
"--Conditions to the Exchange Offer." We will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Old Notes as promptly as practicable. Such notice, in the case of any
extension, will be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
Procedures for Tendering Old Notes
The tender to us of Old Notes by you as set forth below and our acceptance
of the Old Notes will constitute a binding agreement between us and you upon
the terms and subject to the conditions set forth in this prospectus and in
the accompanying letter of transmittal. Except as set forth below, to tender
Old Notes for exchange pursuant to the exchange offer, you must transmit a
properly completed and duly executed letter of transmittal, including all
other documents required by such letter of transmittal or, in the case of a
book-entry transfer, an agent's message in lieu of such letter of transmittal,
to State Street Bank and Trust Company, as exchange agent, at the address set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either:
o certificates for such Old Notes must be received by the exchange agent
along with the letter of transmittal,
o a timely confirmation of a book-entry transfer (a "book-entry
confirmation") of such Old Notes, if such procedure is available, into the
exchange agent's account at DTC pursuant to the procedure for book-entry
transfer described beginning on page 27 must be received by the exchange
agent, prior to the Expiration Date, with the letter of transmittal or an
agent's message in lieu of such letter of transmittal, or
o the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted by DTC to and
received by the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant stating that such participant has received and
agrees to be bound by the letter of transmittal and that we may enforce such
letter of transmittal against such participant.
25
The method of delivery of Old Notes, letters of transmittal and all other
required documents is at your election and risk. If such delivery is by mail,
it is recommended that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. No letter of transmittal or Old Notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange are
tendered:
o by a holder of the Old Notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
o for the account of an Eligible Institution (as defined below)
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantees must be by a firm
which is a member of the Securities Transfer Agent Medallion Program, the
Stock Exchanges Medallion Program or the New York Stock Exchange Medallion
Program (each such entity being hereinafter referred to as an "Eligible
Institution"). If Old Notes are registered in the name of a person other than
the signer of the letter of transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as we or the
exchange agent determine in our sole discretion, duly executed by the
registered holders with the signature thereon guaranteed by an Eligible
Institution.
We or the exchange agent in our sole discretion will make a final and
binding determination on all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of Old Notes tendered for exchange.
We reserve the absolute right to reject any and all tenders of any particular
old note not properly tendered or to not accept any particular old note which
acceptance might, in our judgment or our counsel's, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old note either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Old Notes in the exchange offer). Our or the
exchange agent's interpretation of the terms and conditions of the exchange
offer as to any particular old note either before or after the Expiration Date
(including the letter of transmittal and the instructions thereto) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within a
reasonable period of time, as we determine. We are not, nor is the exchange
agent or any other person, under any duty to notify you of any defect or
irregularity with respect to your tender of Old Notes for exchange, and no one
will be liable for failing to provide such notification.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by powers of attorney signed exactly as the name(s) of the
registered holder(s) that appear on the Old Notes.
If the letter of transmittal or any Old Notes or powers of attorneys are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us or
the exchange agent, proper evidence satisfactory to us of their authority to
so act must be submitted with the letter of transmittal.
By tendering Old Notes, you represent to us that the New Notes acquired
pursuant to the exchange offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder and that neither the holder nor such other person has any
arrangement or understanding with any person, to participate in the
distribution of the New Notes. If you are our "affiliate," as defined under
Rule 405 under the Securities Act, and engage in or intend to engage in or
have an arrangement or understanding with any person to participate in a
distribution of such New Notes to be acquired pursuant to the exchange offer,
you or any such other person:
o could not rely on the applicable interpretations of the staff of the
SEC and
o must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
26
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "--Conditions to the Exchange Offer." For purposes of the exchange
offer, we will be deemed to have accepted properly tendered Old Notes for
exchange if and when we give oral (confirmed in writing) or written notice to
the exchange agent.
The holder of each Old Note accepted for exchange will receive a new note in
the amount equal to the surrendered Old Note. Accordingly, registered holders
of New Notes on the relevant record date for the first interest payment date
following the consummation of the exchange offer will receive interest
accruing from the most recent date to which interest has been paid on the Old
Notes. Holders of New Notes will not receive any payment in respect of accrued
interest on Old Notes otherwise payable on any interest payment date, the
record date for which occurs on or after the consummation of the exchange
offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange will be made only after timely receipt by the exchange agent of:
o certificates for such Old Notes or a timely book-entry confirmation of
such Old Notes into the exchange agent's account at DTC,
o a properly completed and duly executed letter of transmittal or an agent's
message in lieu thereof, and
o all other required documents.
If any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if Old Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Old Notes will be returned without expense to the tendering
holder (or, in the case of Old Notes tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with DTC) as promptly as practicable after the expiration or
termination of the exchange offer.
Book-Entry Transfers
For purposes of the exchange offer, the exchange agent will request that an
account be established with respect to the Old Notes at DTC within two
business days after the date of this prospectus, unless the exchange agent
already has established an account with DTC suitable for the exchange offer.
Any financial institution that is a participant in DTC may make book-entry
delivery of Old Notes by causing DTC to transfer such Old Notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer. Although delivery of Old Notes may be effected through book-entry
transfer at DTC, the letter of transmittal or facsimile thereof or an agent's
message in lieu thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at the address set forth under "--Exchange Agent" on or prior
to the Expiration Date or the guaranteed delivery procedures described below
must be complied with.
Guaranteed Delivery Procedures
If you desire to tender your Old Notes and your Old Notes are not
immediately available, or time will not permit your Old Notes or other
required documents to reach the exchange agent before the Expiration Date, a
tender may be effected if:
27
o the tender is made through an Eligible Institution,
o prior to the Expiration Date, the exchange agent received from such
Eligible Institution a notice of guaranteed delivery, substantially in the
form we provide (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth your name and address, the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange ("NYSE") trading days after the
date of execution of the notice of guaranteed delivery, the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed appropriate letter of transmittal or facsimile
thereof or agent's message in lieu thereof, with any required signature
guarantees and any other documents required by the letter of transmittal
will be deposited by such Eligible Institution with the exchange agent,
and
o the certificates for all physically tendered Old Notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, together with
a properly completed and duly executed appropriate letter of transmittal
or facsimile thereof or agent's message in lieu thereof, with any required
signature guarantees and all other documents required by the letter of
transmittal, are received by the exchange agent within three NYSE trading
days after the date of execution of the notice of guaranteed delivery.
Withdrawal Rights
You may withdraw your tender of Old Notes at any time prior to the
Expiration Date. To be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth under
"--Exchange Agent." This notice must specify:
o the name of the person having tendered the Old Notes to be withdrawn,
o the Old Notes to be withdrawn (including the principal amount of such Old
Notes), and
o where certificates for Old Notes have been transmitted, the name in which
such Old Notes are registered, if different from that of the withdrawing
holder.
If certificates for Old Notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution, unless such holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of DTC.
We or the exchange agent will make a final and binding determination on all
questions as to the validity, form and eligibility (including time of receipt)
of such notices. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any Old
Notes tendered for exchange but not exchanged for any reason will be returned
to the holder without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the exchange offer, if any of the
following events occur prior to acceptance of such Old Notes:
28
(a) there is threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree has been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission,
(1) seeking to restrain or prohibit the making or consummation of
the exchange offer or any other transaction contemplated by the
exchange offer, or assessing or seeking any damages as a result
thereof, or
(2) resulting in a material delay in our ability to accept for
exchange or exchange some or all of the Old Notes pursuant to
the exchange offer;
or any statute, rule, regulation, order or injunction has been
sought, proposed, introduced, enacted, promulgated or deemed
applicable to the exchange offer or any of the transactions
contemplated by the exchange offer by any government or governmental
authority, domestic or foreign, or any action has been taken,
proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in our sole judgment
might, directly or indirectly, result in any of the consequences
referred to in clauses (1) or (2) above or, in our reasonable
judgment, might result in the holders of New Notes having
obligations with respect to resales and transfers of New Notes which
are greater than those described in the interpretation of the SEC
referred to on the cover page of this prospectus, or would otherwise
make it inadvisable to proceed with the exchange offer; or
(b) there has occurred:
(1) any general suspension of or general limitation on prices for,
or trading in, securities on any national securities exchange
or in the over-the-counter market,
(2) any limitation by a governmental agency or authority which may
adversely affect our ability to complete the transactions
contemplated by the exchange offer,
(3) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation by any governmental agency or authority which
adversely affects the extension of credit, or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing
at the time of the commencement of the exchange offer, a
material acceleration or worsening thereof; or
(c) any change (or any development involving a prospective change) has
occurred or is threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations
or prospects and our subsidiaries taken as a whole that, in our
reasonable judgment, is or may be adverse to us, or we have become
aware of facts that, in our reasonable judgment, have or may have
adverse significance with respect to the value of the Old Notes or
the New Notes;
which in our reasonable judgment in any case, and regardless of the
circumstances (including any action by us) giving rise to any such condition,
makes it inadvisable to proceed with the exchange offer and/or with such
acceptance for exchange or with such exchange.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any condition or may be waived
by us in whole or in part at any time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights will not be deemed
a waiver of any such right and each such right will be deemed an ongoing right
which may be asserted at any time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order is threatened or in effect with respect to the Registration
Statement, of which this prospectus constitutes a part, or the qualification
of the indenture under the Trust Indenture Act.
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Exchange Agent
State Street Bank and Trust Company has been appointed as the exchange agent
for the exchange offer. All executed letters of transmittal should be directed
to the exchange agent at the address set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent addressed as follows:
State Street Bank and Trust Company
Attention: Ralph Jones
2 Avenue de Lafayette
Corporate Trust Department, 5th Floor
Boston, Massachusetts 02102
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.
Fees and Expenses
The principal solicitation is being made by mail by State Street Bank and
Trust Company, as exchange agent. We will pay the exchange agent customary
fees for its services, reimburse the exchange agent for its reasonable out-of-
pocket expenses incurred in connection with the provision of these services
and pay other registration expenses, including fees and expenses of the
trustee under the indenture relating to the notes, filing fees, blue sky fees
and printing and distribution expenses. We will not make any payment to
brokers, dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person by
our and our affiliates' officers and regular employees and by persons so
engaged by the exchange agent.
Accounting Treatment
We will record the New Notes at the same carrying value as the Old Notes, as
reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize any gain or loss for accounting purposes. The expenses
of the exchange offer will be amortized over the term of the New Notes.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with the
tender of Old Notes in the exchange offer unless you instruct us to register
New Notes in the name of, or request that Old Notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder. In those cases, you will be responsible for the
payment of any applicable transfer tax.
Consequences of Exchanging or Failing to Exchange Old Notes
If you do not exchange your Old Notes for New Notes in the exchange offer,
your Old Notes will continue to be subject to the provisions of the indenture
relating to the notes regarding transfer and exchange of the Old Notes and the
restrictions on transfer of the Old Notes described in the legend on your
certificates. These transfer restrictions are required because the Old Notes
were issued under an exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not plan to register the Old Notes under the Securities Act. Based
on interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, we believe that the New Notes you receive in the
exchange offer may be offered for resale, resold or otherwise transferred
without compliance with the registration and prospectus delivery provisions of
the Securities Act. However, you will not be able to freely transfer the New
Notes if:
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o you are our "affiliate," as defined in Rule 405 under the Securities Act;
o you are not acquiring the New Notes in the exchange offer in the ordinary
course of your business,
o you have an arrangement or understanding with any person to participate in
the distribution, as defined in the Securities Act, of the New Notes you
will receive in the exchange offer, or
o you are a participating broker-dealer.
We do not intend to request the SEC to consider, and the SEC has not
considered, the exchange offer in the context of a similar no-action letter.
As a result, we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in the
circumstances described in the no-action letters discussed above. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and
does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
you are our affiliate, are engaged in or intend to engage in a distribution of
the New Notes or have any arrangement or understanding with respect to the
distribution of the New Notes you will receive in the exchange offer, you may
not rely on the applicable interpretations of the staff of the SEC and you
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction involving the New
Notes. If you are a participating broker-dealer, you must acknowledge that you
will deliver a prospectus in connection with any resale of the New Notes. In
addition, to comply with state securities laws, you may not offer or sell the
New Notes in any state unless they have been registered or qualified for sale
in that state or an exemption from registration or qualification is available
and is complied with. The offer and sale of the New Notes to "qualified
institutional buyers"--as defined in Rule 144A of the Securities Act--is
generally exempt from registration or qualification under state securities
laws. We do not plan to register or qualify the sale of the New Notes in any
state where an exemption from registration or qualification is required and
not available.
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DESCRIPTION OF THE NEW NOTES
We will issue the New Notes under the Indenture, dated June 27, 2001, among
State Street Bank and Trust Company, the trustee, us and our subsidiaries that
will guarantee the New Notes. This is the same Indenture under which the Old
Notes were issued.
Several terms used in this description are defined as set forth under
"--Certain Definitions." In this description, the words "we," "us," "our" and
similar expressions refer only to Rite Aid Corporation and not to any of its
subsidiaries.
The following description is only a summary of the material provisions of
the Indenture. We urge you to read the Indenture because it, not this
description, defines your rights as holders of the New Notes. You may request
copies of the Indenture at our address set forth under the heading "Prospectus
Summary -- Rite Aid Corporation."
New Notes Versus Old Notes
The New Notes are substantially identical to the Old Notes, except that the
transfer restrictions and registration rights relating to the Old Notes do not
apply to the New Notes.
Principal, Maturity and Interest
We may issue New Notes with up to a maximum aggregate principal amount of
$152,025,000. We will issue the New Notes in denominations of $1,000 and any
integral multiple of $1,000. The New Notes will mature on September 15, 2006.
Interest on the New Notes will accrue at the annual rate of 12.50% and will
be payable semiannually in arrears on March 15 and September 15. We will make
each interest payment to the holders of record of the New Notes on the
immediately preceding March 1 and September 1.
Interest on the New Notes will accrue from the date of original issuance,
which related back to the original issuance of the Old Notes. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Redemption
We may not redeem the New Notes prior to maturity.
Ranking; Subsidiary Guarantees; Security
The New Notes will be pari passu in right of payment with our other
unsecured, senior debt. All of our debt, other than our 5.25% Convertible
Notes (as defined herein), is senior debt. As of September 1, 2001,
approximately 46% of this senior debt, including the Old Notes, was secured by
certain assets that will also secure the New Notes. Our subsidiaries conduct
substantially all our operations, and have substantial liabilities, including
trade payables. If the subsidiary guarantees or the liens securing these
guarantees are invalid or unenforceable, or the limitations under the
guarantees are applied, the New Notes will be structurally subordinated to the
substantial subsidiary liabilities and the liens on the Collateral, as defined
below, would be invalid or unenforceable.
Our obligations under the New Notes will be guaranteed, subject to certain
limitations, by substantially all of our subsidiaries. These guarantees will
be subordinated to the guarantees of the secured credit facility and our 10.5%
senior secured notes due 2002. These guarantees may be limited (and subject to
automatic reduction) to the extent necessary to prevent such guarantees and
the guarantees of the secured credit facility, debt and certain synthetic
lease obligations from constituting fraudulent conveyances. However, the
guarantees of the secured credit facility will only be limited (or reduced)
after the subordinated guarantees for the New Notes and the other debt are
extinguished. In addition, until we are subject to a bankruptcy proceeding,
the holders of the New Notes and the other debt guaranteed on a subordinated
basis may not
32
make any demand for payment under such guarantees or institute any legal
actions or bankruptcy proceedings against the guarantors.
The guarantees of the New Notes will be secured by second priority liens
granted by our subsidiary guarantors on substantially all of their inventory,
accounts receivable, intellectual property and some of their owned real
property (the "Collateral").
The second priority liens securing the guarantees of the New Notes will be
shared equally and ratably with our creditors under certain synthetic lease
obligations and certain obligations that we are permitted to incur in the
future under the terms of our credit, guarantee and security agreements. The
guarantees of the secured credit facility and our 10.5% senior secured notes
due 2002 are secured by first priority liens on the Collateral, which liens
will be senior to the liens securing the New Notes. The lenders under the
secured credit facility control at all times all remedies or other actions
related to the Collateral. The second priority liens will not entitle holders
of any debt secured by such liens to take any action whatsoever with respect
to the Collateral. The lenders under the secured credit facility and the 10.5%
senior secured notes due 2002 will receive all proceeds from any realization
on the Collateral until the secured credit facility and the 10.5% senior
secured notes due 2002 are paid in full.
In certain circumstances, a portion of the proceeds from a sale of assets
that constitute part of the Collateral (the "Collateral Proceeds") may become
available to repurchase New Notes. The Collateral Proceeds that are available
to repurchase the New Notes (the "Note Collateral Proceeds") will be deposited
into an account held by the Trustee (the "Note Collateral Account"). When the
aggregate amount of Note Collateral Proceeds in the Note Collateral Account
exceeds $10.0 million (taking into account income earned on such Note
Collateral Proceeds, if any), we will be required to make an offer to purchase
(the "Prepayment Offer") the New Notes, which offer shall be in the amount of
the New Note Collateral Proceeds, on a pro rata basis according to principal
amount at maturity, at a purchase price equal, to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date), in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture. To the extent that any portion of the amount of Note
Collateral Proceeds remains after compliance with the preceding sentence and
provided that all holders of New Notes have been given the opportunity to
tender their New Notes for purchase in accordance with the Indenture, the
excess may be used only to acquire assets, or repurchase New Notes in open
market transactions, and otherwise must remain deposited in an account, for
the sole benefit of the New Notes, which is controlled by the Trustee. The New
Notes will be secured by a first priority security interest in such assets or
account, as the case may be. Following the completion of a Prepayment Offer,
the amount of Note Collateral Proceeds will be reset to zero.
Within five business days after we are obligated to make a Prepayment Offer
as described in the preceding paragraph, we will send a written notice, by
first-class mall, to the holders of New Notes, accompanied by such information
regarding our company and our subsidiaries as we in good faith believe will
enable such holders to make an informed decision with respect to such
Prepayment Offer. Such notice shall state, among other things, the purchase
price and the purchase date, which shall be, subject to any contrary
requirements of applicable law, a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of New Notes. To the extent that the provisions
of any securities laws or regulations conflict with provisions described
above, we will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under a repurchase
covenant by virtue of such compliance.
Book-Entry, Delivery and Form
We will initially issue the New Notes in the form of one or more global
notes (the "Global Notes"). The Global Notes will be deposited with, or on
behalf of, the Depository and registered in the name of the Depository or its
nominee. Except as set forth below, the Global Notes may be transferred, in
whole and not in part, only to the Depository or a nominee of the Depository.
You may hold your beneficial interests in a
33
Global Note directly through the Depository if you have an account with the
Depository or indirectly through organizations which have accounts with the
Depository.
The Depository has advised us as follows: the Depository is a limited-
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to the Depository's book-entry system is also available
to others such as banks, brokers, dealers and trust companies (collectively,
the "indirect participants") that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
We expect that pursuant to procedures established by the Depository, upon
the deposit of a Global Note with the Depository, the Depository will credit,
on its book-entry registration and transfer system, the principal amount of
New Notes represented by such Global Note to the accounts of participants. The
accounts to be credited will be designated by the Dealer Managers. Ownership
of beneficial interests in a Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in a Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interests), the participants and the
indirect participants (with respect to the owners of beneficial interests in
the Global Note other than participants). The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in a Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Notes, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of any related Notes
evidenced by the Global Notes for all purposes of such New Notes and the
Indenture. Except as set forth below, as an owner of a beneficial interest in
a Global Note, you will not be entitled to have the New Notes represented by
such Global Note registered in your name, will not receive or be entitled to
receive physical delivery of certificated Notes and will not be considered to
be the owner or holder of any Notes under such Global Note. We understand that
under existing industry practice, in the event an owner of a beneficial
interest in a Global Note desires to take any action that the Depository, as
the holder of such Global Note, is entitled to take, the Depository would
authorize the participants to take such action, and the participants would
authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners
owning through them.
We will make payments of principal or premium, if any, and interest on New
Notes represented by the Global Notes registered in the name of and held by
the Depository or its nominee to the Depository or its nominee, as the case
may be, as the registered owner and holder of the Global Notes.
We expect that the Depository or its nominee, upon receipt of any payment of
principal or premium, if any, or interest on a Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in a Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of such participants or indirect participants.
We will not have any responsibility or liability for any aspect of the record
relating to, or payments made on account of, beneficial ownership interests in
the Global Notes for any New Note or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or for other
aspects of the relationship between the Depository and its participants or
indirect participants or the relationship between such participants or
indirect participants and the owners of beneficial interests in a Global Note
owning through such participants.
34
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
we nor the Trustee will have any responsibility or liability for the
performance by the Depository or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Notes
Subject to certain conditions, the New Notes represented by the Global Notes
are exchangeable for certificated New Notes in definitive form of like tenor
in denominations of $1,000 and integral multiples thereof if:
(1) the Depository notifies us that it is unwilling or unable to
continue as Depository for the Global Notes or the Depository ceases
to be a clearing agency registered under the Exchange Act and, in
either case, we are unable to locate a qualified successor within 90
days;
(2) we, in our discretion at any time, determine not to have all the New
Notes represented by a Global Note; or
(3) a default entitling the holders of the New Notes to accelerate the
maturity thereof has occurred and is continuing.
Any New Note that is exchangeable as above is exchangeable for certificated
New Notes issuable in authorized denominations and registered in such names as
the Depository directs. Subject to the foregoing, the Global Notes are not
exchangeable, except for Global Notes of the same aggregate denomination to be
registered in the name of the Depository or its nominee.
Same-Day Payment
The Indenture requires us to make payments in respect of the applicable New
Notes (including principal, premium and interest) by wire transfer of
immediately available funds to the U.S. dollar accounts with banks in the U.S.
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address.
Registration Rights Agreement
Holders of the New Notes will not be entitled to any registration rights
with respect to the New Notes. As part of the exchange offer pursuant to which
the Old Notes were issued, we entered into a registration rights agreement
with the trustee and the holders of the Old Notes, dated June 27, 2001. We
have filed the registration statement of which this prospectus forms a part
pursuant to that registration rights agreement.
Certain Restrictions
Absence of Certain Protections in the Indenture. The Indenture does not
contain any provisions that permit the holders of the New Notes to require
prepayment in the event of a change in the management or control of us, or
that afford holders of the New Notes protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving us that may adversely affect holders of the New Notes
(except to the limited extent that the covenants described below might affect
the our ability to consummate such transactions).
General. The various restrictive provisions of the Indenture applicable to
us and our Restricted Subsidiaries do not apply to Unrestricted Subsidiaries.
The assets and debt of Unrestricted Subsidiaries are not consolidated with
those of us and our Restricted Subsidiaries in calculating Consolidated Net
Tangible Assets under the Indenture and Investments by us or our Restricted
Subsidiaries in Unrestricted Subsidiaries are excluded in computing
Consolidated Net Tangible Assets. "Unrestricted Subsidiaries" are those
Subsidiaries which are designated as Unrestricted Subsidiaries by the Board of
Directors from time to time pursuant to the Indenture (in each case, unless
and until designated as Restricted Subsidiaries by the Board of
35
Directors pursuant to the Indenture). The Board of Directors designated
substantially all of our subsidiaries as Unrestricted Subsidiaries with
respect to the Indenture. "Restricted Subsidiaries" are all subsidiaries other
than Unrestricted Subsidiaries. A "Wholly-owned Restricted Subsidiary" is a
Restricted Subsidiary at least 99% of the outstanding voting stock of which
(except directors' qualifying shares) is owned by us and our other Wholly-
owned Restricted Subsidiaries.
An Unrestricted Subsidiary may not be designated a Restricted Subsidiary if
it has any Secured Debt, Funded Debt or Attributable Debt in respect of Sale
and Leaseback Transactions, except such debt as we would be permitted to allow
under the terms of the Indenture, immediately after such Unrestricted
Subsidiary becomes a Restricted Subsidiary.
Restrictions Upon Secured Debt. Neither we nor a Restricted Subsidiary is
permitted to incur or guarantee debt secured by any additional lien, mortgage,
pledge or other encumbrance on its property without equally and ratably
securing the New Notes, subject to exceptions. This restriction does not apply
to permitted encumbrances described in the Indenture, including purchase money
mortgages, encumbrances existing on property at the time it is acquired by us
or a Restricted Subsidiary, conditional sales and similar agreements, and the
extension, renewal or refunding of any of the foregoing and any Secured Debt
of a Restricted Subsidiary owing to us or a Wholly-owned Restricted
Subsidiary. The Indenture also permits other debt secured by encumbrances not
otherwise specifically permitted which, together with Attributable Debt
respecting existing Sale and Leaseback Transactions (excluding Sale and
Leaseback Transactions entered into in respect of property acquired by us or a
Restricted Subsidiary not more than 24 months prior to the date such
Transaction is entered into, and unsecured Funded Debt of Restricted
Subsidiaries (excluding unsecured Funded Debt incurred through extension,
refund or renewal where Consolidated Funded in Debt was not thereby increased
and excluding any Funded Debt owed to us or a Wholly-owned Restricted
Subsidiary), incurred or entered into, as the case may be, after the date of
the Indenture), would not at the time exceed 20% of the Consolidated Net
Tangible Assets of us and our Restricted Subsidiaries.
Restrictions Upon Sales with Leases Back. We are not permitted, and may not
permit a Restricted Subsidiary, to sell or transfer (except to us or one or
more Wholly-owned Restricted Subsidiaries) any manufacturing plant, warehouse,
retail store or equipment owned and operated by us or a Restricted Subsidiary
on or after the date of the Indenture with the intention that we or any
Restricted Subsidiaries take back a lease thereof, except a lease for a
period, including renewals, of not more than 24 months by the end of which
period it is intended that the use of such property by the lessee will be
discontinued, except (i) where we would be entitled under the Indenture to
incur additional secured debt not otherwise specifically permitted by the
Indenture in an amount equal to the Attributable Debt respecting such Sale and
Leaseback Transaction, (ii) where the Sale and Leaseback Transactions entered
into in respect of property acquired by us or a Restricted Subsidiary within
24 months of such acquisition, or (iii) where, within 120 days of entering
into the Sale and Leaseback Transaction, we apply to the retirement of our
Secured Debt an amount equal to the greater of (a) the net proceeds of the
sale of the property leased pursuant to such Transaction or (b) the fair
market value of the property so leased.
Restrictions Upon Funded Debt of Restricted Subsidiaries. Restricted
Subsidiaries are prohibited from becoming liable for any unsecured Funded Debt
except where we would be entitled under the Indenture to incur additional
secured debt not otherwise specifically permitted by the Indenture in an
amount equal to such Funded Debt and except for certain extensions, refunding
and renewals of Funded Debt and Funded Debt owing to us or a Wholly-owned
Restricted Subsidiary.
Restrictions Upon Merger and Sale of Assets. The Indenture provides that we
may not merge with or sell our assets substantially as a entirety to another
entity unless:
(1) the corporation into which we merge or that acquires our assets, as the
case may be, is a corporation organized in the United States and it
expressly assumes our obligations under the Indenture;
(2) immediately after giving effect to the transaction, no Event of Default
shall have happened and be continuing with respect to the New Notes;
36
(3) if, as a result of the transaction, any of our properties or assets
would become subject to a mortgage, lien or other encumbrance that
would not be permitted by the Indenture, we or our successor entity, as
the case may be, takes such steps as are necessary to secure the New
Notes ratably with or prior to all indebtedness secured thereby; and
(4) we have delivered to the Trustee an officer's certificate and an
opinion of counsel stating that the above conditions have been complied
with.
We may not permit any Subsidiary Guarantor to merge with or sell its assets
substantially as a entirety to another entity unless:
(1) the corporation into which such Subsidiary Guarantor merges or that
acquires our assets, as the case may be, is a corporation organized in
the United States and it expressly assumes such Subsidiary Guarantor's
obligations with respect to its guarantee and the New Notes;
(2) immediately after giving effect to the transaction, no Event of Default
shall have happened and be continuing with respect to the New Notes;
(3) if, as a result of the transaction, any properties or assets of the
Subsidiary Guarantor would become subject to a mortgage, lien or other
encumbrance that would not be permitted by the Indenture, we or our
successor entity, as the case may be, takes such steps as are necessary
to secure the New Notes ratably with or prior to all indebtedness
secured thereby; and
(4) we have delivered to the Trustee an officer's certificate and an
opinion of counsel stating that the above conditions have been complied
with.
Restrictions on Impairment of Security Interest. Neither we nor any of our
subsidiaries is permitted to take or omit to take any action that would
materially impair the security interest with respect to the Collateral for the
benefit of the Trustee and the holders of the New Notes, and neither we nor
any of our Subsidiaries is permitted to grant to any person any security
interest in any of the Collateral, other than security interests granted in
accordance with the Intercreditor Agreement by and among us and our senior
creditors and the guarantee and security agreements relating to the
Collateral.
Restrictions on Amendments to Security Agreements. Neither we nor any of
our subsidiaries is permitted to amend, waive or otherwise modify, or permit
or consent to any amendment, waiver or other modification of the security
agreements in any way that would be adverse to the holders of the New Notes.
Notwithstanding the foregoing, (i) the security agreements may be amended,
waived or otherwise modified with the approval of holders of a majority of
aggregate outstanding principal amount of the New Notes and of each of the
other facilities secured by such agreements, and (ii) the lenders under the
secured credit facility will, at all times, control all remedies and other
actions related to the Collateral.
Modification of the Indenture and Security Agreements
The Indenture and the rights of the holders of New Notes may be modified by
us only with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding New Notes but no supplemental
indentures altering the terms of payment of principal or interest, changing
the place or medium of payment of principal or interest, impairing the rights
of holders to institute suit for payment, adversely changing the right to or
exchange any New Notes, reducing the percentage required for modification in a
manner adverse to the holders of New Notes, releasing the security interest
granted in favor of the holders of the New Notes in the Collateral other than
pursuant to the terms of the security agreements, make any change in the
security agreements or any provision of the Indenture relating to the
Collateral that would adversely affect the holders of the New Notes, or reduce
the price payable upon the redemption of any New Notes or change the time at
which any New Notes may be redeemed, as described under "--Optional
Redemption," will be effective against any holder without his, her, or its
consent.
Events of Default
The Indenture provides that each of the following is an Event of Default
with respect to the New Notes: (i) default for 30 days in any payment of
interest upon any New Notes; (ii) default in any payment of
37
principal of (or premium, if any) upon any New Notes when due at maturity upon
acceleration, required repurchase or otherwise; (iii) failure of us or any
Subsidiary Guarantor to comply with the restrictions on merger of sale of
assets contained in the Indenture; (iv) default for 60 days after appropriate
notice in the performance of any other covenant in the New Notes or the
Indenture; (v) certain events in bankruptcy, insolvency or reorganization;
(vi) certain events of default resulting in the acceleration of the maturity
of the related debt aggregating in excess of $10 million under any mortgages,
indentures (including the Indenture) or instruments under which we may have
issued, or by which there may have been secured or evidenced, any of our other
debt; (vii) any event or condition occurs which results in the acceleration of
the maturity of the second priority facilities; or (viii) the material
impairment of the security interest under the security agreements for any
reason other than the satisfaction in full of all obligations under the
Indenture and discharge of the Indenture, or any security interest created
thereunder being declared invalid or unenforceable, or we or any of our
Subsidiaries asserting, in any pleading in any court of competent
jurisdiction, that any such security interest is invalid or unenforceable. In
case an Event of Default occurs and is continuing with respect to the New
Notes, the holders of not less than 25% in aggregate outstanding principal
amount of the New Notes may direct the Trustee to declare the principal of the
New Notes and the accrued interest thereon, if any, to be due and payable. If
certain events in bankruptcy, insolvency or reorganization occur, principal
and interest on the New Notes will become payable without any act on the part
of the Trustee or any holder. Any Event of Default with respect to the New
Notes which has been cured may be waived by the holders of a majority in
aggregate principal amount of the New Notes.
The Indenture requires us to file annually with the Trustee a written
statement signed by one of our officers as to the absence of certain defaults
under the terms of the Indenture. The Indenture provides that the Trustee may
withhold notice to the holders of any default (except in payment of principal
or premium, if any, or interest) if it considers it in the interest of the
holders to do so.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Indenture
provides that the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of
holders, unless such holder has offered to the Trustee reasonable indemnity.
Subject to such provisions for indemnification and certain other rights of the
Trustee, the Indenture provides that the holders of a majority in principal
amount of the New Notes then outstanding shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee.
Defeasance and Discharge
The terms of the Indenture provide us with the option to be discharged from
any and all obligations with respect to the New Notes (except for certain
obligations to register the transfer or exchange of New Notes, to replace
stolen, lost or mutilated New Notes, to maintain paying agencies and hold
moneys for payment in trust) upon the deposit with the Trustee, in trust, of
money or U.S. Government Obligations (as defined), which through the payment
of interest and principal thereof in accordance with their terms will provide
money in an amount sufficient to pay any installment of principal (and
premium, if any) and interest on such New Notes on the Stated Maturity of such
payments or on the applicable Redemption Date in accordance with the terms of
the Indenture and such New Notes. Such option may only be exercised (i) if we
have received from, or there has been published by, the United States Internal
Revenue Service a ruling to the effect that such a discharge will not be
deemed, or result in, a taxable event with respect to holders of such New
Notes, (ii) there is no Event of Default with respect to the New Notes or any
event which may become an Event of Default then occurring, and (iii) such
action would not cause any outstanding New Notes to become delisted from any
exchange as a result thereof.
Defeasance of Certain Covenants
The terms of the Indenture provide us with the option to have the occurrence
of events described in (vi), (vii) or (viii) under the heading "Events of
Default" above no longer be Events of Default and to omit to comply with
certain of the covenants described under the heading "Certain Restrictions"
above. In order to exercise such option, we will be required to deposit with
the Trustee money or U.S. Government Obligations
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which through the payment of interest and principal thereof in accordance with
the terms will provide money in an amount sufficient to pay principal (and
premium, if any) and interest on such New Notes on the stated maturity of such
payments or on the applicable redemption date in accordance with the terms of
the Indenture and such New Notes. Additionally, no Event of Default or event
which may become an Event of Default may have occurred and be continuing on
the date of deposit with the Trustee. We will also be required to deliver to
the Trustee an opinion of counsel to the effect that the deposit and related
covenant defeasance will not cause the holders of such New Notes to recognize
income, gain or loss for federal income tax purposes.
We may exercise our defeasance option with respect to the New Notes
notwithstanding our prior exercise of its covenant defeasance option. If we
exercise our defeasance option, payments on the New Notes may not be
accelerated because of an Event of Default. If we exercise our covenant
defeasance option, payments on the New Notes may not be accelerated by
reference to the provisions described (vi), (vii), (viii). In the event we
omit to comply with our remaining obligations under the Indenture with respect
to the New Notes, after exercising its covenant defeasance option and the New
Notes are declared due and payable because of the occurrence of any Event of
Default, the amount of money and U.S. Government Obligations on deposit with
the Trustee may be insufficient to pay amounts due on the New Notes at the
time of the acceleration resulting from such Event of Default. However, we
will remain liable in respect of such payments.
Concerning the Trustee
State Street Bank and Trust Company is the Trustee under the Indenture.
State Street is eligible for trusteeship under Section 310 of the Trust
Indenture Act. State Street also acts as the Security Registrar and Paying
Agent with regard to the New Notes.
No Personal Liability of Directors, Officers, Employees and Stockholders
None of our directors, officers, employees, incorporators or stockholders
will have any liability for any of our obligations under the New Notes or the
Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each holder of the New Notes by accepting a New
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the New Notes. Such waiver and release
may not be effective to waive liabilities under the U.S. Federal securities
laws, and it is the view of the SEC that such a waiver is against public
policy.
Governing Law
The Indenture and the New Notes will be governed by, and construed in
accordance with the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application
of the law of another jurisdiction would be required thereby.
Certain Definitions
"Attributable Debt" means, as to any particular Sale and Leaseback
Transaction under which we or any Restricted Subsidiary is at the time liable,
at any date as of which the amount thereof is to be determined (i) in the case
of any such transaction involving a capital lease, the amount on such date of
the capital lease obligation thereunder or (ii) in the case of any other such
Sale and Leaseback Transaction, the then present value of the minimum rental
obligation under such transaction during the remaining term thereof (after
giving effect to any extensions at the option of the lessor) computed by
discounting the respective rental payments at the actual interest factor
included in such payment, or, if such interest factor cannot be readily
determined, at the rate per annum equal to the rate of interest on the
securities. The amount of any rental payment required to be made under any
such Sale and Leaseback Transaction not involving a capital lease may exclude
amounts required to be paid by the lessee on account of maintenance and
repairs, insurance, taxes, assessments, utilities, operating and labor costs
and similar charges.
"Board of Directors" means either our board of directors or any duly
authorized committee of that board.
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"Board Resolution" means a copy of a resolution certified by our Secretary
or an Assistant Secretary to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York, Hartford, Connecticut or
Boston, Massachusetts are authorized or obligated by law, regulation,
executive order or governmental decree to close.
"Consolidated Net Tangible Assets" means the total amount of assets on a
consolidated balance sheet of us and our Restricted Subsidiaries (less
applicable reserves and other properly deductible items and after excluding
any investments made in Unrestricted Subsidiaries or in corporations while
they were Unrestricted Subsidiaries but which are not Subsidiaries at the time
of computation) after deducting (a) all liabilities and liability items
including amounts in respect of obligations under leases (or guarantees
thereof) which under generally accepted accounting principles would be
included on such balance sheet except Funded Debt capital stock and surplus,
surplus reserves and provisions for deferred income taxes and (b) goodwill
trade names trademarks patents unamortized debt discount and expense and other
like intangibles.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Funded Debt" means any debt for money borrowed, created, issued, incurred,
assumed or guaranteed, whether secured or unsecured, maturing more than one
year after the date of determination thereof and any debt, regardless of its
term, renewable pursuant to the terms thereof or of a revolving credit or
similar agreement effective for more than one year after the date of the
creation of the debt, which would, in accordance with generally accepted
accounting practice, be classified as funded debt, excluding (a) debt for
which money in satisfaction thereof has been deposited in trust, (b) certain
guarantees arising in the ordinary course of business and (c) liabilities
resulting from capitalization of lease rentals.
The term "holder", when used in respect of either the New Notes or the Old
Notes, means the Person in whose name such security is registered in the
relevant Security Register.
The term "mortgage" means and includes any mortgage, pledge, lien, security
interest, conditional sale or other title retention agreement or other similar
encumbrance.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof.
"Restricted Subsidiary" means any Subsidiary that is not an Unrestricted
Subsidiary.
"Sale and Leaseback Transactions" means the sale or transfer of any
manufacturing plant, warehouse, retail store or equipment owned and operated
or hereafter owned and operated by us or a Restricted Subsidiary, with the
intention that we or any Restricted Subsidiary take back a lease thereof,
except a lease for a period, including renewals, not exceeding 24 months, by
the end of which period it is intended that the use of such property or
equipment by the lessee will be discontinued.
"SEC" means the Securities and Exchange Commission.
"Second Priority Facilities" means each of the facilities, including the
Indenture under which the New Notes are issued, that is secured by the
Collateral.
"Secured Debt" means any indebtedness for money borrowed which is secured by
a mortgage, pledge, lien, security interest or encumbrance on our property or
any Restricted Subsidiary, but shall not include guarantees arising in
connection with the sale, discount, guarantee or pledge of notes, chattel
mortgages, leases, accounts receivable, trade acceptances and other paper
arising, in the ordinary course of business, out of installment or conditional
sales to or by, or transactions involving title retention with, distributors,
dealers or other customers, of merchandise, equipment or services.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
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"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such person or by one or more other Subsidiaries of
such person or by such person and one or more Subsidiaries thereof or (ii) any
other person (other than a corporation) in which such person, or one or more
other Subsidiaries thereof, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Unrestricted Subsidiary" means (a) any Subsidiary which, in accordance with
the provisions of the Indenture, has been designated by a Board Resolution as
an Unrestricted Subsidiary, in each case unless and until such Subsidiary
shall, in accordance with the provisions of the Indenture, be designated by
Board Resolution as a Restricted Subsidiary; and (b) any Subsidiary a majority
of the Voting Stock of which shall at the time be owned directly or indirectly
by one or more Unrestricted Subsidiaries.
"Voting Stock" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly-owned Restricted Subsidiary" means a Restricted Subsidiary of which
at least 99% of the outstanding Voting Stock (other than directors qualifying
shares) is at the time, directly or indirectly, owned by us or by one or more
Wholly owned Restricted Subsidiaries or by us and one or more Wholly owned
Restricted Subsidiaries.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material U.S. federal income tax
consequences resulting from the exchange offer and the ownership and
disposition of the New Notes. This summary is general in nature, and does not
address all of the U.S. federal income tax consequences that may be relevant
to holders in light of their particular tax situation or to certain classes of
holders subject to special treatment under the U.S. federal income tax laws
(for example, dealers in securities, banks, insurance companies, subchapter S
corporations, persons who hold the Old Notes or New Notes through a pass-
through entity, tax exempt entities, tax qualified plans, individual
retirement and other tax-deferred accounts and persons who hold the Old Notes
or New Notes as a hedge, who have otherwise hedged the risk of holding notes,
who hold the Old Notes or New Notes as part of a straddle with other
investments, or who hold the Old Notes or New Notes in connection with a
conversion transaction). In addition, the discussion does not consider the
effect of any foreign, state, local or other tax laws, or any U.S.
considerations (e.g., estate or gift tax) other than U.S. federal income tax
considerations that may be applicable to particular holders. This discussion
does not discuss tax consequences to holders who are not U.S. Persons and
assumes that the Old Notes and New Notes are held as "capital assets"
(generally, property held for investment) within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). This summary
applies only to holders that acquired Old Notes in exchange for other notes of
the Company pursuant to the exchange offer of the Company in June, 2001. This
summary does not address the tax consequences to subsequent purchasers of New
Notes.
As used herein, a "U.S. Person" means a holder who (for U.S. federal income
tax purposes) is (i) a citizen or resident of the U.S., (ii) a corporation or
other entity treated as a corporation for tax purposes created or organized in
or under the laws of the United States or of any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (iv) a trust whose administration is
subject to the primary supervision of a U.S. court and which has one or more
U.S. persons who would have the authority to control all substantial decisions
of the trust.
Each holder should consult its tax advisor as to the particular tax
consequences to such holder of the exchange of Old Notes for New Notes
pursuant to the exchange offer and the ownership and disposition of the New
Notes, including the applicability of any federal, state, local or foreign tax
laws, any changes in applicable tax laws and any pending or proposed
legislation or regulations.
Exchange Offer
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not constitute a "significant modification" of the Old Note for U.S.
federal income tax purposes and, accordingly, the New Note received will be
treated as a continuation of the Old Note in the hands of such holder. As a
result, there will be no U.S. federal income tax consequences to a Holder who
exchanges an Old Note for a New Note pursuant to the exchange offer and any
such holder will have the same adjusted tax basis and holding period in the
New Note as it had in the Old Note immediately before the exchange. A holder
who does not exchange its Old Notes for New Notes pursuant to the exchange
offer will not recognize any gain or loss, for U.S. federal income tax
purposes, upon consummation of the exchange offer.
Payments of Interest
Stated interest payable on the New Notes generally will be included in the
gross income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such holder's method of accounting for
U.S. federal income tax purposes.
Sale or Exchange of New Notes
In general, the sale, exchange, or redemption of the New Notes will result
in capital gain or loss equal to the difference between the amount realized
and the exchanging holder's adjusted tax basis in the New Notes immediately
before such sale, exchange, or, redemption.
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Backup Withholding
Under U.S. federal income tax laws, certain holders who exchange Old Notes
for New Notes are required to provide such holder's current taxpayer
identification number ("TIN") on the Substitute Form W-9 (included as part of
the Letter of Transmittal). If the holder is an individual, the TIN is his or
her social security number. If the holder does not provide the correct TIN or
otherwise fails to satisfy applicable requirements, the holder or other payee
may be subject to penalties imposed by the IRS and to a 30.5% backup
withholding tax.
Backup withholding is not an additional tax. Rather, the U.S. federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
U.S. federal income taxes, a refund may be obtained from the IRS provided the
required information is furnished.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant
to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the expiration of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that request such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer (including the expenses of one counsel for the holders of
the Old Notes) other than commissions or concessions of any broker-dealer and
will indemnify the holders of the Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered by this prospectus will be passed upon
for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Nancy
A. Lieberman, a partner of Skadden, Arps, Slate, Meagher & Flom LLP, is a
director and stockholder of Rite Aid.
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EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company and its consolidated subsidiaries, except PCS Holding
Corporation and subsidiaries which has been included in discontinued
operations in such consolidated financial statements, as of March 3, 2001 and
February 26, 2000, and for each of the three years in the period ended March
3, 2001 incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended March 3, 2001 have been audited by Deloitte &
Touche LLP as stated in their reports which are incorporated by reference
herein. The financial statements of PCS Holding Corporation and subsidiaries
for the year ended February 26, 2000 and the thirty-six days ended February
27, 1999, not separately included herein or elsewhere in the registration
statement have been audited by Ernst & Young LLP, as stated in their report,
which is incorporated by reference herein. Such financial statements and
related financial statement schedule of the Company and its consolidated
subsidiaries are incorporated by reference herein in reliance upon the
respective reports of such firms given upon their authority as experts in
accounting and auditing. All of the foregoing firms are independent auditors.
44