Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. The controls evaluation was conducted under the supervision and with the participation of the Company’s management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting and the report of Deloitte & Touche LLP, the Company’s independent registered public accounting firm, related to their assessment of the effectiveness of internal control over financial reporting are included in Part II, Item 8 of this Form 10-K and are incorporated in this Item 9A by reference.
Changes in Internal Control over Financial Reporting
In connection with the evaluation pursuant to Exchange Act Rule 13a-15(d) of the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) by the Company’s management, including its CEO and CFO, no changes during the quarter ended August 31, 2014 were identified that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting. The Company plans to transition to a new general ledger system in the fiscal quarter ending November 30, 2014. This is part of an ongoing initiative to enhance the overall design and operating
effectiveness of the Company’s financial reporting controls and is not in response to an identified internal control deficiency. Management believes that controls over project development and implementation are adequate to assure there will be no material effect, or a reasonable likelihood of a material effect, on our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B. Other Information
Walgreens Boots Alliance, Inc.
Walgreens Boots Alliance, Inc. is a new corporation incorporated on September 2, 2014 under the laws of Delaware and is a direct wholly-owned subsidiary of Walgreens. To date, Walgreens Boots Alliance has not conducted any activities other than those incident to its formation and the matters contemplated by the
Reorganization Merger Agreement (described below). Walgreens Boots Alliance currently has no material assets, operations, revenues or cash flows.
Reorganization Merger Agreement
On October 17, 2014, Walgreens entered into an Agreement and Plan of Merger (the Reorganization Merger Agreement) by and among Walgreens, Ontario Merger Sub, Inc., an Illinois corporation and indirect wholly owned subsidiary of Walgreens (Merger Sub), and Walgreens Boots Alliance. The Reorganization Merger Agreement provides that Merger Sub will merge with and into Walgreens (the Reorg Merger), with Walgreens surviving the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance. At the effective time of the Reorg Merger, issued and outstanding shares of Walgreens common stock will be converted automatically into the right to receive shares of Walgreens Boots Alliance common stock, on a one-for-one basis. Walgreens shareholders will own the same number of shares of Walgreens Boots Alliance common stock as they own of Walgreens common stock immediately prior to the completion of the Reorg Merger, and, after taking into account the completion of the second step transaction, such shares will represent the same ownership percentage of Walgreens Boots Alliance as they would have of Walgreens immediately following the completion of the second step transaction without the Reorg Merger.
The completion of the Reorg Merger depends on the satisfaction or waiver of several conditions, including the following:
• adoption of the Reorganization Merger Agreement and approval of the Reorg Merger by Walgreens shareholders;
• no law, statute, rule or regulation, order, judgment, writ, injunction, decree, settlement or stipulation exists or has been enacted, entered, promulgated or enforced by any governmental authority, which prohibits or makes illegal the completion of the Reorg Merger;
• receipt of necessary regulatory approvals, licenses and third party consents;
• the satisfaction or waiver of each of the conditions to closing set forth in the Purchase and Option Agreement with respect to the second step transaction, and written confirmation by each of the parties to the Purchase and Option Agreement that each such party stands ready to, and will, consummate the second step transaction immediately following the consummation of the Reorg Merger;
• the registration statement on Form S-4 filed by Walgreens Boots Alliance in connection with the issuance of Walgreens Boots Alliance common stock in the Reorg Merger shall have become effective under the Securities Act, as amended, and there shall be no stop order suspending such effectiveness and no proceeding for such purpose shall be pending before or threatened by the SEC;
• the approval of the listing of Walgreens Boots Alliance common stock to be issued in connection with the Reorg Merger on such national stock exchanges as determined by Walgreens; and
• the receipt by Walgreens of an opinion from Wachtell, Lipton, Rosen & Katz to the effect that the Reorg Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1956, as amended (the Code) and/or a transaction described in Section 351 of the Code.
Walgreens may terminate the Reorganization Merger Agreement at any time, even after adoption by Walgreens’ shareholders, if Walgreens’ board of directors determines to do so. In addition, the Reorganization Merger Agreement will automatically terminate upon the termination of the Purchase and Option Agreement prior to the completion of the second step transaction.
The foregoing description of the Reorganization Merger Agreement is qualified in its entirety by reference to the full text of the Reorganization Merger Agreement, which is attached as Exhibit 2.3 hereto and incorporated herein by reference.
Annual Meeting of Shareholders
Walgreen Co. does not expect to hold an annual meeting of shareholders while the second step of the Alliance Boots transaction and reorganization of Walgreens into a new holding company structure (the “Reorganization”) are pending and will hold an annual meeting during its fiscal year ending August 31, 2015 only if the
Reorganization has not been completed. If the Reorganization is completed, it is currently intended for Walgreens Boots Alliance, Inc. to hold its initial annual meeting of stockholders during its fiscal year ended August 31, 2015 as promptly as practicable following the completion of the Reorganization. If the
Reorganization is completed by the first quarter of calendar 2015 as currently expected, Walgreens Boots Alliance plans to hold its initial annual meeting of stockholders (“WBA Annual Meeting”) on May 20, 2015 at a time and place to be specified in its proxy statement relating to that meeting. The WBA Annual Meeting will be held only if the Reorganization is completed.
If you want Walgreens Boots Alliance to consider including a proposal in its proxy statement relating to the WBA Annual Meeting following completion of the Reorganization, you must have delivered it in writing to Walgreens Boots Alliance’s Corporate Secretary, Walgreens Boots Alliance, Inc., 108 Wilmot Road, Deerfield, Illinois 60015 by November 28, 2014 (or, if the date of the WBA Annual Meeting is moved by more than 30 days, the deadline will be a reasonable time before Walgreens Boots Alliance begins to print and send its proxy materials, which date will be announced by Walgreens Boots Alliance), and such proposal and your submission thereof must comply with applicable SEC rules and regulations regarding the inclusion of stockholder proposals in company-sponsored proxy materials.
If you want to present a proposal or nominate a candidate for election to the Walgreens Boots Alliance Board of Directors at the WBA Annual Meeting following completion of the Reorganization but do not wish to have it included in Walgreens Boots Alliance’s proxy statement, you must submit the proposal in writing to Walgreens Boots Alliance’s Corporate Secretary, Walgreens Boots Alliance, Inc., 108 Wilmot Road, Deerfield, Illinois 60015 on or after January 20, 2015 and no later than February 19, 2015 (or, if the date of the WBA Annual Meeting is changed to be before April 20, 2015 or after July 19, 2015, then between (i) the close of business on the 120th day prior to the date of the WBA Annual Meeting and (ii) the later of the close of business on the 90th day prior to the date of the WBA annual meeting or the close of business on the 10th day after the first public announcement of the date of the WBA annual meeting). Stockholder proposals must be in proper written form and must meet the detailed disclosure requirements set forth in Walgreens Boots Alliance’s bylaws, including a description of the proposal, the relationship between the proposing stockholder and the underlying beneficial owner, if any, and such parties’ stock holdings and derivative positions in Walgreens Boots Alliance’s
securities. Walgreens Boots Alliance’s bylaws also require that stockholder proposals concerning nomination of directors provide additional disclosure, including such information Walgreens Boots Alliance deems appropriate to ascertain the nominee’s qualifications to serve on its Board of Directors, disclosure of compensation
arrangements between the nominee, the nominating stockholder and the underlying beneficial owner, if any, and any other information required to comply with the proxy rules and applicable law. If you would like a copy of these provisions, please contact Walgreens Boots Alliance’s Corporate Secretary at the above address, or access Walgreens Boots Alliance’s bylaws filed as an exhibit to the S-4 registration statement filed by Walgreens Boots Alliance in connection with the Reorganization. Failure to comply with Walgreens Boots Alliance’s bylaw procedures and deadlines may preclude presentation and consideration of the matter or nomination of the applicable candidate for election at the WBA Annual Meeting.
PART III