-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ml/V2CwTOKrRriqZi/bWzn1tptWavVu7QR83ZM1Ulq2bKeO6AAZcbO2x+wExfQ5U 2bh5ZXCuPqaNky28f1g7qg== 0000950130-96-004237.txt : 19961108 0000950130-96-004237.hdr.sgml : 19961108 ACCESSION NUMBER: 0000950130-96-004237 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19961107 SROS: NYSE GROUP MEMBERS: OMEGA ACQUISITION CORPORATION GROUP MEMBERS: PENNEY J C CO INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ECKERD CORP CENTRAL INDEX KEY: 0000031364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 133302437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-03871 FILM NUMBER: 96655653 BUSINESS ADDRESS: STREET 1: 8333 BRYAN DAIRY ROAD CITY: LARGOO STATE: FL ZIP: 34647 BUSINESS PHONE: 8133996000 MAIL ADDRESS: STREET 1: JACK ECKERD CORPORATION STREET 2: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 FORMER COMPANY: FORMER CONFORMED NAME: ECKERD DRUGS OF FLORIDA INC DATE OF NAME CHANGE: 19700112 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ECKERD CORP CENTRAL INDEX KEY: 0000031364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 133302437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-03871 FILM NUMBER: 96655654 BUSINESS ADDRESS: STREET 1: 8333 BRYAN DAIRY ROAD CITY: LARGOO STATE: FL ZIP: 34647 BUSINESS PHONE: 8133996000 MAIL ADDRESS: STREET 1: JACK ECKERD CORPORATION STREET 2: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 FORMER COMPANY: FORMER CONFORMED NAME: ECKERD DRUGS OF FLORIDA INC DATE OF NAME CHANGE: 19700112 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PENNEY J C CO INC CENTRAL INDEX KEY: 0000077182 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 135583779 STATE OF INCORPORATION: DE FISCAL YEAR END: 0126 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DRIVE CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 2144311000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PENNEY J C CO INC CENTRAL INDEX KEY: 0000077182 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 135583779 STATE OF INCORPORATION: DE FISCAL YEAR END: 0126 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DRIVE CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 2144311000 SC 14D1 1 SCHEDULE 14D-1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 ---------------- ECKERD CORPORATION (NAME OF SUBJECT COMPANY) ---------------- OMEGA ACQUISITION CORPORATION J. C. PENNEY COMPANY, INC. (BIDDERS) ---------------- COMMON STOCK, $.01 PAR VALUE 278763 10 7 (Title of Class of Securities) (CUSIP Number of Class of Securities) CHARLES R. LOTTER, ESQ. EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY J. C. PENNEY COMPANY, INC. 6501 LEGACY DRIVE PLANO, TEXAS 75024-3698 (972) 431-1000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications of Behalf of Bidders) ---------------- Copies to: DENNIS J. BLOCK, ESQ. WEIL, GOTSHAL & MANGES LLP 767 FIFTH AVENUE NEW YORK, NEW YORK 10153 (212) 310-8000 ---------------- NOVEMBER 2, 1996 (Date of event which requires filing of this statement) CALCULATION OF FILING FEE - ---------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE - --------------------------------------------------------------------------- $1,233,854,510 $246,772 - ---------------------------------------------------------------------------
* Estimated for purposes of calculating the amount of the filing fee only. The amount assumes the purchase of 35,252,986 shares of common stock, $.01 par value per share (the "Shares"), at a price per Share of $35.00 in cash. Such number of Shares represents 50.1% of the Shares issued and outstanding as of September 30, 1996. [_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: None Filing Party: Not Applicable Form or Registration No.: Not Applicable Date Filed: Not Applicable
(Continued on following pages) (Page 1 of Pages) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CUSIP NO. 278763 10 7 14D-1 PAGE 2 OF 1 NAME OF REPORTING PERSONS: OMEGA ACQUISITION CORPORATION S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS: 51-0378122 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS N/A [_] REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f): - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: STATE OF DELAWARE - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,554,786* - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES N/A [_] - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 13%* - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO
* As of November 2, 1996, Eckerd Corporation, a Delaware corporation (the "Company") and J. C. Penney Company, Inc., a Delaware corporation ("Parent") and owner of all of the issued and outstanding stock of Omega Acquisition Corporation, a Delaware corporation ("Purchaser") entered into an Amended and Restated Stock Option Agreement (the "Stock Option Agreement") pursuant to which the Company granted to the Parent an irrevocable option (the "Stock Option") to purchase up to 10,554,786 shares of common stock, $.01 par value per share, of the Company or such other number of shares of common stock of the Company as equals 15% of the issued and outstanding shares of common stock of the Company at the time of exercise of the Stock Option. The Stock Option Agreement is described more fully in Section 12 of the Offer to Purchase, dated November 7, 1996. CUSIP NO. 278763 10 7 14D-1 PAGE 3 OF 1 NAME OF REPORTING PERSONS: J. C. PENNEY COMPANY, INC. S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS: 13-5583779 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: BK - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS N/A [_] REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f): - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: STATE OF DELAWARE - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,554,786* - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES N/A [_] - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 13%* - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO
* The footnote on page 2 is incorporated by reference herein. TENDER OFFER This Tender Offer Statement on Schedule 14D-1 is filed by Omega Acquisition Corporation, a Delaware corporation ("Purchaser"), and J. C. Penney Company, Inc., a Delaware corporation ("Parent") and the owner of all of the outstanding capital stock of Purchaser, in connection with the offer by Purchaser to purchase 35,252,986 shares of common stock, $.01 par value per Share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at $35.00 per Share, net to the seller in cash, without interest thereon, on the terms and subject to the conditions set forth in the Offer to Purchase dated November 7, 1996 (the "Offer to Purchase"), and in the related Letter of Transmittal and any amendments or supplements thereto, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively (which collectively constitute the "Offer"). This Tender Offer Statement on Schedule 14D-1 also constitutes a Statement on Schedule 13D with respect to the Stock Option Agreement pursuant to which the Company granted to the Parent the Stock Option. The item numbers and responses thereto below are in accordance with the requirements of Schedule 14D-1. ITEM 1. SECURITY AND SUBJECT COMPANY (a) The name of the subject company is Eckerd Corporation, a Delaware corporation (the "Company"). The address of the Company's principal executive offices is 8333 Bryan Dairy Road, Largo, Florida 33777. (b) The information set forth on the cover page and under "Introduction" in the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND This Statement is filed by Purchaser and Parent. The information set forth on the cover page, under "Introduction," in Section 9 and in Schedule I of the Offer to Purchase is incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS WITH THE SUBJECT COMPANY (a) The information set forth in Section 11 of the Offer to Purchase is incorporated herein by reference. (b) The information set forth under "Introduction" and in Sections 9, 11 and 12 of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a)-(b) The information set forth in Section 10 of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER (a)-(e) The information set forth in Section 12 of the Offer to Purchase is incorporated herein by reference. (f)-(g) The information set forth in Section 7 of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a)-(b) The information set forth under "Introduction" and in Sections 9, 11 and 12 of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES The information set forth under "Introduction" and in Sections 9, 11, 12 and 13 of the Offer to Purchase is incorporated herein by reference. 4 ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED The information set forth under "Introduction" and in Section 16 of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS TO CERTAIN BIDDERS The information set forth in Section 9 of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION (a) The information set forth under "Introduction" and in Sections 11 and 12 of the Offer to Purchase is incorporated herein by reference. (b)-(c), (e) The information set forth in Section 15 of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS (a)(1) Offer to Purchase, dated November 7, 1996. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement, dated November 7, 1996. (a)(8) Text of Press Release, dated November 3, 1996, issued by Parent. (b)(1) Commitment Letter from Credit Suisse, dated October 31, 1996. (c)(1) Amended and Restated Agreement and Plan of Merger, dated as of November 2, 1996, among Parent, Purchaser and the Company. (c)(2) Amended and Restated Stock Option Agreement, dated as of November 2, 1996, by and between the Company and Parent. (c)(3) Amendment No. 1, dated as of November 2, 1996, to the Employment Agreement dated as of February 4, 1996, by and between the Company and Francis A. Newman. (d) None. (e) Not applicable. (f) None. (g)(1) Complaint filed in Ziff v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996. (g)(2) Complaint filed in Morse v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996. (g)(3) Complaint filed in Lubin v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996.
5 SIGNATURES AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. Dated: November 7, 1996 J. C. Penney Company, Inc. /s/ Charles R. Lotter By: _________________________________ NAME: CHARLES R. LOTTER TITLE:EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Omega Acquisition Corporation /s/ Donald A. McKay By: _________________________________ NAME: DONALD A. MCKAY TITLE:PRESIDENT 6 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE ------- ----------- ---- (a)(1) Offer to Purchase, dated November 7, 1996 (a)(2) Letter of Transmittal (a)(3) Notice of Guaranteed Delivery (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(7) Form of Summary Advertisement, dated November 7, 1996 (a)(8) Text of Press Release, dated November 3, 1996, issued by Parent (b)(1) Commitment Letter from Credit Suisse, dated October 31, 1996 (c)(1) Amended and Restated Agreement and Plan of Merger, dated as of November 2, 1996, among Parent, Purchaser and the Company (c)(2) Amended and Restated Stock Option Agreement, dated as of November 2, 1996, by and between the Company and Parent (c)(3) Amendment No. 1, dated as of November 2, 1996, to the Employment Agreement dated as of February 4, 1996, by and between the Company and Francis A. Newman (d) None (e) Not applicable (f) None (g)(1) Complaint filed in Ziff v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996 (g)(2) Complaint filed in Morse v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996 (g)(3) Complaint filed in Lubin v. Eckerd Corporation and J. C. Penney Company, Inc. in the Court of Chancery of the State of Delaware in and for New Castle County on November 4, 1996
EX-99.A.1 2 OFFER TO PURCHASE DATED 11/06/96 EXHIBIT (a)(1) OFFER TO PURCHASE FOR CASH 35,252,986 SHARES OF COMMON STOCK OF ECKERD CORPORATION AT $35.00 NET PER SHARE BY OMEGA ACQUISITION CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF J. C. PENNEY COMPANY, INC. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED --------------- THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AT THE OFFER PRICE AND THE MERGER, AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY THAT WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER HEREUNDER. --------------- THE COMPANY AND J. C. PENNEY COMPANY, INC. ("PARENT") HAVE ENTERED INTO A STOCK OPTION AGREEMENT PURSUANT TO WHICH, AMONG OTHER THINGS, THE COMPANY HAS GRANTED PARENT AN OPTION TO PURCHASE (THE "STOCK OPTION") UP TO 10,554,786 FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF THE COMPANY, OR SUCH OTHER NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY AS EQUALS 15% OF THE COMPANY'S ISSUED AND OUTSTANDING COMMON STOCK AT THE TIME OF EXERCISE OF THE STOCK OPTION. --------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE 35,252,986 SHARES OR SUCH OTHER NUMBER OF SHARES REPRESENTING 50.1% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE DATE OF PURCHASE. THE OFFER ALSO IS SUBJECT TO CERTAIN OTHER CONDITIONS, WHICH ARE SET FORTH IN THIS OFFER TO PURCHASE. SEE THE INTRODUCTION AND SECTIONS 1 AND 14 OF THIS OFFER TO PURCHASE. --------------- IMPORTANT Any stockholder wishing to tender all or a portion of such stockholder's shares of common stock, par value $.01 per share, of the Company (the "Shares") should either (1) complete and sign the Letter of Transmittal (or a manually signed facsimile thereof) in accordance with the instructions in the Letter of Transmittal, mail or deliver it and any other required documents to the Depositary (as defined herein) and either deliver the certificates for those Shares to the Depositary along with the Letter of Transmittal or tender those Shares pursuant to the procedures for book-entry transfer set forth in Section 3 hereof, or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for the stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact that broker, dealer, commercial bank, trust company or other nominee if the stockholder wishes to tender such Shares. Any stockholder who wishes to tender Shares and whose certificates representing those Shares are not immediately available or who cannot comply with the procedure for book-entry transfer on a timely basis should tender those Shares by following the procedures for guaranteed delivery set forth in Section 3 hereof. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be directed to the Information Agent or to brokers, dealers, commercial banks and trust companies. --------------- The Dealer Manager for the Offer is: CS First Boston November 7, 1996 TABLE OF CONTENTS
PAGE ---- INTRODUCTION........................................................ 1 1. Terms of the Offer......................................... 3 2. Acceptance for Payment and Payment for Shares.............. 4 3. Procedure for Tendering Shares............................. 6 4. Withdrawal Rights.......................................... 8 Certain Federal Income Tax Consequences of the Offer and 5. the Merger................................................. 9 6. Price Range of the Shares; Dividends on the Shares......... 12 7. Effect of the Offer on the Market for the Shares, Stock Quotation and Exchange Act Registration and Margin Securities................................................. 12 8. Certain Information Concerning the Company................. 13 9. Certain Information Concerning Purchaser and Parent........ 16 10. Source and Amount of Funds................................. 17 11. Background of the Offer.................................... 18 12. Purpose of the Offer and the Merger; Plans for the Company; The Merger Agreement; The Stock Option Agreement; Amendment to the Employment Agreement; Appraisal Rights.............. 19 13. Dividends and Distributions................................ 32 14. Certain Conditions of the Offer............................ 33 15. Certain Legal Matters...................................... 34 16. Fees and Expenses.......................................... 36 17. Miscellaneous.............................................. 37 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER......................................................... I-1
i To the Holders of Common Stock of Eckerd Corporation: INTRODUCTION Omega Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation ("Parent"), hereby offers to purchase 35,252,986 shares of common stock, $.01 par value per share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at a purchase price of $35.00 per Share (such amount, or any greater amount per share paid pursuant to the Offer (as defined below), being hereinafter referred to as the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The Offer is being made pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of November 2, 1996 (the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, for the commencement of the Offer by Purchaser and further provides that, after the purchase of Shares pursuant to the Offer and subject to the satisfaction or waiver of certain conditions set forth therein, (i) if the Stock Condition (as defined below) has been satisfied, the Company will be merged with and into Purchaser (the "Forward Merger"), with Purchaser surviving the merger as a direct wholly-owned subsidiary of Parent, or (ii) if the Stock Condition has not been satisfied, Purchaser will be merged with and into the Company (the "Reverse Merger") with the Company surviving the merger as a direct wholly-owned subsidiary of Parent. The Forward Merger and Reverse Merger are hereinafter collectively referred to as the "Merger". The "Stock Condition" will be satisfied if (i) the aggregate market value of the shares of Parent Common Stock (as defined below) deliverable upon consummation of the Forward Merger (the "Stock Value"), based upon the closing price of such stock on the New York Stock Exchange Composite Tape on the date immediately prior to the effective time of the Merger (the "Effective Time"), is at least 45% of the sum of (y) the Stock Value and (z) the aggregate amount paid by Purchaser to purchase Shares pursuant to the Offer, and (ii) legal counsel to Parent delivers to Parent and legal counsel to the Company delivers to the Company, opinions that the Forward Merger will constitute a "tax-free reorganization" (as more fully described in the Merger Agreement). Notwithstanding the foregoing, Parent may, in its sole discretion, increase the number of shares of Parent Common Stock into which the Shares will be converted in the Forward Merger so as to satisfy the Stock Condition. Pursuant to the Merger, each outstanding Share (excluding Shares owned, directly or indirectly, by the Company, Parent, Purchaser or any other subsidiary of Parent and, in the case of the Reverse Merger, Shares owned by holders who shall have properly exercised their appraisal rights under the Delaware General Corporation Law (the "DGCL")) will be converted into the right to receive (i) if the Stock Condition has been satisfied and the Forward Merger is effected, 0.6604 shares of Parent's common stock, $.50 par value per share ("Parent Common Stock"), or such other number of shares of Parent Common Stock to which such number shall have been increased in accordance with Sections 1.1 or 2.1 of the Merger Agreement (the "Stock Merger Consideration") or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, the Offer Price, in cash (the consideration set forth in clause (i) or (ii) being hereinafter referred to as the "Merger Consideration"), in each case without interest. THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF SHARES (THE "STOCKHOLDERS"), HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AT THE OFFER PRICE AND THE MERGER, AND RECOMMENDS THAT STOCKHOLDERS THAT WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER HEREUNDER. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, THE COMPANY'S FINANCIAL ADVISOR ("MERRILL LYNCH"), HAS DELIVERED TO THE BOARD ITS WRITTEN OPINION, DATED NOVEMBER 2, 1996, TO THE EFFECT THAT, AS OF SUCH DATE AND BASED UPON THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF REVIEW AS SET FORTH IN 1 SUCH OPINION, THE OFFER PRICE AND THE MERGER CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS PURSUANT TO THE OFFER AND THE MERGER, TAKEN AS A WHOLE, IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO SUCH STOCKHOLDERS. A COPY OF THE WRITTEN OPINION OF MERRILL LYNCH, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, IS CONTAINED IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9") FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") IN CONNECTION WITH THE OFFER, A COPY OF WHICH IS BEING FURNISHED TO THE STOCKHOLDERS CONCURRENTLY WITH THIS OFFER TO PURCHASE. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE 35,252,986 SHARES OR SUCH OTHER NUMBER OF SHARES REPRESENTING 50.1% OF THE SHARES OUTSTANDING ON THE DATE OF PURCHASE (THE "MINIMUM CONDITION" AND SUCH NUMBER OF SHARES BEING HEREINAFTER REFERRED TO AS THE "MINIMUM NUMBER OF SHARES"). THE OFFER ALSO IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTIONS 1 AND 14. The Company has informed Purchaser that, as of September 30, 1996, 70,365,241 Shares were issued and outstanding and 3,763,283 Shares were reserved for issuance pursuant to outstanding stock options granted by the Company to employees and directors (the "Company Stock Options"). As a result, as of such date, the Minimum Condition would be satisfied if Purchaser acquired 35,252,986 Shares. The Company has entered into the Amended and Restated Stock Option Agreement, dated as of November 2, 1996 (the "Stock Option Agreement"), with Parent pursuant to which the Company has granted to Parent an irrevocable option (the "Stock Option") to purchase up to 10,554,786 fully paid and nonassessable Shares or such other number of Shares as equals 15% of the issued and outstanding Shares at the time of exercise of the Stock Option, at a purchase price of $35.00 per Share, exercisable upon the occurrence of certain events. The consummation of the Merger is subject to the satisfaction or waiver of a number of conditions, including, if required, the approval of the Merger by the requisite vote or consent of the Stockholders. Under the DGCL, the stockholder vote necessary to approve the Merger will be the affirmative vote of at least a majority of the outstanding Shares, including Shares held by Purchaser and its affiliates. If the Minimum Condition is satisfied and Purchaser purchases at least a majority of the outstanding Shares in the Offer, Purchaser will be able to effect the Merger without the affirmative vote of any other Stockholder. Pursuant to the Merger Agreement, Parent and Purchaser have agreed to vote the Shares acquired by them pursuant to the Offer in favor of the Merger. See Section 12. The Merger Agreement and the Stock Option Agreement are more fully described in Section 12 below. Certain federal income tax consequences of the sale of Shares pursuant to the Offer and the exchange of Shares for the Merger Consideration pursuant to the Merger are described in Section 5 below. Tendering Stockholders who have Shares registered in their names will not be charged brokerage fees or commissions or, except as set forth in Instruction 6 to the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer or the Merger. Purchaser will pay all charges and expenses of CS First Boston Corporation ("CS First Boston"), as the Dealer Manager (the "Dealer Manager"), ChaseMellon Shareholder Services, L.L.C., as the depositary (the "Depositary"), and D.F. King & Co., Inc., as the information agent (the "Information Agent"), in connection with the Offer. See Section 16. THIS OFFER TO PURCHASE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF OFFERS TO BUY ANY SECURITIES WHICH MAY BE ISSUED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE ISSUANCE OF PARENT COMMON STOCK WILL BE REGISTERED UNDER THE SECURITIES ACT, AND PARENT COMMON STOCK WILL BE OFFERED ONLY BY MEANS OF A PROSPECTUS COMPLYING WITH THE REQUIREMENTS OF THE SECURITIES ACT. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 1. TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and pay for (and thereby purchase) the Minimum Number of Shares validly tendered and not withdrawn in accordance with Section 4 below prior to the Expiration Date. As used in the Offer, the term "Expiration Date" means 12:00 midnight, New York City time, on Friday, December 6, 1996, unless and until Purchaser, in accordance with the terms of the Offer and the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer, as so extended, expires. As used in this Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1(c)(6) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon the terms and subject to the conditions of the Offer, if more than the Minimum Number of Shares is validly tendered and not withdrawn in accordance with Section 4 of this Offer to Purchase prior to the Expiration Date, Purchaser will accept for payment and pay for the Minimum Number of Shares, on a pro rata basis (with appropriate adjustments to avoid purchases of fractional Shares) based upon the number of Shares properly tendered and not withdrawn by each Stockholder at or prior to the Expiration Date. In the event that proration of tendered Shares is required, because of the difficulty of determining the precise number of Shares properly tendered and not withdrawn (due in part to the guaranteed delivery procedure described in Section 3), the Purchaser does not expect that it will be able to announce the final results of such proration or pay for any Shares until at least seven New York Stock Exchange, Inc. ("NYSE") trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Stockholders may obtain such preliminary information from the Information Agent and may be able to obtain such information from their brokers. Subject to the terms of the Merger Agreement, Purchaser reserves the right (but shall not be obligated) to accept for payment more than the Minimum Number of Shares pursuant to the Offer. Pursuant to the Merger Agreement, any such increase would require the consent of the Company, and the Purchaser has no present intention of requesting such consent. If a number of additional Shares in excess of two percent of the outstanding Shares is to be accepted for payment, and, at the time notice of Purchaser's decision to accept for payment such additional Shares is first published, sent or given to holders of Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from the date that such notice is so published, sent or given, the Offer will be extended until the expiration of such period of ten business days. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition. The Offer also is subject to certain other conditions set forth in Section 14 below. Pursuant to the terms of the Merger Agreement, Purchaser expressly reserves the right (but will not be obligated) to waive any or all of the conditions of the Offer. Pursuant to the Merger Agreement, (i) Purchaser may without the consent of the Company, extend the Offer so as to comply with applicable rules and regulations of the Commission and (ii) so long as the Merger Agreement has not been terminated in accordance with its terms, if at the Expiration Date any of the conditions to Purchaser's obligations to accept for payment and pay for Shares are not satisfied or waived, Purchaser will extend the Offer on one or more occasions, provided that Purchaser will not be obligated to extend the Expiration Date beyond February 1, 1997, except in certain circumstances. Purchaser may, without the consent of the Company, extend the Offer on one occasion following the time that all of the conditions to the Offer have been satisfied as of the scheduled Expiration Date for a period not to exceed five business days. See Section 12. Subject to the terms of the Merger Agreement, Purchaser expressly reserves the right, subject to applicable law, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension. There can be no assurance that Purchaser will extend the Offer. Purchaser also expressly reserves the right, subject to applicable law (including applicable rules and regulations of the Commission) and the terms of the Merger Agreement, at any time or from time to time, to (i) delay acceptance for payment of, or payment for, any Shares, regardless of whether the Shares were theretofore accepted for payment, or to terminate the Offer and not accept for payment or pay for any 3 Shares not theretofore accepted for payment or paid for, upon the occurrence of any of the conditions specified in Section 14 below by giving oral or written notice of such delay in payment or termination to the Depositary, and (ii) waive any conditions or otherwise amend the Offer in any respect, by giving oral or written notice to the Depositary. Any extension, delay in payment, termination or amendment will be followed as promptly as practical by public announcement, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser will have no obligation to publish, advertise or otherwise communicate any such announcement, other than by issuing a release to the Dow Jones News Service or as otherwise required by law. The reservation by Purchaser of the right to delay acceptance for payment of, or payment for, Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Purchaser pay consideration offered or return the Shares deposited by or on behalf of Stockholders promptly after the termination or withdrawal of the Offer. Pursuant to the Merger Agreement, Purchaser expressly reserves the right to increase the price per Share payable in the Offer or to make any other changes in the terms and conditions of the Offer, except that without the written consent of the Company, Purchaser shall not (i) reduce or increase the number of Shares sought to be purchased pursuant to the Offer, (ii) reduce the price per Share payable in the Offer, (iii) change the form of consideration to be paid in the Offer, (iv) impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of Shares or (v) waive satisfaction of the Minimum Condition. Assuming the prior satisfaction or waiver of the conditions to the Offer, Purchaser will accept for payment, and pay for, in accordance with the terms of the Offer, Shares validly tendered and not properly withdrawn pursuant to the Offer promptly after the Expiration Date. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. If Purchaser decides to increase or, subject to the consent of the Company, to decrease the consideration in the Offer, to make a change in the percentage of Shares sought or, subject to the consent of the Company, to change or waive the Minimum Condition and, if at the time that notice of any such change or waiver is first published, sent or given to Stockholders, the Offer is scheduled to expire at any time earlier than the tenth business day after (and including) the date of that notice, the Offer will be extended at least until the expiration of that period of ten business days. The Company has provided Purchaser with its stockholder list and security position listings for the purpose of disseminating the Offer to Stockholders. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES Upon the terms and subject to the conditions of the Merger Agreement and the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and will pay for the Minimum Number of Shares that are validly tendered on or prior to the Expiration Date, and not properly withdrawn in accordance with Section 4 below, promptly after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions to the Offer set forth in Section 14. All questions as to the satisfaction of such terms and conditions will be determined by Purchaser in its sole discretion, which determination will be final and binding. Subject to the applicable rules of the Commission and the Merger Agreement, Purchaser expressly reserves the right to delay acceptance for payment of, or payment for, Shares in order to comply, in whole or in part, with any other applicable law or government 4 regulation. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). See Section 15 below. In all cases, Shares accepted for payment pursuant to the Offer will be paid for only after timely receipt by the Depositary of (i) certificates evidencing (or a timely Book-Entry Confirmation (as defined in Section 3 below) with respect to) such Shares, (ii) a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below), and (iii) any other documents required by the Letter of Transmittal. See Section 3 below. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility (as defined in Section 3 below) to, and received by, the Depositary and forming part of a Book-Entry Confirmation, which states that (i) such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering Shares which are the subject of such Book-Entry Confirmation, (ii) such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and (iii) Purchaser may enforce such agreement against such participant. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares properly tendered to Purchaser and not withdrawn, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering Stockholders for the purpose of receiving payment from Purchaser and transmitting payment to tendering Stockholders. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering Stockholders, Purchaser's obligation to make such payment shall be satisfied, and tendering Stockholders must thereafter look solely to the Depositary for payment of amounts owed to them by reason of the acceptance for payment of Shares pursuant to the Offer. If, for any reason, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's rights under the Offer (but subject to Rule 14e-1(c) under the Exchange Act), the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering Stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in Section 4 below. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF SHARES TO BE PAID BY PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not purchased pursuant to the Offer for any reason (including due to proration if more than the Minimum Number of Shares is tendered) or if certificates are submitted for more Shares than are tendered, certificates for Shares not purchased or tendered will be returned pursuant to the instructions of the tendering Stockholder without expense to the tendering Stockholder (or, in the case of Shares delivered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3 below, the Shares will be credited to an account maintained at the appropriate Book-Entry Transfer Facility) as promptly as practicable following the expiration or termination of the Offer. If, prior to the Expiration Date, Purchaser increases the consideration to be paid per Share pursuant to the Offer, Purchaser will pay the increased consideration for all Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to the increase in consideration. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Parent, or to one or more direct wholly-owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no 5 way prejudice the rights of tendering Stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES Valid Tenders. For a Stockholder validly to tender pursuant to the Offer, either (i) a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either (a) certificates evidencing Shares must be received by the Depositary at any such address prior to the Expiration Date or (b) the Shares must be delivered pursuant to the procedures for book-entry transfer set forth below and a Book-Entry Confirmation must be received by the Depositary prior to the Expiration Date; or (ii) the tendering Stockholder must comply with the guaranteed delivery procedures set forth below. No alternative, conditional or contingent tenders will be accepted. Book-Entry Transfer. The Depositary will establish accounts with respect to the Shares at The Depository Trust Company and the Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of Shares by causing a Book- Entry Transfer Facility to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility, the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering Stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book- entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility as described above is referred to as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF CERTIFICATES EVIDENCING SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING STOCKHOLDERS, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (i) if the Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in any of the Book-Entry Transfer Facilities' systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal; or (ii) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If the certificates representing Shares are registered in the name of a person other than the signer of the Letter of Transmittal or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to 6 be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates evidencing Shares must be endorsed or accompanied by appropriate stock powers, in each case signed exactly as the name or names of the registered holder or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above and as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a Stockholder desires to tender Shares pursuant to the Offer and such Stockholder's certificates for Shares are not immediately available or the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such Stockholder's tender may be effected if all the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, is received by the Depositary (as provided below) prior to the Expiration Date; and (iii) the certificates for all tendered Shares in proper form for transfer (or a Book-Entry Confirmation with respect to all such tendered Shares) together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile) with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by the Letter of Transmittal are received by the Depositary within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. IN ALL CASES, SHARES SHALL NOT BE DEEMED VALIDLY TENDERED UNLESS A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE THEREOF) IS TIMELY RECEIVED BY THE DEPOSITARY. Notwithstanding any other provision of this Offer to Purchase, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, a Letter of Transmittal (or a manually signed facsimile), properly completed and duly executed, with any required signature guarantees and any other documents required by the Letter of Transmittal (or in the case of a book-entry transfer, an Agent's Message). Determination of Validity. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares pursuant to any of the procedures described above will be determined by Purchaser in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute right to reject any or all tenders of Shares determined not to be in proper form or the acceptance of or payment for which may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right to waive any defect or irregularity in any tender of any Shares of any particular Stockholder whether or not similar defects or irregularities are waived in the case of other Stockholders. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and its instructions) will be final and binding on all parties. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding. To prevent backup federal income tax withholding of 31% of the payments made to Stockholders with respect to the purchase price of Shares purchased pursuant to the Offer or the Merger, a Stockholder must provide the Depositary with his or her correct taxpayer identification number 7 and certify that he or she is not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See Instruction 10 of the Letter of Transmittal. See Section 5 below. A tender of Shares pursuant to any of the procedures described above will constitute the tendering Stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering Stockholder's representation and warranty to Purchaser that (i) the Stockholder has a net long position in the Shares being tendered, within the meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), and (ii) the tender of Shares complies with Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly or indirectly, to tender Shares for such person's own account, unless, at the time of tender, the person so tendering (i) has a net long position equal to or greater than the amount of (a) Shares tendered or (b) other securities immediately convertible into or exchangeable or exercisable for Shares tendered and that person will acquire the Shares for tender by conversion, exchange or exercise and (ii) will cause Shares to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering Stockholder and Purchaser upon the terms and conditions of the Offer. Appointment as Proxy. By executing a Letter of Transmittal, a tendering Stockholder irrevocably appoints designees of Purchaser as such Stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such Stockholder's rights with respect to Shares tendered by such Stockholder and purchased by Purchaser and with respect to any and all other Shares or other securities issued or issuable in respect of those Shares, on or after the date of the Offer. All such powers of attorney and proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such purchased Shares for payment. Upon acceptance for payment, all prior powers of attorney, proxies or consents given by the Stockholder with respect to the Shares (and any other Shares or other securities so issued in respect of such purchased Shares) will be revoked, without further action, and no subsequent powers of attorney and proxies may be given (and, if given, will not be deemed effective) by the Stockholder. The designees of Purchaser will be empowered to exercise all voting and other rights of the Stockholder with respect to such Shares (and any other Shares or securities so issued in respect of such purchased Shares) as they in their sole discretion may deem proper, including, without limitation, in respect of any annual or special meeting of the Stockholders, or any adjournment or postponement of any such meeting, or in connection with any action by written consent in lieu of any such meeting or otherwise (including any such meeting or action by written consent to approve the Merger). Purchaser reserves the absolute right to require that, in order for Shares to be validly tendered, immediately upon Purchaser's acceptance for payment of the Shares, Purchaser must be able to exercise full voting and other rights of a record and beneficial owner with respect to the Shares, including voting at any meeting of Stockholders then scheduled. 4. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer are irrevocable, except as otherwise provided in this Section 4. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Purchaser pursuant to the Offer, may also be withdrawn at any time after January 5, 1997. If Purchaser extends the Offer, is delayed in its purchase of or payment for Shares or is unable to purchase or pay for Shares for any reason then, without prejudice to the rights of Purchaser, tendered Shares may be retained by the Depositary on behalf of Purchaser and may not be withdrawn, except to the extent that tendering Stockholders are entitled to withdrawal rights as set forth in this Section 4. The reservation by Purchaser of the right to delay the acceptance or purchase of or payment for Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires Purchaser to pay the consideration offered or return the Shares deposited by or on behalf of Stockholders promptly after the termination or withdrawal of the Offer. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. 8 Any such notice of withdrawal must specify the name of the persons who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered the Shares. If certificates evidencing Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the tendering Stockholder must also submit to the Depositary the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn, and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (except in the case of Shares tendered for the account of an Eligible Institution). If Shares have been tendered pursuant to the procedure for book-entry transfer set forth in Section 3 above, the notice of withdrawal must also specify the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding on all parties. No withdrawal of Shares will be deemed to have been properly made until all defects and irregularities have been cured or waived. None of Parent, Purchaser, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failing to give such notification. Any Shares properly withdrawn will be deemed not validly tendered for purposes of the Offer, but may be tendered at any subsequent time prior to the Expiration Date by following any of the procedures described in Section 3 above. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND THE MERGER The following discussion is a summary of the material federal income tax consequences of the Offer and Merger to holders of Shares who hold the Shares as capital assets. The discussion set forth below is for general information only and may not apply to certain categories of holders of Shares subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such as foreign holders and holders who acquired such Shares pursuant to the exercise of employee stock options or otherwise as compensation. This summary is based upon laws, regulations, rulings and decisions currently in effect, all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations. Further, complex rules apply where, under certain attribution rules, a holder of Shares is deemed to own stock owned and, in some cases, constructively owned, by certain family members, by certain estates and trusts of which the holder is a beneficiary, and by certain affiliated entities, as well as stock subject to an option actually or constructively owned by the holder or such other persons. Each holder that believes it may be subject to these rules should consult its tax advisor. In addition, if a holder of Shares has differing bases and/or holding periods in respect of its Shares, it should consult its tax advisor prior to the Offer and Merger with regard to identifying the particular Shares to be exchanged pursuant to the Offer and Merger and the bases and/or holding periods of the particular Shares it receives pursuant to the Offer and Merger. Tax Consequences of the Offer and the Merger Generally. While not free from doubt, the Offer and the Merger should be treated as a single integrated transaction for federal income tax purposes. If the Offer and the Merger are so treated and the Merger is in the form of a merger of the Company into Purchaser, the Offer and the Merger will qualify as a reorganization under Section 368(a) of the Code. In such event, generally (i) no gain or loss will be recognized by Parent, Purchaser or the Company pursuant to the Offer and the Merger, (ii) gain or loss will be recognized by a Stockholder who receives solely cash in exchange for Shares pursuant to the Offer, (iii) no gain or loss will be recognized by a Stockholder who does not exchange any Shares pursuant to the Offer and who receives solely Parent Common Stock in exchange for Shares pursuant to the Merger (except with respect to cash received in lieu of fractional shares) and (iv) a Stockholder who receives a combination of cash and Parent Common Stock in exchange for such Stockholder's Shares pursuant to the Offer and the Merger will not recognize loss but will recognize gain, if any, to the extent of the lesser of (x) the cash received and (y) the excess of the sum of the fair market value of the Parent Common Stock and the amount of cash received over a Stockholder's tax basis in the Shares exchanged. 9 In the event that the Stock Condition is not satisfied (and Parent fails to exercise its right to increase the Stock Merger Consideration to satisfy the Stock Condition) then, pursuant to the Merger Agreement, the form of the Merger will be changed to a merger of Purchaser into the Company. In such case the Offer and the Merger will not constitute a reorganization, and will be taxable to Stockholders who will recognize gain or loss equal to the difference between the cash received and the Stockholder's adjusted tax basis in the Shares exchanged. If the Offer and the Merger were not treated as a single integrated transaction for federal income tax purposes, the receipt of cash pursuant to the Offer would be a taxable transaction, while the Merger will qualify as a reorganization pursuant to Section 368(a) of the Code, if the Merger is in the form of the Company into Purchaser. TAX CONSEQUENCES IF THE OFFER AND THE MERGER ARE TREATED AS A SINGLE INTEGRATED TRANSACTION AND AS A REORGANIZATION Exchange of Shares Solely for Cash. In general, a Stockholder who, pursuant to the Offer, exchanges all of the Shares owned by such Stockholder solely for cash will recognize capital gain or loss equal to the difference between the amount of cash received and such Stockholder's adjusted tax basis in the Shares surrendered. Such gain or loss will be long-term capital gain or loss if, as of the date of the exchange, the holder thereof has held such Shares for more than one year. Gain or loss will be calculated separately for each identifiable block of Shares surrendered pursuant to the Offer. Exchange of Shares Solely for Parent Common Stock. A Stockholder who, pursuant to the Merger, exchanges all of the Shares actually owned by such Stockholder solely for shares of Parent Common Stock (and who did not exchange any Shares for cash in the Offer) will not recognize any gain or loss upon such exchange. Such Stockholder may recognize gain or loss, however, to the extent cash is received in lieu of a fractional share of Parent Common Stock, as discussed below. The aggregate tax basis of the shares of Parent Common Stock received in such exchange will be equal to the aggregate tax basis of the Shares surrendered therefor, and the holding period of Parent Common Stock will include the period during which the Shares surrendered in exchange therefor were held. Exchange of Shares for Parent Common Stock and Cash. A Stockholder who, pursuant to the Offer and the Merger, exchanges all of the Shares actually owned by such Stockholder for a combination of shares of Parent Common Stock and cash will not recognize any loss on such exchange. Such Stockholder will realize gain equal to the excess, if any, of the cash and the aggregate fair market value of Parent Common Stock received pursuant to the Offer and the Merger over such Stockholder's adjusted tax basis in the Shares exchanged therefor, but will recognize any realized gain only to the extent of the cash received. Any gain recognized by a Stockholder who receives a combination of Parent Common Stock and cash pursuant to the Offer and the Merger will be treated as capital gain unless the receipt of the cash has the effect of the distribution of a dividend for federal income tax purposes, in which case such recognized gain will be treated as ordinary dividend income to the extent of such Stockholder's ratable share of the Company's accumulated earnings and profits. Any gain that is treated as capital gain will be long-term capital gain if the holding period for such shares was greater than one year as of the date of the exchange pursuant to the Offer and Merger. For purposes of determining whether the cash received has the effect of a distribution of a dividend for federal income tax purposes, a Stockholder is treated as if such Stockholder first exchanged all of such Stockholder's Shares solely for Parent Common Stock and then Parent immediately redeemed a portion of such Parent Common Stock in exchange for the cash such Stockholder actually received. Under this analysis, in general, if the receipt of cash in this deemed redemption by such holder results in a "substantially disproportionate" reduction in the holder's voting stock interest in Parent or is "not essentially equivalent to a dividend," the receipt of the cash will not have the effect of the distribution of a dividend. For purposes of this 10 determination, the holder's voting stock interest in Parent before the deemed redemption is compared to such holder's interest in Parent after the deemed redemption, taking into account in each case any Parent stock constructively owned by such holder as a result of the application of the attribution rules of the Code. Generally, if (taking into account actual ownership and ownership by attribution) the holder's interest in the voting stock of Parent has declined, as a result of the deemed redemption, by more than 20%, then the receipt of cash will not be taxed as a dividend. However, even if such interest in the voting stock of Parent has declined, as a result of the deemed redemption, by 20% or less, then generally, in the case of a minority stockholder who is neither an officer or director of Parent or who exercises no control over Parent corporate affairs, the receipt of cash still likely would not be taxed as a dividend. Each Stockholder should consult with his or her own tax advisor as to whether the receipt of the cash has the effect of a distribution of a dividend, and, if so, the consequences thereof. The aggregate tax basis of Parent Common Stock received by a Stockholder who, pursuant to the Offer and the Merger, exchanges such Stockholder's Shares for a combination of Parent Common Stock and cash will be the same as the aggregate tax basis of the Shares surrendered therefor, decreased by the cash received and increased by the amount of gain recognized, if any (including any portion of such gain that is treated as a dividend). The holding period of Parent Common Stock will include the holding period of the Shares surrendered therefor. Cash Received in Lieu of a Fractional Interest of Parent Common Stock. Cash received in lieu of a fractional share of Parent Common Stock will generally be treated as received in redemption of such fractional interest and gain or loss will be recognized, measured by the difference between the amount of cash received and the portion of the basis of the Shares allocable to such fractional interest. Such gain or loss will constitute capital gain or loss, and will generally be long-term capital gain or loss if the holding period for such Shares was greater than one year as of the date of the exchange. TAX CONSEQUENCES IF THE OFFER AND THE MERGER ARE TREATED AS SEPARATE TRANSACTIONS AND THE MERGER IS TREATED AS A REORGANIZATION If the Offer and the Merger were treated as separate transactions for federal income tax purposes, the receipt of cash pursuant to the Offer would be a taxable transaction, while the Merger will qualify as a reorganization pursuant to Section 368(a) of the Code, if the Merger is a merger of the Company into Purchaser. Accordingly, a Stockholder who receives cash pursuant to the Offer would recognize gain or loss equal to the difference between the amount of cash received and the Stockholder's adjusted tax basis in the Shares surrendered. The gain or loss would be long-term capital gain or loss if, as of the date of the exchange, such Stockholder had held such stock for more than one year. A Stockholder who receives Parent Common Stock pursuant to the Forward Merger would be subject to the federal income tax rules concerning reorganizations discussed above under "Tax Consequences if the Offer and the Merger are Treated as a Single Integrated Transaction" (but without regard to the discussion relating to the cash received, and Shares exchanged, in the Offer). TAX CONSEQUENCES IF FORM OF MERGER IS A MERGER OF PURCHASER INTO THE COMPANY In the event that the Stock Condition is not satisfied, then the Merger will be changed in form to the Reverse Merger. In such a case, the transaction would not constitute a reorganization within the meaning of Section 368(a) of the Code. In the event of the Reverse Merger, a Stockholder would recognize gain or loss equal to the difference between the cash received and the Stockholder's adjusted tax basis in the Shares exchanged, calculated separately as to each block of Shares exchanged. The character of such gain or loss would be determined as described above. BACKUP WITHHOLDING Under the Code, a Stockholder may be subject, under certain circumstances, to backup withholding at a 31% rate with respect to the amount of cash received pursuant to the Offer or Merger unless such holder provides 11 proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the holder's federal income tax liability, provided the required information is furnished to the Internal Revenue Service. THE ABOVE DISCUSSION MAY NOT APPLY TO CERTAIN CATEGORIES OF STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN STOCKHOLDERS AND STOCKHOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES (INCLUDING ANY TAX RETURN FILING OR OTHER TAX REPORTING REQUIREMENTS) OF THE OFFER AND THE MERGER. 6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES The Shares are listed and traded on the NYSE under the symbol ECK. The following table sets forth, for each of the periods indicated, the high and low sales price per Share on the NYSE. All prices per Share set forth below are as reported in published financial sources:
HIGH LOW ------ ----- 1994--Fiscal Year Ended January 28, 1995 Quarter ended April 30..................................... $12.00 $9.25 Quarter ended July 30...................................... 12.62 9.06 Quarter ended October 29................................... 15.75 11.62 Quarter ended January 28................................... 16.00 12.69 1995--Fiscal Year Ended February 3, 1996 Quarter ended April 29..................................... 15.12 12.25 Quarter ended July 29...................................... 17.31 14.19 Quarter ended October 28................................... 21.00 16.31 Quarter ended February 3................................... 22.37 19.06 1996--Fiscal Year Ended February 1, 1997 Quarter ended May 4........................................ 25.62 21.31 Quarter ended August 3..................................... 25.87 19.75 Quarter ended November 2................................... 28.87 22.25 Quarter ended February 1, 1997 (through November 6)........ 34.50 32.75
On November 1, 1996 the last full trading day prior to the public announcement of the execution of the Merger Agreement, the reported closing sales price per Share on the NYSE Composite Tape was $28.875 and the reported closing sales price of Parent Common Stock on the NYSE Composite Tape was $53.00. On November 6, 1996, the last full trading day prior to the date of this Offer to Purchase, the reported closing sales price per Share on the NYSE Composite Tape was $33.75 and the reported closing sales price of the shares of Parent Common Stock on the NYSE Composite Tape was $53.875. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES AND THE SHARES OF PARENT COMMON STOCK. The Company has not paid or declared any cash dividends on the Shares during the periods set forth above. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, STOCK QUOTATION AND EXCHANGE ACT REGISTRATION AND MARGIN SECURITIES The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by Stockholders other than Purchaser. Purchaser cannot predict whether the reduction in 12 the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause future market prices to be greater or less than the Offer Price. If Purchaser acquires a sufficient number of Shares pursuant to the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing and may be delisted from the NYSE. Because Purchaser may not increase the number of Shares to be purchased in the Offer without the consent of the Company, Purchaser does not expect the Shares to be delisted following the closing of the Offer. The Purchaser intends to cause the delisting of the Shares by the NYSE following consummation of the Merger. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of record holders of at least 100 Shares should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers, directors, their immediate families and other concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. If, however, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and/or trading and such trading of the Shares were discontinued, the market for the Shares could be adversely affected. In the event that the Shares were no longer listed or traded on the NYSE, it is possible that the Shares would trade on another securities exchange or in the over-the-counter market and that price quotations would be reported by such exchange, through the Nasdaq or other sources. Such trading and the availability of such quotations would, however, depend upon the number of Stockholders and/or the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act as described below and other factors. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act no longer applicable to the Company. Such provisions include the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement pursuant to Section 14(a) in connection with a Stockholders' meeting and the related requirement of providing an annual report to Stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 as promulgated under the Securities Act of 1933, as amended (the "Securities Act"). If registration of Shares under the Exchange Act were terminated, Shares would no longer be "margin securities" or eligible for NYSE listing or Nasdaq reporting. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer the Shares may no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, if this were to occur, could no longer be used as collateral for loans made by brokers. 8. CERTAIN INFORMATION CONCERNING THE COMPANY The Company operates the Eckerd drug store chain, which is one of the largest drug store chains in the United States. At February 3, 1996, the Eckerd chain consisted of 1,715 stores in 13 states located primarily in the Sunbelt. Over its 43-year history, the Eckerd drug store chain has built a strong market position in areas 13 where demographic characteristics are favorable to drug store growth. The Company's stores are concentrated in 10 of the 12 metropolitan statistical areas with the largest percentage growth in population from 1980 to 1990, and, according to industry sources, the Company ranks first or second in terms of drug store sales in 12 of the major metropolitan markets in which it operates. Selected Consolidated Financial Data. Set forth below is certain selected consolidated financial data with respect to the Company excerpted or derived from financial information contained in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996 (the "Company Form 10-K"), and the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996 (the "Company Form 10-Q"). More comprehensive financial information is included in the Company Form 10-K, the Company Form 10-Q and other documents filed by the Company with the Commission. The financial information that follows is qualified in its entirety by reference to the Company Form 10-K, the Company Form 10-Q and such other documents, including the financial statements and related notes therein. The Company Form 10-K, the Company Form 10-Q and such other documents should be available for inspection and copies thereof should be obtainable from the offices of the Commission in the manner set forth below. ECKERD CORPORATION & SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FISCAL YEAR ENDED FISCAL QUARTER ENDED ------------------------------------ ----------------------- (UNAUDITED; 13 WEEKS) FEBRUARY 3, JANUARY 28, JANUARY 29, AUGUST 3, JULY 29, 1996 1995 1994 1996 1995 ----------- ----------- ----------- ----------- ----------- SUMMARY OF EARNINGS DATA Sales and other operating revenue...... $ 4,997,073 $ 4,589,517 $ 4,228,747 $ 1,252,428 $ 1,138,724 Cost of sales, including store occupancy, warehousing and delivery expense....... 3,874,723 3,484,627 3,213,583 979,784 885,108 Earnings before income taxes and extraordinary items.................. 123,383 87,084 43,969 21,064 12,191 Net earnings (loss for year).................. 93,477 47,808 (2,941) 16,456 11,055 Net earnings (loss) per Common Share........... $1.36 $.74 ($.13) $.23 $.17 BALANCE SHEET DATA Total Current Assets.... 918,006 834,873 876,667 948,610 832,090 Total Assets............ 1,490,699 1,342,347 1,420,137 1,561,548 1,344,216 Total Current Liabilities............ 597,388 554,584 570,079 559,503 496,566 Total Liabilities....... 1,435,958 1,465,089 1,599,159 1,449,965 1,424,749 Total stockholders' equity (deficit)....... 54,741 (122,742) (179,022) 111,583 (80,533)
Other Information. The Company is subject to the information filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be described in proxy statements distributed to the Company's stockholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by 14 mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Except as otherwise provided in this Offer to Purchase, the information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon records on file with the Commission and other publicly available information. Although neither Purchaser nor Parent has any knowledge that any such information is untrue, neither Purchaser nor Parent takes any responsibility for the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred or may affect the significance or accuracy of such information. Certain Projected Financial Information. In the course of its discussions with Parent described in Section 11, the Company provided Parent and its financial advisors with certain business and financial information which Parent believes was not publicly available. Such information included, among other things, certain financial projections for 1996 through 2000 (the "Company Projections") prepared by management of the Company as a long-range plan. The Company Projections do not take into account any of the potential effects of the transactions contemplated by the Offer and the Merger. The Company does not as a matter of course publicly disclose internal projections as to future revenues, earnings or financial condition. Set forth below is a summary of the Company projections. (AMOUNTS IN MILLIONS)
(FISCAL YEARS) 1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ Sales....................................... $5,495 $6,189 $7,036 $8,011 $9,110 Earnings Before Interest and Taxes.......... 216 250 291 344 407 Interest Expense............................ 64 63 59 52 41 ------ ------ ------ ------ ------ Pretax Earnings (Loss)...................... 152 187 232 292 366 Income Taxes................................ 33 52 79 111 139 ------ ------ ------ ------ ------ Net Earnings (Loss)......................... $ 119 $ 135 $ 153 $ 181 $ 227 ====== ====== ====== ====== ======
THE COMPANY PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE PROJECTIONS ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION WAS PROVIDED TO PARENT. NONE OF PARENT, PURCHASER OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF SUCH INFORMATION. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE COMPANY WHICH, THOUGH PARENT HAS BEEN ADVISED WERE CONSIDERED REASONABLE BY THE COMPANY AT THE TIME THEY WERE FURNISHED TO PARENT, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED BY THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS WELL AS THE BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE THAT SUCH PROJECTIONS WILL BE REALIZED, OR THAT ACTUAL RESULTS WILL NOT BE HIGHER OR LOWER THAN THOSE ESTIMATED. THE INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, PURCHASER OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. 15 9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT Purchaser, a Delaware corporation, was organized to acquire all of the outstanding Shares pursuant to the Offer and the Merger and has not conducted any unrelated activities since its organization. All of the outstanding capital stock of Purchaser is owned directly by Parent. The principal executive offices of Purchaser and Parent are located at 6501 Legacy Drive, Plano, Texas 75024-3698. Parent was founded by James Cash Penney in 1902. Incorporated in Delaware in 1924, Parent is a major retailer with department stores in all 50 states, Puerto Rico, Mexico and Chile. The major portion of Parent's business consists of providing merchandise and services to consumers through department stores that include catalog departments. Parent markets predominantly family apparel, jewelry, shoes, accessories and home furnishings. Set forth below is certain selected consolidated financial information with respect to Parent and its consolidated subsidiaries excerpted from Parent's Annual Report on Form 10-K for the fiscal year ended January 27, 1996 (the "Parent Form 10-K") and from its Quarterly Report on Form 10-Q for the fiscal quarter ended July 27, 1996 (the "Parent Form 10-Q"). More comprehensive financial information is included in such reports and other documents filed by Parent with the Commission. The following summary is qualified in its entirety by reference to such reports and other documents and all financial information (including any related notes) contained therein. Such reports and other documents are available for inspection and copies are obtainable in the manner set forth in Section 8 above with respect to information about Parent in Section 8. J. C. PENNEY COMPANY, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN MILLIONS EXCEPT PER SHARE DATA)
AT OR FOR THE 26 WEEKS ENDED AT OR FOR THE (UNAUDITED) 52 WEEKS ENDED --------------- ----------------------- JULY 27 JULY 29 JAN. 27 JAN. 28 JAN. 29 1996 1995 1996 1995 1994(A) ------- ------- ------- ------- ------- INCOME STATEMENT DATA Total revenue......................... $ 9,445 $ 9,207 $21,419 $21,082 $19,578 Net income............................ 235 272 838 1,057 940 Net income per common share, on a fully diluted basis.................. .94 1.07 3.33 4.05 3.53 Cash dividends per common share....... 1.04 .96 1.92 1.68 1.44 BALANCE SHEET DATA Total assets.......................... 17,423 16,467 17,102 16,202 14,788 Long-term debt........................ 4,032 3,526 4,080 3,335 2,929 Stockholders' equity.................. 5,885 5,654 5,884 5,615 5,365
- -------- (a) Excluding the effect of an extraordinary charge and the cumulative effect of an accounting change, after tax income was $944.0 million, or $3.55 per share, on a fully diluted basis. Parent is subject to the information filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning Parent's directors and officers, their remuneration, stock options granted to them, the principal holders of Parent's securities, any material interests of such persons in transactions with Parent and other matters is required to be described in proxy statements distributed to Parent's stockholders and filed with the Commission. These reports, proxy statements and other information are available for inspection and copies are obtainable in the manner set forth in Section 8 above. 16 Except as described in this Offer to Purchase, during the last five years, none of Purchaser, Parent or, to the best knowledge of Purchaser or Parent, any of the persons listed in Schedule I hereto (i) has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. The name, business address, present principal occupation or employment, five year employment history and citizenship of each director and executive officer of Purchaser and Parent are set forth in Schedule I. Except as described in this Offer to Purchase, (i) none of Purchaser or Parent or, to the best knowledge of Purchaser or Parent, any of the persons listed in Schedule I or any associate or majority owned subsidiary of any such persons, beneficially owns or has a right to acquire any equity security of the Company and (ii) none of Purchaser, Parent or, to the best knowledge of Purchaser or Parent, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. Except as described in this Offer to Purchase, (i) none of Purchaser, Parent or, to the best knowledge of Purchaser or Parent, any of the persons listed in Schedule I has any contract, arrangement, understanding or relationship (whether or not legally enforceable) with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, or the giving or withholding of proxies; (ii) there have been no contacts negotiations or transactions between Purchaser, Parent or any of their respective subsidiaries or, to the best knowledge of Purchaser or Parent, any of the persons listed on Schedule I on the one hand, and the Company or any of its directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission. 10. SOURCE AND AMOUNT OF FUNDS The Offer is not conditioned upon any financing arrangements. Purchaser estimates that the total amount of funds required to consummate the Offer and Merger (assuming the Stock Condition is satisfied and the Forward Merger is effected), to refinance certain of the Company's existing indebtedness and to pay related fees and expenses will be approximately $1.8 billion. If the Stock Condition is not satisfied and the Reverse Merger is effected, the total amount of funds required will be approximately $3.1 billion. Parent intends to obtain the funds necessary for the foregoing through unsecured borrowings from a syndicate of financial institutions (the "Proposed Financing") led by Credit Suisse ("CS"). In connection with the Proposed Financing, CS, in a letter dated October 31, 1996 (the "Commitment Letter"), has proposed (i) a 364-day revolving credit facility of up to $1.5 billion (the "364-day Facility") and (ii) a five-year revolving credit facility of up to $1.5 billion (the "5-year Facility"). CS has individually committed to provide up to $2.5 billion of the Proposed Financing on a pro rata basis between the 364-day Facility and the 5-year Facility. The Commitment Letter provides that a syndicate of lenders acceptable to Parent will, from time to time, during the terms of the 364-day Facility and the 5-year Facility, as the case may be, make loans ("Loans") to Parent in an aggregate amount not exceeding $3.0 billion (the "Commitment"): (i) to finance the acquisition of the Company, (ii) to refinance certain existing Company debt, (iii) to finance the repurchase of up to 15 million shares of Parent Common Stock and (iv) for general corporate purposes. Loans will bear interest during any particular interest period at the election of Parent at (i) the LIBOR, (ii) the CD, (iii) the Money Market or (iv) the Base Rate, plus margins which vary from time to time depending on Parent's then applicable long-term senior unsecured debt rating. Alternatively, Loans may at the election of Parent bear interest at rates determined through a competitive bid process, subject to the willingness of one or more Banks to submit bids from time to time. Interest will be payable at the end of each applicable interest period and, if earlier, quarterly. In addition to such interest payments, Parent will be required to pay an ongoing facility fee on the entire Commitment, the amount 17 of which fee will vary from time to time depending on Parent's then applicable long-term senior unsecured debt rating. Accrued facility fees will be payable quarterly in arrears. This description of the Commitment Letter is not intended to be a complete description of the terms and conditions thereof and is qualified in its entirety by reference to the full text thereof which is incorporated herein by reference and copies of which have been filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 and Schedule 13D filed by Parent and the Purchaser with the Commission in connection with the Offer (the "Schedule 14D-1"). All capitalized terms which are used in this paragraph and not otherwise defined shall have the meanings ascribed to them in the Commitment Letter. The Commitment Letter may be examined, and copies may be obtained, as set forth in Section 9. If the Stock Condition is not satisfied, Parent intends to utilize availability under its existing bank credit facilities and/or issue commercial paper to pay the additional funds necessary to consummate the Reverse Merger. No final decisions have been made concerning the method Parent may employ to refinance the Proposed Financing. Such decisions when made will be based on Parent's review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. 11. BACKGROUND OF THE OFFER In early October 1996, Mr. James Oesterreicher, Vice Chairman and Chief Executive Officer of Parent, was contacted by a representative of Merrill Lynch offering the opportunity to arrange a meeting between representatives of the Company and Parent. Mr. Oesterreicher asked Merrill Lynch to arrange such a meeting. On October 10, 1996, Mr. Oesterreicher, Mr. John Fesperman, Senior Vice President of Parent, and Mr. Donald McKay, Senior Vice President and Chief Financial Officer of Parent, met with Mr. Stewart Turley, Chairman of the Board and Director of the Company, and Mr. Francis Newman, a Director, President and Chief Executive Officer of the Company. The parties discussed the possibility of a transaction between the Company and Parent and possible synergy between the two business operations. On October 11, 1996, Mr. Oesterreicher and Mr. Turley had a telephone conversation in which preliminary discussions of a possible transaction were discussed. On October 16, 1996, Messrs. Fesperman and McKay along with Mr. Charles Lotter, Executive Vice President and General Counsel of Parent, met in New York City with Mr. Newman, Mr. Samuel Wright, Executive Vice President and Chief Financial Officer of the Company, and representatives of Parent's and Company's financial advisors and Parent's legal advisor to discuss the merits of a business combination. A confidentiality agreement between the Company and Parent was executed on October 16, 1996. On October 18 and 19, 1996, Mr. Fesperman, Mr. Robert W. Hannan, President and Chief Executive Officer of Parent's subsidiary, Thrift Drug, Inc. ("Thrift"), Mr. Enzo Cerra, Executive Vice President, Merchandise and Distribution of Thrift and Mr. A. N. Civello, President of Stores of Thrift met with Messrs. Newman and Wright, Mr. John Simmons, Vice President and Controller of the Company and Mr. Martin Gladysz, Vice President and Treasurer of the Company in St. Petersburg, Florida to identify possible synergy and other complementary business aspects of a business combination between the Company and Parent's drug store operations. On October 19, 1996, such persons were joined in their discussions by representatives of Parent's financial advisor, CS First Boston, to review various financial information regarding the Company. During the week of October 21, 1996, various discussions were held between representatives of Parent and the Company concerning a potential transaction. On October 26, 1996, Mr. Newman spoke with Mr. Oesterreicher by telephone at which time Mr. Newman expressed the Company's position relating to potential structures for the transaction, including the possibility of a tax-free portion of the consideration. 18 From October 28 through 30, 1996, Parent, along with its legal advisors and independent accountants, conducted a due diligence review of information provided by the Company and conducted various interviews with members of the Company's management. On October 29, 1996, Messrs. Lotter and McKay and Parent's financial advisors met with Mr. Turley and the Company's financial advisors to propose, subject to the approval of the Board of Directors of Parent (the "Parent Board"), an acquisition of the Company, including a possible structure of such an acquisition transaction and a range of consideration to be paid for the Shares. On the evening of October 29, 1996, legal counsel for Parent distributed a draft Merger Agreement, Stock Option Agreement and Employment Agreement (as defined herein) for Mr. Newman to the Company and its legal and financial advisors. On October 30, 1996, Parent's legal advisors met with representatives of the Company and its legal advisors to discuss the terms of the proposed Merger Agreement. On October 31, 1996, the Parent Board held a special meeting to review, with the advice and assistance of the Parent's financial and legal advisors, the proposed Merger Agreement, the Stock Option Agreement, the Employment Agreement with Mr. Newman and the transactions contemplated thereby, including the Offer and Merger. Following the Parent Board's review of the transaction, the Parent Board, subject to the resolution of remaining open issues, unanimously authorized and approved the proposed Merger Agreement, Stock Option Agreement, Employment Agreement and the transactions contemplated thereby, and authorized the execution and delivery of such Agreements. Negotiations between members of senior management of Parent and its legal advisors and representatives of the Company and its legal advisors resumed on November 1, 1996 to resolve various open issues between the parties and continued on November 2, 1996. Parent, Purchaser, and the Company executed and delivered the Merger Agreement, the Stock Option Agreement, and an amendment to the Employment Agreement on November 2, 1996. On November 3, 1996, Parent announced the signing of the definitive Merger Agreement. On November 7, 1996, pursuant to the terms of the Merger Agreement, Purchaser commenced the Offer. 12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; THE MERGER AGREEMENT; THE STOCK OPTION AGREEMENT; AMENDMENT TO THE EMPLOYMENT AGREEMENT; APPRAISAL RIGHTS PURPOSE OF THE OFFER AND THE MERGER The purpose of the Offer is for Parent to acquire a majority equity interest in the Company and acquire control of the Board as a first step in acquiring the entire equity interest in the Company. The purpose of the Merger is for Parent to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Merger, the Company will become a wholly-owned subsidiary of Parent. The Offer is being made pursuant to the Merger Agreement. Under the DGCL, the approval of the Board and the affirmative vote of the holders of a majority of the outstanding Shares is required to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger. The Board has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby. Thus, the only remaining required corporate action of the Company is the approval and adoption of the Merger Agreement and the transactions contemplated thereby by the affirmative vote of the holders of a majority of the Shares. ACCORDINGLY, IF THE MINIMUM CONDITION IS SATISFIED, PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER. In the Merger Agreement, the Company (and, after the Control Date (as defined herein), Parent) has agreed to convene a meeting of Stockholders as promptly as practicable following the consummation of the Offer for 19 the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby. Parent and Purchaser have agreed that all Shares owned by them will be voted in favor of the Merger Agreement and the transactions contemplated thereby. THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF THE STOCKHOLDERS. ANY SUCH SOLICITATION WHICH THE COMPANY, PARENT OR PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY OR SOLICITATION MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. PLANS FOR THE COMPANY It is expected that, following the Merger, the existing drug store operations of Parent will be combined with the business and operations of the Company. It is expected that such combined operations will operate under the "Eckerd" name and the corporate headquarters of the combined operation will be the Company's headquarters in Largo, Florida. Frank A. Newman, the current President and Chief Executive Officer of the Company, will be the chief executive officer of the combined drug store operations of Parent and the Company. In addition to the foregoing, Parent will establish a transition team comprised of Mr. Newman and two senior executive officers of Parent to review the integration of Parent's existing drug store business with the business of the Company and the operation of the combined businesses and to consider what changes, if any, would be desirable in light of circumstances that then exist. However, upon consummation of the Merger, Parent intends to continue to review the Company and its assets, businesses, operations, properties, policies, corporate structure, capitalization and management and consider if any changes would be desirable in light of the circumstances then existing. Except as noted in this Offer to Purchase, Purchaser and Parent have no present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation or sale or transfer of a material amount of assets, involving the Company or any subsidiary or any other material changes in the Company's capitalization, dividend policy, corporate structure, business or composition of its management or Board. THE MERGER AGREEMENT The following is a summary of the material terms of the Merger Agreement. This summary is not a complete description of the terms and conditions of the Merger Agreement and is qualified in its entirety by reference to the full text of the Merger Agreement, which is incorporated by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. The Merger Agreement may be examined, and copies obtained, as set forth in Section 8. The Offer. The Merger Agreement provides for the commencement of the Offer. Purchaser has expressly reserved the right to increase the price per Share payable in the Offer or to make any other changes in the terms and conditions of the Offer, except that without the written consent of the Company, Purchaser has agreed that it will not (i) reduce or increase the number of Shares sought to be purchased pursuant to the Offer, (ii) reduce the price per Share payable in the Offer, (iii) change the form of consideration to be paid in the Offer, (iv) impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of Shares or (v) waive satisfaction of the Minimum Condition, except that if the price per Share payable in the Offer is increased, the number of shares of Parent Common Stock into which each Share is to be converted in the Forward Merger will be increased to that number of shares of Parent Common Stock having a market value, based upon the closing price of such shares on the New York Stock Exchange Composite Tape on the day the Offer Price per Share is increased, equal to the Offer Consideration (the "Offer Consideration" being the price per Share paid pursuant to the Offer). Parent and Purchaser have agreed that Purchaser will not terminate or 20 withdraw the Offer or extend the expiration date of the Offer unless at the expiration date of the Offer the conditions to the Offer shall not have been satisfied or earlier waived. Purchaser may, without the consent of the Company, extend the Offer on one occasion following the time that all of the conditions to the Offer have been satisfied as of the scheduled expiration date of the Offer for a period not to exceed five business days. However, notwithstanding anything to the contrary contained in the Merger Agreement, (i) Purchaser may without the consent of the Company, extend the Offer so as to comply with applicable rules and regulations of the Commission and (ii) so long as the Merger Agreement has not been terminated in accordance with its terms, if at the scheduled expiration date of the Offer any of the conditions to Purchaser's obligation to accept for payment and pay for Shares shall not be satisfied or waived, Purchaser will extend the Offer on one or more occasions. Board Representation. The Merger Agreement provides that promptly upon the purchase by Parent or Purchaser of the Shares pursuant to the Offer, Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on the Board that equals the product of (i) the total number of directors on the Board (giving effect to the election of any additional directors pursuant to the terms of the Merger Agreement) and (ii) the percentage (expressed as a decimal) that the number of Shares beneficially owned by Parent and Purchaser bears to the total number of Shares outstanding. The Company has agreed that it will, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, take all action necessary to cause all of Parent's designees to be elected or appointed to the Board, including, without limitation, by increasing the size of the Board or securing the resignations of incumbent directors, or both. From and after the time, if any, that Parent's designees constitute a majority of the Board pursuant to the Merger Agreement (the "Control Date") and prior to the Effective Time, any amendment of the Merger Agreement, any termination of the Merger Agreement by the Company, any extension of time for performance of any of the obligations of Parent or Purchaser under the Merger Agreement or any waiver thereof, or any waiver of any condition to the obligations of the Company or any of the Company's rights or other action by the Company under the Merger Agreement, requires the concurrence of, and shall be effective only if approved by, a majority of the directors of the Company then in office who are not affiliates of Parent and were not designated by Parent (the "Company Designees"), which action will be deemed to constitute the action of the full Board even if such majority of Company Designees does not constitute a majority of all directors then in office. However, if there are no Company Designees, such actions may be effected by majority vote of the entire Board, except that no such action shall amend the terms of the Merger Agreement in a manner adverse to the Stockholders. The Merger. The Merger Agreement provides that if the Stock Condition is satisfied, the Forward Merger will be effected at the Effective Time; provided, however, that if the Stock Condition has not been satisfied, the Reverse Merger will be effected. However, the Merger Agreement provides that Parent may, in its sole discretion, increase the number of shares constituting the Stock Merger Consideration so as to satisfy the Stock Condition. At the Effective Time, if the Forward Merger is effected, the separate existence of the Company shall cease and Purchaser shall continue as the surviving corporation under the name "Eckerd Corporation" or, if the Reverse Merger is effected, the separate existence of Purchaser shall cease and the Company shall continue as the surviving corporation. The surviving corporation of the Forward Merger or the Reverse Merger, as the case may be, is referred to herein as the "Surviving Corporation." The Merger will become effective upon the filing of the Certificate of Merger (the "Certificate of Merger") with the Delaware Secretary of State or at such time thereafter as is agreed upon by the parties and specified in the Certificate of Merger. Consideration to be Paid in the Merger. The Merger Agreement provides that upon the terms and subject to the conditions in the Merger Agreement and in accordance with the DGCL, at the Effective Time, by virtue of the Merger, each Share issued and outstanding immediately prior to the Effective Time (excluding Shares owned by the Company or by Parent, Purchaser or any other subsidiary of Parent, and in the case of the Reverse Merger, Dissenting Shares) shall be converted into the right to receive (i) if the Stock Condition has been satisfied and the Forward Merger is effected, 0.6604 shares of Parent Common Stock (together with the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of February 14, 1990, as amended, between Parent and ChaseMellon Shareholder Services, L.L.C., as rights agent), or such other number of shares of Parent Common Stock to which such number has been increased in accordance with the terms of 21 the Merger Agreement, or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, the Offer Price, in cash, in each case without interest. Each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time will, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become, or remain in the case of the Forward Merger, one validly issued, fully paid and nonassessable share of common stock, $.01 par value per share, of the Surviving Corporation. Each Share issued and outstanding immediately prior to the Effective Time that is owned by the Company, Parent, Purchaser or any other subsidiary of Parent, automatically will be cancelled and retired without payment of any consideration therefor and shall cease to exist. Dissenting Shares. In the event the Reverse Merger is effected, Shares issued and outstanding immediately prior to the Effective Time held by a holder (if any) who has the right to demand, and who properly demands, an appraisal of such Shares in accordance with Section 262 of the DGCL (or any successor provision) ("Dissenting Shares") will not be converted into the right to receive the Merger Consideration unless such holder fails to perfect or otherwise loses such holder's right to such appraisal, if any. If, after the Effective Time, such holder fails to perfect or loses any such right to appraisal, each such Share of such holder shall be treated as a Share that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with the terms of the Merger Agreement. In the event the Forward Merger is effected, holders of Shares issued and outstanding immediately prior to the Effective Time will not be entitled to demand an appraisal of such Shares in accordance with Section 262 of the DGCL. Company Stock Options. The Merger Agreement provides that each holder of a then outstanding option to purchase Shares (collectively, "Options") under the Company's 1993 Stock Option and Incentive Plan and 1995 Stock Option and Incentive Plan (collectively, the "Stock Option Plans"), whether or not then exercisable or fully vested, may elect, prior to the Effective Time, in settlement thereof, to receive from the Company immediately after the Effective Time for each Share subject to such Option an amount in cash equal to the difference between the Offer Consideration and the per Share exercise price of such Option, to the extent the Offer Consideration is greater than the per Share exercise price of such Option (such excess amount being hereinafter referred to as the "Option Consideration"); provided, however, that with respect to any person subject to Section 16(a) of the Exchange Act, any such amount shall be paid as soon as practicable after the first date payment can be made without liability to such person under Section 16(b) of the Exchange Act. The Merger Agreement further provides that at the Effective Time, each outstanding Option, other than Options for which an election to receive cash in settlement thereof has been made pursuant to the Merger Agreement, will be assumed by Parent and shall constitute a vested option to acquire, on substantially the same terms and subject to substantially the same conditions as were applicable under such Option, including, without limitation, term, exercisability, status as an "incentive stock option" under Section 422 of the Code, and termination provisions, the same number of shares of Parent Common Stock, rounded down to the nearest whole share, determined by multiplying the number of Shares subject to such Option immediately prior to the Effective Time by the Option Exchange Ratio (as defined below); at an exercise price per share of Parent Common Stock (increased to the nearest whole cent) equal to the exercise price per share of Shares immediately prior to the Effective Time divided by the Option Exchange Ratio; provided, however, that in the case of any Option to which Section 421 of the Code applies by reason of its qualification as an incentive stock option under Section 422 of the Code, the conversion formula shall be adjusted if necessary to comply with Section 424(a) of the Code. The "Option Exchange Ratio" means (i) if the Stock Condition has been satisfied and the Forward Merger is effected, the Stock Merger Consideration, or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, the ratio determined by dividing the Offer Consideration by the average of the mean of the high and low trading prices of the Parent Common Stock on each of the five consecutive trading days up to and including the date the Effective Time occurs. The Company has agreed to use its best efforts to obtain all necessary waivers, consents or releases from holders of Options under the Stock Option Plans and take any such other action as may be reasonably necessary to give effect to the transactions described above and to otherwise cause each Option to be surrendered to the Company and cancelled, whether or not any Option Consideration is payable with respect thereto, at the Effective Time. The surrender of an Option to the Company will be deemed a release of any and all rights the holder had or may have had in such Option, other than the right to receive the 22 Option Consideration in respect thereof. Parent also has agreed to take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of substitute Options and to register such shares with the Commission on an appropriate registration statement. Representations and Warranties. The Merger Agreement contains various representations and warranties of the parties thereto. These include representations by the Company with respect to (i) organization, standing and corporate power, (ii) capitalization, (iii) authority and noncontravention, (iii) Commission reports, (iv) absence of certain changes or events, (v) benefit plans, (vi) taxes, (vii) compliance with laws, (viii) opinion of financial advisor, (ix) voting requirements, (x) investment banking fees and commissions, (xi) litigation, (xii) environmental laws, (xiii) material contracts, (xiv) unlawful payments and contributions, (xv) real property, and (xvi) labor matters. Parent and Purchaser have also made certain representations and warranties with respect to (i) organization, standing and corporate power, (ii) capitalization, (iii) authority and noncontravention, (iv) Commission reports, (v) absence of certain changes or events, (vi) certain matters with respect to Purchaser and financing arrangements, (vii) compliance with laws, (viii) investment banking fees and commissions, (ix) unlawful payments and contributions, and (x) environmental laws. No representations and warranties made by the Company, Parent or Purchaser will survive beyond the Effective Time and no covenants made in the Merger Agreement will survive beyond the Control Date except for any covenant or agreement which by its terms contemplates performance after the Effective Time. Conduct of Business Pending the Merger. The Company has agreed that during the period from the date of the Merger Agreement and continuing until the earlier to occur of (1) the Control Date, and (2) the Effective Time the Company will, and will cause its subsidiaries to, act and carry on their respective businesses in the ordinary course of business and, to the extent consistent therewith, use reasonable efforts to preserve intact their current business organizations, keep available the services of their current key officers and employees and preserve the goodwill of those engaged in material business relationships with them. The Company has agreed that, during such period neither it, nor any of its subsidiaries, as the case may be, will, without the prior consent of Parent, (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of the Company's outstanding capital stock, (ii) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock, or (iii) purchase, redeem or otherwise acquire any shares of outstanding capital stock or any rights, warrants or options to acquire any such shares except, in the case of clause (iii), for the acquisition of Shares from holders of Options in full or partial payment of the exercise price payable by such holder upon exercise of Options outstanding on the date of the Merger Agreement. The Company has further agreed that, during such period neither it, nor any of its subsidiaries, as the case may be, will, without the prior consent of Parent, (i) issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares, voting securities or convertible or exchangeable securities other than (a) upon the exercise of Options outstanding on the date of the Merger Agreement, or (b) pursuant to the Stock Option Agreement; (ii) amend its certificate of incorporation, bylaws or other comparable charter or organizational documents; (iii) directly or indirectly acquire, make any investment in, or make any capital contributions to, any person (other than any direct or indirect wholly-owned subsidiary of the Company) other than the acquisition of drug stores, drug store chains or other home health businesses consistent with the Company's current operations for a purchase price not in excess of $20 million individually or $50 million in the aggregate; provided, however, that the Company will not make any such acquisition for a purchase price in excess of $15 million individually or $40 million in the aggregate without prior consultation with Parent; (iv) directly or indirectly sell, mortgage or otherwise encumber or subject to any lien (other than as permitted by the Merger Agreement) or otherwise dispose of any of its properties or assets that are material to the Company and its subsidiaries taken as a whole, except for the sale of inventory in the ordinary course of business or, for immaterial divestitures as may be required by law; (v) (a) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, other than indebtedness owing to or guarantees of 23 indebtedness owing to the Company or any direct or indirect wholly-owned subsidiary of the Company or (b) make any loans or advances to any other person, other than to the Company or to any direct or indirect wholly-owned subsidiary of the Company and other than routine advances to employees, except, in the case of clause (a) for borrowings under existing credit facilities in the ordinary course of business; (vi) make any material tax election or settle or compromise any material income tax liability of the Company or of any of its subsidiaries; provided, however, the Company will, before filing or causing to be filed any material tax return of the Company or any of its subsidiaries, consult with and obtain the approval of Parent and its advisors as to the positions and elections that may be taken or made with respect to such return; (vii) except as disclosed in the Merger Agreement, pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, (a) in the ordinary course of business consistent with past practice or in accordance with their terms, of claims, liabilities or obligations reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in Commission reports or incurred since the date of such financial statements in the ordinary course of business consistent with past practice or (b) of claims, liabilities or obligations that are not material to the Company and its subsidiaries taken as a whole; (viii) grant or agree to grant to any employee any increase in wages or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits, or establish any new compensation or benefit plans or arrangements, or amend or agree to amend any existing employee benefit plans, except as may be required under existing agreements (including collective bargaining agreements) or normal, regularly scheduled increases in nonofficer employees consistent with past practices or as required by law; (ix) other than in the ordinary course of business consistent with past practice, enter into or amend any employment, consulting, severance or similar agreement with any individual; (x) waive any claims or rights having a value in excess of $2 million individually or $10 million in the aggregate; (xi) make any change in any method of accounting or accounting practice or policy except as required by any changes in generally accepted accounting principles; (xii) incur or enter into any material commitment (including, but not limited to, any leases, capital expenditures or purchases of assets) other than in accordance with the existing business plans of the Company provided to Parent (including any capital budget contained therein) or purchases of inventory in the ordinary course of business consistent with past practice; (xiii) enter into any agreement, understanding or commitment that restrains, limits or impedes the Company's ability to compete with or conduct any business or line of business; (xiv) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization or any agreement relating to an Acquisition Proposal (as defined below) (other than as expressly permitted pursuant to the Merger Agreement); (xv) other than in the ordinary course of business consistent with past practice, engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of the Company's affiliates, including, without limitation, any transactions, agreements, arrangements or understandings with any affiliate or other person covered under Item 404 of Regulation S-K under the Securities Act that would be required to be disclosed under such Item 404, other than pursuant to such agreements, arrangements, or understandings existing on the date of the Merger Agreement; (xvi) close, shut down, or otherwise eliminate any of the Company's stores other than in the ordinary course of business consistent with past practice; (xvii) change the name of the Company's stores; (xviii) close, shut down, or otherwise eliminate any of the Company's distribution centers; (xix) move the location, close, shut down or otherwise eliminate the Company's headquarters, or effect a general staff reduction at such headquarters; and (xx) authorize any of, or commit or agree to take any of, the foregoing actions. No Solicitation. The Merger Agreement provides that from and after the date of the Merger Agreement until the termination of the Merger Agreement, the Company will not, and shall not permit any of its subsidiaries, or any of its or their officers, directors, employees, representatives, agents or affiliates (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries), to, directly or indirectly, initiate, solicit or encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, an Acquisition Proposal (as defined below), or enter into or maintain or continue discussions or negotiate with any person in furtherance of such inquiries or to obtain an Acquisition Proposal or agree to or endorse any Acquisition Proposal, or authorize or permit any of its or their officers, 24 directors or employees or any of its Subsidiaries or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries to take any such action; provided, however, that nothing in the Merger Agreement will prohibit the Board from furnishing information to, or entering into, maintaining or continuing discussions or negotiations with, any person that makes an unsolicited Acquisition Proposal after the date of the Merger Agreement, if the Board, after consultation with and based upon the advice of independent legal counsel, determines in good faith that (a) such Acquisition Proposal would be more favorable to the Stockholders than the Offer and the Merger, (b) such Acquisition Proposal contains no financing condition and (c) the failure to take such action would result in a breach by the Board of its fiduciary duties to the Stockholders under applicable law, and, prior to taking such action, the Company (i) provides prompt notice to Parent of receipt of any such proposal to the effect that it is taking such action (which notice shall identify the nature and material terms of the proposal) and (ii) prior to furnishing any non-public information to such person, receives from such person an executed confidentiality agreement with provisions no less favorable to the Company than the confidentiality agreement entered into by Parent and the Company in connection with the Offer and the Merger. The Company shall keep Parent fully and timely informed of the status of the same. For purposes of the Merger Agreement, "Acquisition Proposal" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by the Merger Agreement with Parent or Purchaser) involving the Company: (w) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction; (x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, in a single transaction or series of related transactions; (y) any tender offer or exchange offer for 33 1/3 percent or more of the outstanding shares of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith; or (z) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. Fees and Expenses. The Merger Agreement provides that, except as described below, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring the expenses; provided, however, that the costs incurred in connection with printing and mailing proxy materials to Stockholders shall be shared equally by Parent and the Company. The Company has agreed to pay Purchaser a fee equal to $90 million upon the termination of the Merger Agreement for either of the following reasons: (i) the Company terminates the Merger Agreement after it has received an Acquisition Proposal, and the Board, after consultation with and based upon the advice of independent legal counsel, determines in good faith that the failure to accept such Acquisition Proposal would result in a breach by the Board of its fiduciary duties to Stockholders under applicable law; or (ii) Parent terminates the Merger Agreement because the Board shall have (x) withdrawn, modified or amended in any adverse respect its approval or recommendation of the Merger Agreement, the Merger or the transactions contemplated by the Merger Agreement, (y) endorsed or recommended to the Stockholders an Acquisition Proposal or (z) resolved to do any of the foregoing. Such fee is payable promptly and in any event no later than one business day after the first of such events shall have occurred. Conditions to the Merger. Pursuant to the Merger Agreement, the obligation of each party to effect the Merger is subject to the satisfaction or written waiver on or prior to the Closing Date of the following conditions: (i) the Merger Agreement and the Merger shall have been approved and adopted by the affirmative vote of the requisite number of Stockholders, and in the manner as shall be required pursuant to the Company's certificate of incorporation, bylaws, the DGCL and other applicable law, and the rules of the NYSE; (ii) no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Offer and the Merger shall be in effect; (iii) the shares of Parent Common Stock issuable to the Stockholders pursuant to the Merger Agreement if the Stock Condition has been satisfied shall have been approved for listing on the NYSE, subject to official notice of issuance; and (iv) a Form S-4 shall have been declared effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order. The obligations of Parent and Purchaser to effect the Merger are further subject to the condition that Parent or Purchaser shall have accepted for payment and paid for Shares pursuant to the Offer in accordance with the 25 terms thereof; provided, however, that this condition will not be applicable to the obligations of Parent or Purchaser if, in breach of the Merger Agreement or the terms of the Offer, Purchaser fails to purchase any Shares validly tendered and not withdrawn pursuant to the Offer. The Merger Agreement further provides that the obligation of each party to effect the Forward Merger is subject to the following conditions: (i) the Company shall have received an opinion of Shearman & Sterling, dated the Closing Date, to the effect that (y) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (z) each of Parent, Purchaser and Company will be a party to the reorganization within the meaning of Section 368(b) of the Code; and (ii) Parent shall have received an opinion of Weil, Gotshal & Manges LLP, dated the Closing Date, to the effect that (x) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; (y) each of Parent, Purchaser and Company will be a party to the reorganization within the meaning of Section 368(b) of the Code; and (z) no gain or loss will be recognized by Parent, Purchaser or Company as a result of the Merger. If either the opinion of Weil, Gotshal & Manges LLP or the opinion of Shearman & Sterling referred to above cannot be rendered, then the Reverse Merger will be effected pursuant to the terms of the Merger Agreement Termination. The Merger Agreement may be terminated and the transactions contemplated thereby may be abandoned at any time prior to the Control Date (or in the case of clause (v) or (vi) below, the Effective Time), notwithstanding approval thereof by the Stockholders, in any one of the following circumstances: (i) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company; (ii) by the Company, if the Offer has not been timely commenced in accordance with Merger Agreement; provided, however, that the Company may not terminate the Merger Agreement pursuant to this clause if the Company is in material breach of the Merger Agreement; (iii) by Parent or the Company, if, without any material breach by such terminating party of its obligations under the Merger Agreement, the purchase of Shares pursuant to the Offer shall not have occurred on or before February 1, 1997; provided, however, that the Merger Agreement shall be automatically extended for 120 days thereafter if the purchase of Shares shall not have occurred on or before February 1, 1997 as a result of the failure (A) to receive the necessary governmental clearances or (B) to resolve any matter related to any injunction or legal restraint which prevents the consummation of the Merger and the parties are diligently pursuing such governmental clearances or the resolution of such matter; (iv) by Parent or the Company, if any federal or state court of competent jurisdiction or other governmental entity shall have issued an order, decree or ruling, or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and non- appealable; (v) by Parent or the Company if, upon a vote at a duly held stockholders meeting of the Company, any required approval of the Stockholders shall not have been obtained; (vi) by the Company if it has received an Acquisition Proposal, and the Board, after consultation with and based upon the advice of independent legal counsel, determines in good faith that the failure to accept such Acquisition Proposal would result in a breach by the Board of its fiduciary duties to the Stockholders under applicable law; (vii) by Parent if the Board shall have (a) withdrawn, modified or amended in any adverse respect its approval or recommendation of the Merger Agreement, the Merger or the transactions contemplated by the Merger Agreement, (b) endorsed or recommended to its stockholders an Acquisition Proposal or (c) resolved to do any of the foregoing; or (viii) by Parent or the Company if (a) the other party shall have failed to comply in any material respect with any of the material covenants and agreements contained in the Merger Agreement to be complied with or performed by such party at or prior to such date of termination, and such failure continues for 20 business days after the actual receipt by such party of a written notice from the other party setting forth in detail the nature of such failure, or (b) a material representation or warranty of the other party contained in the Merger Agreement shall have been untrue in any material respect on the date when made and at the Expiration Date, or in the case of any representations and warranties that are made as of a different date, as of that date. Indemnification. The Merger Agreement provides that the certificate of incorporation and bylaws of the Surviving Corporation will contain the provisions with respect to indemnification set forth in the certificate of incorporation and bylaws of the Company on the date of the Merger Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that 26 would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors or officers of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Merger Agreement), unless such modification is required by law. The Company will, and from and after the Effective Time, Parent and the Surviving Corporation will, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of the Company (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including reasonable attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement, with the approval of the indemnifying party (which approval shall not be unreasonably withheld), of or in connection with any threatened or actual claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of the Company whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities"), including all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to the Merger Agreement or the transactions contemplated thereby, in each case, to the full extent a corporation is permitted under the DGCL to indemnify its own directors or officers as the case may be (and Parent and the Surviving Corporation, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law). In the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Parties (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain counsel satisfactory to them and the Company (or them and Parent and the Surviving Corporation after the Effective Time) and the Company (or after the Effective Time, Parent and the Surviving Corporation) shall pay all fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; and (ii) the Company (or after the Effective Time, Parent and the Surviving Corporation) shall use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither the Company, Parent nor the Surviving Corporation shall be liable for any settlement effected without its prior written consent. Any Indemnified Party wishing to claim indemnification, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Company (or after the Effective Time, Parent and the Surviving Corporation) (but the failure so to notify shall not relieve a party from any liability which it may have except to the extent such failure prejudices such party), and will deliver to the Company (or after the Effective Time, Parent and the Surviving Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The Merger Agreement provides that the Indemnified Parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. The Company, Parent and Purchaser agree that all rights to indemnification, including provisions relating to advances of expenses incurred in defense of any action or suit, existing in favor of the Indemnified Parties with respect to matters occurring through the Effective Time, shall survive the Merger and shall continue in full force and effect for a period of not less than six years from the Effective Time; provided, however, that all rights to indemnification in respect of any Indemnified Liabilities asserted or made within such period shall continue until the disposition of such Indemnified Liabilities. The Merger Agreement further provides that for a period of two years after the Effective Time, Parent will cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company (provided that Parent may substitute therefor policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous in any material respect to the Indemnified Parties) with respect to matters arising before the Effective Time, provided that Parent will not be required to pay an annual premium for such insurance in excess of 150% of the last annual premium paid by the Company prior to the date of the Merger Agreement, but in such case will purchase as much coverage as possible for such amount. Stockholders Meetings. The Merger Agreement provides that the Company will (and after the Control Date Parent will) take all action necessary, in accordance with the DGCL, the Exchange Act and other applicable law, the rules of the NYSE, and its certificate of incorporation and bylaws, to convene a special meeting of Stockholders (the "Stockholders Meeting"), if necessary, as promptly as practicable after the consummation of 27 the Offer and the effectiveness of the Registration Statement for the purpose of considering and voting upon the Merger Agreement and the transactions contemplated thereby, including the Merger. Subject to the fiduciary duties of the Board under applicable law as advised by independent legal counsel, the Board will recommend that the holders of the Shares vote in favor of and approve the Merger Agreement and the Merger at the Stockholders Meeting. At the Stockholders Meeting, Parent and Purchaser shall vote all Shares beneficially owned by them in favor of the adoption and approval of the Merger Agreement and the Merger. Consents, Approvals, Filings. The Merger Agreement provides that each of the parties to the Merger Agreement will (i) make promptly its respective filings, and thereafter make any other required submissions, under the HSR Act, the Securities Act and the Exchange Act, with respect to the Offer and Merger and the other transactions contemplated therein (together, the "Transactions") and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions, including, without limitation, using its reasonable best efforts to obtain all licenses, permits (including, without limitation, environmental permits), consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and its subsidiaries as are necessary for the consummation of the Transactions and to fulfill the conditions to the Offer and the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of the Merger Agreement, the proper officers and directors of each party to the Merger Agreement will use their reasonable best efforts to take all such action. Employee Benefit Matters. Parent, Purchaser and the Company have agreed in the Merger Agreement to certain matters with respect to the compensation and benefit programs of the Surviving Corporation and its subsidiaries. The Merger Agreement provides that for a period of at least twelve months following the Effective Time, Parent will, or will cause the Surviving Corporation to, provide employee benefit plans and arrangements which in the aggregate will provide a substantially comparable level of benefits to active and retired employees of the Surviving Corporation and its subsidiaries, considered as a group, to those provided under the Company employee benefit plans and arrangements as in effect immediately prior to the Effective Time, it being understood and agreed that Parent will cause the Surviving Corporation to consult with senior management of the Surviving Corporation, including Mr. Newman, before any changes are made in the benefit plans or arrangements of the Surviving Corporation during such twelve month period. Notwithstanding the foregoing, changes to the benefit plans and arrangements applicable to employees of the Surviving Corporation that would not comply with the substantially comparable standard set forth in the immediately preceding sentence will be permitted to the extent approved by senior management of the Surviving Corporation, including Mr. Newman. All service credited to each employee by the Company or any of its subsidiaries through the Effective Time will be recognized by Parent for purposes of eligibility and vesting under any employee benefit plan provided by Parent or its subsidiaries for the benefit of the employees of the Surviving Corporation and its subsidiaries; provided, however, that, to the extent necessary to avoid duplication of benefits, amounts payable under employee benefit plans provided by Parent or its subsidiaries may be reduced by amounts payable under similar Company plans with respect to the same periods of service. In addition, with respect to any welfare benefit plan established or maintained by Parent or its subsidiaries for the benefit of employees of the Surviving Corporation or its subsidiaries, Parent will, or will cause the relevant subsidiary to, waive any pre-existing condition exclusions (other than any pre-existing condition that was not waived by a Company plan) and provide that any covered expenses incurred on or before the Effective Time in respect of the current plan year by any employee of the Company or any of its subsidiaries (or any covered dependent of such an employee) will be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Effective Time in respect of such current plan year. In addition, as of the Effective Time (or if later, as soon as practicable following the close of the Company's 1996 fiscal year), a pro-rated bonus award will be paid in cash to each executive employee of the Company and 28 its subsidiaries who has been selected to participate in the Company's Executive Three (3) Year Bonus Plan (the "Three Year Plan") in accordance with Section 14 thereof, so that 100% of such executive employee's long-term bonus for the 1994-1996 cycle, 66 2/3% of his long-term bonus for the 1995-1997 cycle, and 33 1/3% of his long-term bonus for the 1996-1998 cycle will be paid, in each case based on the actual performance of the Company through the end of its 1996 fiscal year. The maximum amount payable to all the Company's executive employees pursuant to the preceding sentence will be $4,000,000. Following the payment of such awards, the Three Year Plan will terminate. As soon as practicable following such termination, Parent will cause the Surviving Corporation to implement a new long-term incentive program in place of the Three Year Plan. The Merger Agreement further provides that Parent will cause the Surviving Corporation to retain the Company's Key Management Bonus Plan (the "Company Bonus Plan") following the Effective Time, with the same employees eligible for bonuses thereunder, until bonuses are paid with respect to the Company's 1996 fiscal year. The amounts payable to each such employee participating in the Company Bonus Plan with respect to such fiscal year will be determined pursuant to the terms of the Company Bonus Plan; provided, that appropriate adjustments will be made to the "Threshold", "Target" and "Goal" levels (as defined in Section 6 of the Company Bonus Plan) to eliminate the effect of legal, investment banking and other extraordinary fees and expenses incurred by the Surviving Corporation as a consequence of the transactions effected pursuant to this Agreement and the preparation and negotiations leading thereto. As soon as practicable following the termination of the Company Bonus Plan, Parent will cause the Surviving Corporation to implement an annual bonus plan for key employees of Surviving Corporation in place of the Company Bonus Plan. Parent has agreed to cause the Surviving Corporation to honor and assume, and to perform all obligations under, the employment agreements, supplemental executive retirement plans, deferred compensation plans and individual benefit arrangements with current and former employees of the Company and its subsidiaries set forth in the Merger Agreement. Nothing contained therein shall be construed as requiring Parent or the Surviving Corporation to continue without modification any specific employee benefit plan or arrangement (except as required by its terms) or to continue the employment of any specific person. The Company has agreed to take all actions necessary (if any) to ensure that the transactions contemplated pursuant to the Merger Agreement will not constitute a "Change of Control" for purposes of (a) the Company's Pension Plan, (b) the Company's Profit Sharing Plan, (c) the Executive Excess Benefit Plan of the Company Corporation, (d) The First Executive Supplemental Benefit Plan of the Company and its subsidiaries (as Amended and Restated as of February 3, 1996), (e) The Second Executive Supplemental Benefit Plan of the Company and it Subsidiaries (as Amended and Restated as of February 4, 1996), (f) The Executive Deferred Compensation Plan of the Company (as Amended and Restated effective January 1, 1994), and (g) the Company's Benefit Plans Trust. Amendment. Subject to the applicable provisions of the DGCL and certain other restrictions contained in the Merger Agreement, the Merger Agreement may be modified or amended at any time prior to the Effective Time by Parent, Purchaser and the Company by written agreement executed and delivered by duly authorized officers of the respective parties; provided, however, that after approval of the Merger by the Stockholders, no amendment shall be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. The Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. Timing. The exact timing and details for the Merger will depend upon legal requirements and a variety of other factors, including the number of Shares acquired by the Purchaser pursuant to the Offer. Although Purchaser has agreed to cause the Merger to be consummated on the terms set forth above, there can be no assurance as to the timing of the Merger. THE STOCK OPTION AGREEMENT The following is a summary of the material terms of the Stock Option Agreement. This summary is not a complete description of the terms and conditions of the Stock Option Agreement and is qualified in its entirety 29 by reference to the full text of the Stock Option Agreement, which is incorporated by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. The Stock Option Agreement may be examined, and copies obtained, as set forth in Section 8 above. Capitalized terms not otherwise defined herein or in the following summary shall have the meaning set forth in the Stock Option Agreement. Grant of Option. The Stock Option Agreement provides for the grant by the Company to Parent of an irrevocable option (the "Stock Option") to purchase up to 10,554,786 Shares, or such other number of Shares as equals 15% of the issued and outstanding Shares at the time of exercise of the Stock Option, at a price of $35.00 per Share (the "Exercise Price"), payable in cash in accordance with the terms of the Stock Option Agreement. Exercise of Option. The Stock Option Agreement provides that the Stock Option may be exercised by Parent, in whole or in part, at any time or from time to time (a) after the Merger Agreement is terminated pursuant to a Trigger Event (as defined below) or (b) after Purchaser accepts for payment and pays for Shares pursuant to the Offer. For the purposes of the Stock Option Agreement, "Trigger Event" means the termination of the Merger Agreement either (i) by the Company, if it has received an Acquisition Proposal, and the Board, after consultation with and based upon the advice of independent legal counsel, determines in good faith that the failure to accept such Acquisition Proposal would result in a breach by the Board of its fiduciary duties to the Stockholders under applicable law, or (ii) by Parent, if the Board has (a) withdrawn, modified or amended in any adverse respect its approval or recommendation of the Merger Agreement, the Merger or the transactions contemplated by the Stock Option Agreement, (b) endorsed or recommended to the Stockholders an Acquisition Proposal or (c) resolved to do any of the foregoing. The Stock Option Agreement provides that the Stock Option will terminate upon the earlier of: (i) the Effective Time of the Merger; (ii) the termination of the Merger Agreement pursuant to the termination provisions thereof, other than a termination as a result of the occurrence of a Trigger Event; or (iii) 120 days following any termination of the Merger Agreement as a result of the occurrence of a Trigger Event (or if, at the expiration of such 120 day period the Stock Option cannot be exercised by reason of any applicable judgment, decree, order, law or regulation, or because the applicable waiting period under the HSR Act has not expired or been terminated, 10 business days after such impediment to exercise has been removed or has become final and not subject to appeal, but in no event later than 210 days after the date of termination of the Merger Agreement). The Stock Option Agreement further provides that the Stock Option may not be exercised if Parent or, in the case of the Merger Agreement, Parent or Purchaser, is in material breach of any of their respective representations, warranties, covenants or agreements contained in the Stock Option Agreement or in the Merger Agreement. Certain Repurchases. The Stock Option Agreement provides that, at the request of Parent at any time during which the Stock Option is exercisable (the "Repurchase Period"), the Company will repurchase from Parent the Stock Option, or any portion thereof, for a price equal to the amount by which the Market/Tender Offer Price (as defined below) for Shares as of the date Parent gives notice of its intent to exercise its rights to "put" the Stock Option to the Company exceeds the Exercise Price, multiplied by the number of Shares purchasable pursuant to the Stock Option (or portion thereof with respect to which Parent is exercising its rights to "put" the Stock Option to the Company). For purposes of the Stock Option Agreement, "Market/Tender Offer Price" means the higher of (A) the highest price per Share paid as of such date pursuant to any tender or exchange offer or other Acquisition Proposal or (B) the average of the closing sale prices of Shares on the NYSE for the ten trading days immediately preceding such date. Registration Rights. The Stock Option Agreement provides that in the event that Parent desires to sell any of the Shares purchased pursuant to the Stock Option within three years after such purchase, and such sale requires in the opinion of counsel to Parent, registration of such shares under the Securities Act, Parent may, by written notice (the "Registration Notice") to the Company, request the Company to register under the Securities Act all or any part of the Shares purchased pursuant to the Stock Option ("Restricted Shares") beneficially owned by Parent (the "Registrable Securities") pursuant to a bona fide firm commitment underwritten public 30 offering in which Parent and the underwriters will effect as wide a distribution of such Registrable Securities as is reasonably practicable and will use their best efforts to prevent any person and its affiliates from purchasing through such offering Restricted Shares representing more than 2% of the outstanding Shares on a fully diluted basis (a "Permitted Offering"). The Company (and/or any person designated by the Company) will have the option, exercisable by written notice delivered to Parent within 10 business days after the receipt of the Registration Notice, to purchase all or any part of the Registrable Securities for cash at a price (the "Option Price") equal to the product of (i) the number of Registrable Securities and (ii) the Fair Market Value (as defined in the Stock Option Agreement) of such Registrable Securities. Parent is entitled to request an aggregate of two effective registration statements under the terms of the Stock Option Agreement. Profit Limitation. The Stock Option Agreement provides that in no event will Parent's Total Profit (as defined below) exceed $20 million and, if it otherwise would exceed such amount Parent, at its sole election, will either (i) deliver to the Company for cancellation Shares previously purchased by Parent, (ii) pay cash or other consideration to the Company or (iii) undertake any combination thereof, so that Parent's Total Profit will not exceed $20 million after taking into account the foregoing actions. Further, the Stock Option may not be exercised for a number of Shares as would, as of the date of the Exercise Notice, result in a Notional Total Profit (as defined below) of more than $20 million, and, if exercise of the Stock Option otherwise would exceed such amount, Parent, at its discretion, may increase the Price for that number of Shares set forth in the Exercise Notice so that the Notional Total Profit will not exceed $20 million. For the purposes of the Stock Option Agreement, (A) the term "Total Profit" means the aggregate amount (before taxes) of the following: (i) the amount received by Parent pursuant to any repurchase by the Company of the Stock Option pursuant to the terms of the Stock Option Agreement, and (ii) (x) the net cash amounts received by Parent pursuant to the sale of Restricted Shares (or any other securities into which such shares are converted or exchanged) to any unaffiliated party, less (y) Parent's purchase price for such Shares; and (B) the term "Notional Total Profit" with respect to any number of Restricted Shares as to which Parent proposes to exercise the Stock Option will be the Total Profit determined as of the date of the Exercise Notice assuming that this Stock Option were exercised on such date for such number of Restricted Shares and assuming that such Restricted Shares, together with all other Restricted Shares held by Parent and its affiliates as of such date, were sold for cash at the closing market price for Shares as of the close of business on the preceding trading day (less customary brokerage commissions). Adjustment upon Changes in Capitalization. The Stock Option Agreement provides that in the event of any change in Shares by reason of stock dividends, stock splits, mergers (other than the Merger), recapitalizations, combinations, exchange of shares or the like, the type and number of shares or securities subject to the Stock Option, and the Exercise Price per share, will be adjusted appropriately. AMENDMENT TO THE EMPLOYMENT AGREEMENT Francis A. Newman, Chief Executive Officer, President and Chief Operating Officer of the Company ("Newman"), and Parent, have entered into an amendment, dated November 2, 1996, to Newman's existing employment agreement, dated as of February 4, 1996 (the "Employment Agreement"), which provides that upon consummation of the Merger, among other things, (i) the Employment Agreement will be extended from a term of twelve months to a term of three years commencing upon the consummation of the Merger, (ii) Newman will become a member of the Management Committee of Parent, (iii) Newman will not be able to terminate the Employment Agreement for Good Reason (as defined in the Employment Agreement) until at least one year following a Change in Control (as defined in the Employment Agreement), (iv) the definition of Good Reason will be amended to mean (a) the demotion of Newman from his position as Chief Executive Officer, President and Chief Operating Officer of the Company, his removal as a member of Parent's Management Committee or his ceasing to report directly to the Chief Executive Officer of Parent, (b) a reduction by the Company in Newman's annual base salary or a material reduction in Newman's bonus opportunity through incentive compensation awards, (c) any other material breach by the Company of the provisions of Section 4, 5 or 6 (dealing with compensation, fringe benefits and expenses, respectively) of the Employment Agreement, or (d) any relocation of Newman's principal place of business from the Tampa Bay, Florida area or from the 31 Company's headquarters and (v) Parent will guarantee the performance of the Company's obligations under the Employment Agreement. APPRAISAL RIGHTS No appraisal rights are available in connection with the Offer. If the Forward Merger is consummated only shares of Parent Common Stock will be issued and Stockholders will not have any appraisal rights. However, if the Reverse Merger is consummated, Stockholders will receive cash for their Shares in the Merger and Stockholders will have certain rights under the DGCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Such rights to dissent, if the statutory procedures are complied with, could lead to a judicial determination of the fair value of the Shares required to be paid in cash to such dissenting holders for their Shares. In addition, such dissenting Stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, a Delaware court would be required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Therefore, the value so determined in any appraisal proceeding could be different from the price being paid in the Offer or the value of the Merger Consideration. In addition, several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a company involved in a merger has a fiduciary duty to other stockholders which requires that the merger be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that although the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. Dissenting Shares will not be converted into the right to receive the Merger Consideration, but the holders of Dissenting Shares will be entitled to receive such consideration as shall be determined pursuant to the DGCL; provided, however, that if any such holder shall have failed to perfect or shall withdraw or lose his right to appraisal and payment under the DGCL, such holder's Shares shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Merger Consideration, and such Shares shall no longer be Dissenting Shares. Appraisal rights cannot be exercised at this time. Stockholders who will be entitled to appraisal rights, if any, in connection with the Merger will receive additional information concerning any available appraisal rights and the procedures to be followed in connection therewith before such stockholders have to take any action relating thereto. 13. DIVIDENDS AND DISTRIBUTIONS Except as otherwise provided in the Merger Agreement, the Company has agreed that neither it, nor any of its subsidiaries, as the case may be, will, without the prior consent of Parent, (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of the Company's outstanding capital stock, (ii) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock, or (iii) purchase, redeem or otherwise acquire any shares of outstanding capital stock or any rights, warrants or options to acquire any such shares except, in the case of clause (iii), for the acquisition 32 of Shares from holders of Options in full or partial payment of the exercise price payable by such holder upon exercise of Options outstanding on the date of the Merger Agreement. 14. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act, to pay for any Shares tendered, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any such Shares tendered, and, subject to the provisions of the Merger Agreement, may terminate the Offer (whether or not any Shares have theretofore been purchased or paid for) if, (1) the Minimum Condition shall not have been satisfied, (2) any applicable waiting periods under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer or (3) at any time before acceptance for payment of, or payment for, Shares, any of the following events shall occur or be deemed to have occurred: (A) there shall be pending any suit, action, or proceeding by any Governmental Entity that has not been dismissed or otherwise withdrawn (1) challenging the acquisition by Parent or Purchaser of any Shares under the Offer or seeking to restrain or prohibit the making or consummation of the Offer or Merger, (2) seeking to prohibit or materially limit the ownership or operation by Parent, the Company or any of their respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, and/or Parent and its subsidiaries, taken as a whole, or to compel Parent or the Company to dispose of or hold separate any material portion of the business or assets of Parent and its subsidiaries, taken as a whole, and/or the Company and its subsidiaries, taken as a whole, as a result of the Offer, the Merger or any of the other transactions contemplated by the Agreement, (3) seeking to impose material limitations on the ability of Parent or Purchaser to acquire or hold, or exercise full rights of ownership of, any Shares accepted for payment pursuant to the Offer, including, without limitation, the right to vote such Shares on all matters properly presented to the Stockholders, (4) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect any material portion of the business or operations of the Company and its subsidiaries; provided that Parent shall have complied with its obligations under Section 7.8 of the Merger Agreement or (5) otherwise materially adversely affecting the business, financial condition or results of operations of the Company except for any such changes or effects resulting from changes in general economic, regulatory or political conditions or changes that affect generally the drug store industry; or (B) any Governmental Entity or federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, rule, regulation, executive order, decree, injunction or other order that is in effect and that, (1) materially restricts, prevents or prohibits consummation of the Offer, the Merger or any material transaction contemplated by the Agreement, (2) prohibits or limits materially the ownership or operation by Parent, the Company or any of their subsidiaries of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole, or compels Parent, the Company or any of their subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole, (3) imposes material limitations on the ability of Parent or any of its subsidiaries to exercise effectively full rights of ownership of any Shares, including, without limitation, the right to vote any such Shares acquired pursuant to the Offer or otherwise on all matters properly presented to Stockholders, including, without limitation, the approval and adoption of the Merger Agreement and the transactions contemplated thereby, (4) requires divestitures by Parent, Purchaser or any other affiliate of Parent of any Shares; provided that Parent shall have complied with its obligations under Section 7.8 of the Merger Agreement or (5) otherwise materially adversely affecting the business, financial condition or results of operations of the Company except for any such changes or effects resulting from changes in general economic, regulatory or political conditions or changes that affect generally the drug store industry; or (C) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case, on the date when 33 made and at the expiration date, or in the case of any representations and warranties that are made as of a different date, as of that date; or (D) the Company shall have breached or failed to comply in any material respect with any of its obligations under the Agreement and such failure continues for twenty business days after actual receipt by the Company of a written notice from Parent setting forth in detail the nature of such failure; or (E) the Agreement shall have been terminated in accordance with its terms or the Offer shall have been amended or terminated with the consent of the Company; or (F) it shall have been publicly disclosed or Parent shall have otherwise learned that any person or "group" (as defined in section 13(d)(3) of the Exchange Act), other than Parent and its subsidiaries or any group of which any of them is a member, shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 under the Exchange Act) of more than 33 1/3 percent of the Shares outstanding, through the acquisition of stock, the formation of a group or otherwise, or shall have been granted an option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 33 1/3 percent of such Shares; or (G) there shall have occurred and continued for at least two business days (1) any general suspension of, or limitation on prices for, trading in securities on the NYSE, (2) the declaration of any banking moratorium or any suspension of payments in respect of banks, or any limitation (whether or not mandatory) by any Governmental Entity on, or other event materially adversely affecting, the extension of credit by lending institutions in the United States, (3) any extraordinary or material adverse change in the financial markets or major stock exchange indices in the United States including a decline of at least 25% in the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 Index, (4) a commencement of a war directly involving the United States or (5) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; which, in the judgment of Parent in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payments. The foregoing conditions are for the sole benefit of Parent, Purchaser and their affiliates and may be asserted by Parent or Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Parent and Purchaser, in whole or in part, from time to time in their sole discretion. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right and may be asserted at any time and from time to time. 15. CERTAIN LEGAL MATTERS Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company, but without any independent investigation, neither Purchaser nor Parent is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser's acquisition of Shares as contemplated in this Offer to Purchase or of any approval or other action by any governmental authority that would be required for the acquisition or ownership of Shares by Purchaser as contemplated in this Offer to Purchase. Should any such approval or other action be required, Purchaser and Parent presently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws." The Company's pharmacists and pharmacy technicians are required to be licensed by the appropriate state board of pharmacy. The Company's stores and certain of the Company's distribution centers are also registered with the Federal Drug Enforcement Administration. Many of the Company's stores sell alcoholic beverages and are subject to various state and local licensing requirements as a result. By virtue of these license and registration requirements, the Company may be obligated to obtain certain governmental consents and approvals in order to consummate the Merger. While Purchaser does not currently intend to delay the acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or action, if needed, would be obtained or would 34 be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, Purchaser or Parent or that certain parts of the businesses of the Company, Purchaser or Parent might not have to be disposed of in the event that such approvals were not obtained or any other actions were not taken. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 14. Litigation. On November 4, 1996, three actions purporting to be class actions on behalf of Stockholders were filed in the Delaware Court of Chancery. These actions name the Company, its directors and Parent as defendants, and allege that the price offered to Stockholders by Parent is too low and that in agreeing to this price the Company's directors breached their fiduciary duties to Stockholders. Parent is alleged to have aided and abetted this breach of fiduciary duty. Plaintiffs seek (i) to enjoin the acquisition until the Company's directors maximize value for Stockholders, place the Company "up for auction" and/or "conduct a market-check" and "make full and fair disclosure of all material facts," (ii) to rescind the acquisition if it is consummated before judicial relief is obtained, (iii) compensatory damages in an unspecified amount, (iv) an accounting, (v) costs and disbursements, including attorneys' fees, and (vi) such other relief as the Court deems appropriate. The defendants in these actions deny all allegations of wrongdoing. Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by Purchaser pursuant to the Offer is subject to such requirements. See Section 2. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares under the Offer may not be consummated until the expiration of a 15- calendar day waiting period following the filing of a Notification and Report Form with respect to the Offer (the "HSR Filing") by Parent. Such filing was made on November 6, 1996, and the waiting period with respect to the Offer will expire at 11:59 p.m., New York City time on November 21, 1996, unless early termination of the waiting period is granted or Parent receives a request for additional information or documentary material prior thereto. Pursuant to the HSR Act, Parent is expected to request early termination of the waiting period applicable to the Offer. There can be no assurances, however, that the 15-day waiting period under the HSR Act will be terminated early. If, within such 15-day waiting period, either the antitrust Division or the FTC requests additional information or material from Parent concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent. The Purchaser will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. See Section 14. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's acquisition of Shares pursuant to the Offer and the Merger. At any time before or after the Purchaser's acquisition of Shares, either the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or otherwise seeking divestiture of Shares acquired by the Purchaser or divestiture of substantial assets of Parent or its subsidiaries. Private parties and state attorneys general may also bring legal action under the antitrust laws under certain circumstances. Based upon an examination of publicly available information relating to the businesses in which Parent and the Company are engaged, Parent and the Purchaser believe that the acquisition of Shares by Purchaser will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer or other acquisition of Shares by the Purchaser on antitrust grounds will not be made, or if such a challenge is made, of the result. Each of the parties to the Merger Agreement has agreed, and has agreed to cause each of its respective subsidiaries, to cooperate and to use their respective best efforts to obtain any government clearances required for completion of the Transactions (including through compliance with the HSR Act), to respond to any government requests for information, and to contest and resist 35 any action, including any legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") that restricts, prevents or prohibits the consummation of any of the Transactions, including, by vigorously pursuing all available avenues of administrative and judicial appeal and all available legislative actions. Subject to the conditions of the Offer, each of the parties to the Merger Agreement will take any and all of the following actions to the extent necessary to obtain the approval of any governmental entity with jurisdiction over the enforcement of any applicable laws regarding the Transactions: entering into negotiations; providing information; substantially complying with any second request for information pursuant to the HSR Act; entering into and performing agreements or submitting to judicial or administrative orders and selling or otherwise disposing of, or holding separate (through the establishment of a trust or otherwise) particular assets or categories of assets, or businesses of Parent, the Company or any of their affiliates. The parties to the Merger Agreement will consult and cooperate with one another, and consider in good faith the views of one another, with respect to any actions taken in connection with proceedings under or relating to the HSR Act or any other federal, state or foreign antitrust or fair trade law. Parent will be entitled to direct any proceedings or negotiations with any governmental entity relating to any of the foregoing, provided that it will afford the Company a reasonable opportunity to participate therein. See Section 14 for certain conditions to the Offer, including with respect to litigation and certain governmental actions. State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, shareholders, executive offices or places of business in those states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining shareholders, provided that the laws were applicable only under certain conditions. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval of either the business combination or the transaction that resulted in the stockholder becoming an "interested stockholder." The Company has represented in the Merger Agreement that it approved the Merger Agreement, the Stock Option Agreement and the transactions contemplated thereby, including the Offer and the Merger, and has taken all necessary steps to render Section 203 of the DGCL inapplicable to the Merger Agreement, the Stock Option Agreement and the transactions contemplated thereby, including the Offer and the Merger. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. Purchaser does not know whether any of these laws will, by their terms, apply to the Offer or the Merger and has not complied with any such laws. Should any person seek to apply any state takeover law, Purchaser will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer and the Merger. In such case, Purchaser may not be obligated to accept for payment any Shares tendered. See Section 14. 16. FEES AND EXPENSES CS First Boston is acting as Dealer Manager in connection with the Offer and is acting as financial advisor to Parent in connection with the Offer and the Merger. Parent has agreed to pay CS First Boston for its services 36 (i) an advisory fee of $300,000 (the "Advisory Fee"), (ii) an offer fee of $1,000,000 (the "Offer Fee"), which became payable upon the execution of the Merger Agreement, and (iii) a transaction fee of not less than $7,000,000 and not more than $10,000,000 (the "Transaction Fee"), payable upon the closing of an acquisition of all or a substantial amount of the Company's stock or assets, against which the Advisory Fee and the Offer Fee, to the extent previously paid, will be credited. Parent has agreed to reimburse CS First Boston for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of legal counsel and other advisors, incurred in connection with its engagement, and to indemnify CS First Boston and certain related persons against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws. CS First Boston and its affiliates have in the past provided financial services to both Parent and the Company unrelated to the proposed Offer and Merger, for which services CS First Boston and such affiliates have received compensation. In the ordinary course of business, CS First Boston and its affiliates may actively trade the debt and equity securities of Parent and the Company for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. CS, an affiliate of CS First Boston, is acting as lead agent bank in connection with the Proposed Financing. Purchaser has retained D. F. King & Co., Inc. to act as the Information Agent, and ChaseMellon Shareholder Services, L.L.C. to act as the Depositary, in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Except as set forth above, Purchaser will not pay any fees or commissions to any broker or dealer or other person for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding the offering materials to their customers. 17. MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of the jurisdiction. However, Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in that jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers that are licensed under the laws of the jurisdiction. Purchaser has filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-1 under the Exchange Act containing certain additional information with respect to the Offer. The Schedule and any amendments to the Schedule, including exhibits, may be examined and copies may be obtained from the principal office of the Commission in the manner set forth in Section 8 above (except that they will not be available at the regional offices of the Commission). NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED IN THE OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. OMEGA ACQUISITION CORPORATION November 7, 1996 37 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER A. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT The following table sets forth the name, present principal occupation or employment and material occupation, positions, offices or employment for the past five years of each director and executive officer of Parent. Unless otherwise indicated below, the business address of each such person is c/o J. C. Penney Company, Inc., 6501 Legacy Drive, Plano, Texas 75024-3698 and each such person is a citizen of the United States. NAME AND BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND ADDRESS FIVE-YEAR EMPLOYMENT HISTORY M. Anthony Burns......... Director since 1988; Chairman, President and Chief Ryder System, Inc. Executive Officer of Ryder System, Inc. (a provider 3600 N.W. 82nd Avenue of transportation and logistics services) since Miami,Florida 33166 1985; Director of The Chase Manhattan Bank, N.A., The Chase Manhattan Corporation, Pfizer, Inc. and Boy Scouts of America; Trustee of the University of Miami; Member of the Policy Committee of The Business Roundtable, Chairman of The Business Roundtable's Health, Welfare and Retirement Income Task Force and a member of The Business Council. Colby H. Chandler........ Director since 1983; formerly Chairman and Chief 343 State Street Executive Officer of Eastman Kodak Company from Rochester, NY 14650-1106 1983 to 1990 and its President from 1977 to 1983; Director of Eastman Kodak Company from 1974 to 1993; Director of Citicorp, Digital Equipment Corporation, and M.I.T. Corporation; Trustee of the International Museum of Photography at George Eastman House, Rochester Institute of Technology and the University of Rochester. William R. Howell........ Chairman of the Board since 1983 and Chief Executive Officer of Parent from 1983 to January 1995; Director of Bankers Trust Company, Bankers Trust New York Corporation, Exxon Corporation, Halliburton Company, Warner-Lambert Company, Beta Gamma Sigma and National Retail Federation; Trustee of the National Urban League; Chairman of the Board of Trustees of Southern Methodist University. Vernon E. Jordan, Jr. ... Director since 1973; Senior Partner, law firm of Akin, Gump, Strauss, Akin, Gump, Strauss, Hauer & Feld since 1992, Hauer & Feld Partner since 1982; Director of American Express 1333 New Hampshire Ave. Company, Bankers Trust Company, Bankers Trust New N.W. York Corporation, Corning Incorporated, Dow Jones & Suite 400 Company, Inc., Revlon Group Incorporated, Revlon, Washington, DC 20036 Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide Corporation and Xerox Corporation; Trustee of The Ford Foundation, Howard University, and the Joint Center for Political and Economic Studies. George Nigh.............. Director since 1987; President of the University of University of Central Central Oklahoma since 1992; Director of Boatmen's Oklahoma First National Bank of Oklahoma. Formerly Governor 100 N. University Drive of Oklahoma, during 1963 and from 1979 to 1987. Edmond, OK 73034-5209 I-1 NAME AND BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND ADDRESS FIVE-YEAR EMPLOYMENT HISTORY James E. Oesterreicher... Director since 1995; Vice Chairman of the Board and Chief Executive Officer of Parent since 1995; President, JCPenney Stores and Catalog, from 1992 to 1995 (Executive Vice President from 1988 to 1992); Director of Brinker International, Inc., Texas Utilities Company, Circle Ten Council--Boy Scouts of America, March of Dimes Birth Defects Foundation, National 4-H Council, National Organization on Disability, Presbyterian Healthcare Systems and Presbyterian Hospital of Plano; Member of the Policy Committee of The Business Roundtable. Jane C. Pfeiffer......... Director since 1977; Independent management 90 Field Point Circle consultant; Director of Ashland Oil, Inc., Greenwich, CT 06830 International Paper Company, The Mutual Life Insurance Company of New York, and Overseas Development Council; Trustee of The Conference Board and of the University of Notre Dame. Ann W. Richards.......... Director since 1995; Senior Advisor, law firm of Verner, Liipfert, Verner, Liipfert, Bernhard, McPherson & Hand since Bernhard, McPherson & 1995; formerly Governor of Texas, from 1991 to Hand 1995; State Treasurer, State of Texas, from 1983 to P.O. Box 684746 1991; Chair, Democratic National Convention, 1992; Austin, TX 78768-4746 Director of TIG Holdings, Inc. Charles S. Sanford, Jr. . Director since 1992; retired Chairman of the Board Bankers Trust Company and Chief Executive Officer of Bankers Trust New 130 Liberty St. York Corporation and its principal subsidiary, (P.O. Box 318) Bankers Trust Company, from 1987 to 1996; Director New York, NY 10006 of Mobil Corporation; Member of The Business Roundtable and The Business Council; Overseer of The Wharton School, University of Pennsylvania; Member of the Foundation Board of Trustees of the University of Georgia and the Council on Foreign Relations. R. Gerald Turner......... Director since 1995; President of Southern Southern Methodist Methodist University since 1995; formerly University Chancellor of the University of Mississippi from Office of the President 1984 to 1995; Chairman, Commission on Education for 225 Perkins Adm. Bldg. the Teaching Profession, from 1990 to 1991; Member, Dallas, TX 75275 President's Commission, the National Collegiate Athletic Association, from 1989 to 1992; Director of First Mississippi Corporation, Callidus Technologies, Inc., Mobil Telecommunications Corporation, and River Oaks Furniture Corporation. W. Barger Tygart......... Director since 1995; President and Chief Operating Officer of Parent since January 1995; Senior Executive Vice President of Parent from 1992 to 1995; Executive Vice President of Parent from 1987 to 1992; Chairman of Council of the Past Presidents and Executive Committee, The Fashion Association; Director and Executive Committee Member, North Texas Public Broadcasting; Director of the Education Foundation for the Fashion Industries-- Fashion Institute of Technology, and the Corporate Advisory Board, National Council of LaRaza; Member of the Advisory Board, Harvey and Bernice Jones Eye Institute; Advisory director of American Studies at Harding University; Member of the College of Business Advisory Board at the University of Arkansas. I-2 NAME AND BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND ADDRESS FIVE-YEAR EMPLOYMENT HISTORY Joseph D. Williams....... Director since 1985; retired Chairman and Chief 182 Tabor Road Executive Officer of Warner-Lambert Company Morris Plains, NJ 07924 (pharmaceuticals, healthcare and consumer products) from 1985 to 1991; Director of AT&T Corp., Exxon Corporation, Rockefeller & Co., Therapeutic Antibodies Inc., Thrift Drug, Inc. and Warner- Lambert Company; Trustee of Columbia University, Project Hope, Liberty Science Center and the United Negro College Fund. John T. Cody, Jr. ....... President of JCPenney Stores since January 1, 1995; Executive Vice President and Director of JCPenney Stores from 1992 to 1995; Senior Vice President and Director of Real Estate, Construction Services and Specialty Retailing from 1991 to 1992. Gary L. Davis............ Senior Vice President and Director of Personnel and Administration since February 1, 1996; President of the Northwestern Region from 1992 to 1996; Director of Coordination for JCPenney Stores and Catalog from 1990 to 1992. Gale Duff-Bloom.......... President of Marketing and Company Communications since February 1, 1996; Senior Executive Vice President and Director of Personnel and Company Communications from January 1, 1995 to February 1, 1996; Executive Vice President and Director of Administration from 1993 to 1995; Senior Vice President and Associate Director of Merchandising from 1990 to 1993. David V. Evans........... Senior Vice President and Director of Planning and Information Systems since January 1, 1995; Vice President and Director of Information Systems from 1987 to 1995. John E. Fesperman........ Senior Vice President and Director of Support Services and Subsidiary Operations since January 1, 1996; elected Vice President in 1993 and served as Director of Insurance from 1991 to 1996. Thomas D. Hutchens....... President of Merchandising Worldwide since January 1, 1995; Elected Executive Vice President in 1992 and served as Director of Merchandising from 1992 to 1995; President of the Men's Division from 1987 to 1992. Charles R. Lotter........ Executive Vice President since 1993; Elected Senior Vice President in 1987 and has served as General Counsel and Secretary since 1987. William E. McCarthy...... President of Catalog and Distribution since January 1, 1995; President, Catalog Division 1992 to 1995; President, Northwestern Region 1991 to 1992. Donald A. McKay.......... Senior Vice President and Chief Financial Officer since February 1, 1996; Vice President and Controller from 1994 to 1996; Vice President and Treasurer 1985 to 1994. Ted L. Spurlock.......... Senior Vice President and Director of Financial Services and Company Communications since 1992; Director of Financial Services and Government Relations since January 1, 1995; Director of Credit and Financial Services from 1989 to 1992; Senior Vice President since 1989. I-3 B. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER The following table sets forth the name, present principal occupation or employment and material occupations, positions, offices or employment for the past five years of each director and executive officer of Purchaser. The business address of each such person is c/o J. C. Penney Company, Inc., 6501 Legacy Drive, Plano, Texas 75024-3698 and each such person is a citizen of the United States.
NAME AND PRESENT PRINCIPAL OCCUPATION OR BUSINESS ADDRESS EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY ---------------- ------------------------------------------- John E. Fesperman........... Vice President and Treasurer of Purchaser; Senior Vice President and Director of Support Services and Subsidiary Operations of Parent since January 1, 1996; elected Vice President of Parent in 1993 and served as Director of Insurance of Parent from 1991 to 1996. Charles R. Lotter........... Vice President, Secretary and Director of Purchaser; Executive Vice President of Parent since 1993; Elected Senior Vice President in 1987 and has served as General Counsel and Secretary of Parent since 1987. Donald A. McKay............. President and Director of Purchaser; Senior Vice President and Chief Financial Officer of Parent since February 1, 1996; Vice President and Controller of Parent from 1994 to 1996; Vice President and Treasurer of Parent from 1985 to 1994.
I-4 Facsimile copies of the Letter of Transmittal properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each Stockholder or his or her broker, dealer, commercial bank, trust company or other nominee to the Depositary, at one of the addresses set forth below: The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Facsimile: By Hand/Overnight Courier: Midtown Station (For Eligible 120 Broadway--13th Fl. P.O. Box 798 Institutions Only) New York, NY 10271 New York, NY 10018 (201) 329-8936 Attn: Reorganization Attn: Reorganization Department Department Confirm by Telephone: (201) 296-4209 Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and other tender offer materials may be obtained from the Information Agent as set forth below and will be furnished promptly at Purchaser's expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: D. F. KING & CO., INC. United States Europe 77 Water Street Royex House New York, NY 10005 Aldermanbury Square 1-800-848-3155 (toll free) London, England EC2V 7HR (212) 269-5550 (collect) (44) 171-600-5005 (collect) The Dealer Manager for the Offer is: CS FIRST BOSTON Park Avenue Plaza 55 East 52nd Street New York, New York 10055 Toll-Free Telephone: (800) 917-2291 EX-99.A.2 3 LETTER OF TRANSMITTAL EXHIBIT (a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF ECKERD CORPORATION PURSUANT TO THE OFFER TO PURCHASE DATED NOVEMBER 7, 1996 BY OMEGA ACQUISITION CORPORATION A WHOLLY-OWNED SUBSIDIARY OF J. C. PENNEY COMPANY, INC. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Facsimile: By Hand/Overnight Courier: Midtown Station (For Eligible 120 Broadway--13th Floor P.O. Box 798 Institution Only) New York, NY 10271 New York, NY 10018 (201) 329-8936 Attn: Attn: Confirm by Telephone Reorganization Reorganization (201) 296-4209 Department Department DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. DESCRIPTION OF SHARES TENDERED - --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE NUMBER OF SHARES NUMBER OF (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATES REPRESENTED BY SHARES APPEAR(S) ON THE CERTIFICATE(S)) NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - ---------------------------------------------------------------------------------------------- ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ TOTAL SHARES ------------------------------------------------
(1) Need not be completed by Stockholders delivering Shares by Book-Entry Transfer. (2) Unless otherwise indicated, it will be assumed that all Shares represented by Certificates delivered to the Depositary are being tendered. See Instruction 4. This Letter of Transmittal is to be completed by holders of Shares (as defined below) of Eckerd Corporation (the "Stockholders") if certificates evidencing Shares ("Certificates") are to be forwarded with this Letter of Transmittal or if delivery of Shares is to be made by book-entry transfer to an account maintained by ChaseMellon Shareholder Services, L.L.C. (the "Depositary") at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders whose Certificates are not immediately available or who cannot deliver either their Certificates for, or a Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to, their Shares and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) may tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2 hereof. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER). Name of Tendering Institution: ______________________________________________ Check Box of Book-Entry Transfer Facility: [_] DTC [_] PDTC Account Number: _____________________________________________________________ Transaction Code Number: ____________________________________________________ [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): ___________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Institution Which Guaranteed Delivery: _____________________________ If delivered by book-entry transfer, check box of applicable Book-Entry Transfer Facility: [_] DTC [_] PDTC Account Number: ____________________________________________________________ Transaction Code Number: ___________________________________________________ 2 NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Omega Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation ("Parent"), the above-described shares of common stock, $.01 par value per share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), for $35.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 7, 1996 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"). The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Parent or to one or more other wholly-owned subsidiaries of Parent, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not prejudice the rights of tendering Stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Subject to, and effective upon, acceptance for payment of, or payment for, Shares tendered with this Letter of Transmittal in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms or conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all other Shares or other securities issued or issuable in respect of such Shares on or after November 7, 1996 (a "Distribution"), and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Certificates evidencing such Shares (and any Distributions), or transfer ownership of such Shares (and all Distributions) on the account books maintained by a Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, Purchaser, upon receipt by the Depositary as the undersigned's agent, of the purchase price with respect to such Shares; (ii) present such Shares (and any Distributions) for transfer on the books of the Company; and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distributions), all in accordance with the terms and subject to the conditions of the Offer. The undersigned hereby irrevocably appoints each designee of Purchaser as the attorney-in-fact and proxy of the undersigned, each with full power of substitution, to the full extent of the undersigned's rights with respect to all Shares tendered hereby and accepted for payment and paid for by Purchaser (and any Distributions), including, without limitation, the right to vote such Shares (and any Distributions) in such manner as each such attorney and proxy or his substitute shall, in his sole discretion, deem proper. All such powers of attorney and proxies, being deemed to be irrevocable, shall be considered coupled with an interest in the Shares tendered with this Letter of Transmittal. Such appointment will be effective if, when, and only to the extent that, Purchaser accepts such Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any Distributions) will be revoked, without further action, and no subsequent powers of attorneys and proxies may be given with respect thereto (and, if given, will be deemed ineffective). The designees of Purchaser will, with respect to the Shares (and any Distributions) for which such appointment is effective, be empowered to exercise all voting and other rights of the undersigned with respect to such Shares (and any Distributions) as they in their sole discretion may deem proper. Purchaser reserves the absolute right to require that, in order for Shares to be deemed validly tendered, immediately upon the acceptance for payment of such Shares, Purchaser or its designees are able to exercise full voting rights with respect to such Shares (and any Distributions), including voting at any meeting of Stockholders then scheduled. All authority conferred or agreed to be conferred in this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. 3 The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any Distributions), that the undersigned own(s) the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and that, when the Shares are accepted for payment and paid for by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto (and to any Distributions), free and clear of all liens, restrictions, charges and encumbrances, and that the Shares tendered hereby (and any Distributions) will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of Shares tendered hereby (and any Distributions). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Purchaser any and all Distributions issued to the undersigned on or after November 7, 1996, in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of any such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount of value thereof, as determined by Purchaser in its sole discretion. The undersigned understands that the valid tender of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions to this Letter of Transmittal will constitute a binding agreement between the undersigned and Purchaser with respect to such Shares, upon the terms and subject to the conditions of the Offer. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated in this Letter of Transmittal under "Special Payment Instructions," please issue the check for the purchase price and return any Certificates evidencing Shares not purchased or not tendered, in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of all Shares purchased and return any Certificates evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the "Special Payment Instructions" and the "Special Delivery Instructions" are completed, please issue the check for the purchase price of all Shares purchased and return any such Certificates evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) in the name(s) of, and deliver such check and return such Certificates (and accompanying documents, as appropriate) to the person(s) so indicated. Unless otherwise indicated in this Letter of Transmittal under "Special Payment Instructions," in the case of a book-entry delivery of Shares, please credit the account maintained by the undersigned at the Book- Entry Facility indicated above with respect to any Shares not purchased. The undersigned recognizes that Purchaser has no obligation pursuant to the "Special Payment Instructions" to transfer any Shares from the name of the registered holder(s) if Purchaser does not accept for payment any of the Shares tendered hereby. 4 [_]CHECK HERE IF ANY OF THE CERTIFICATES EVIDENCING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11. Number of Shares represented by the lost or destroyed certificates: ____________ SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if Certif- To be completed ONLY if Certif- icates for Shares not tendered icates for Shares not tendered or not purchased and/or the or not purchased and/or the check for the purchase price of check for the purchase price of Shares purchased are to be is- Shares purchased are to be sent sued in the name of someone to someone other than the under- other than the undersigned, or signed or to the undersigned at if Shares delivered by book-en- an address other than that shown try transfer that are not pur- above. chased are to be returned by credit to an account maintained at a Book-Entry Transfer Facili- ty, other than to the account indicated above. Mail Check and/or Certificate(s) to: Name: ___________________________ (PLEASE TYPE OR PRINT) Address: ________________________ Issue Check and/or Certifi- _________________________________ cate(s) to: (INCLUDE ZIP CODE) Name: ___________________________ _________________________________ (PLEASE TYPE OR PRINT) (TAX IDENTIFICATION OR SOCIAL Address: ________________________ SECURITY NO.) _________________________________ (INCLUDE ZIP CODE) _________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) (ALSO COMPLETE SUBSTITUTE FORM W-9) Credit unpurchased Shares delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below: [_] DTC [_] PDTC (check one) _________________________ (DTC/PDTC ACCOUNT NUMBER) 5 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, no signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for the purposes of this document, includes any participant in any of the Book-Entry Facilities' systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. If the Certificates are registered in the name of a person other than the signer of this Letter of Transmittal, or if payment is to be made or delivered to, or Certificates evidencing unpurchased Shares are to be issued or returned to, a person other than the registered owner, then the tendered Certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the Certificates, with the signatures on the Certificates or stock powers guaranteed by an Eligible Institution as provided in this Letter of Transmittal. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by Stockholders if Certificates evidencing Shares are to be forwarded with this Letter of Transmittal or if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in Section 3 of the Offer to Purchase. For a Stockholder to validly tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile), with any required signature guarantees and any other required documents, must be received by the Depositary at one of its addresses set forth in this Letter of Transmittal on or prior to the Expiration Date (as defined in the Offer to Purchase) and either (i) Certificates for tendered Shares must be received by the Depositary at one of those addresses on or prior to the Expiration Date or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer set forth in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must be received by the Depositary on or prior to the Expiration Date or (b) the tendering Stockholder must comply with the guaranteed delivery procedures set forth below and in Section 3 of the Offer to Purchase. Stockholders whose Certificates are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer on or prior to the Expiration Date may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary prior to the Expiration Date, and (iii) Certificates representing all tendered Shares in proper form for transfer, or a Book-Entry Confirmation with respect to all the tendered Shares, together with a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of such Notice of Guaranteed Delivery. If Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile) must accompany each delivery. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND SOLE RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. 6 No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering Stockholders, by execution of this Letter of Transmittal (or a facsimile), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided in this Letter of Transmittal is inadequate, the information required under "Description of Shares Tendered" should be listed on a separate signed schedule attached to this Letter of Transmittal. 4. PARTIAL TENDERS. If fewer than all of the Shares represented by any Certificates delivered to the Depositary with this Letter of Transmittal are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, a new Certificate for the remainder of the Shares that were evidenced by your old Certificate(s) will be sent, without expense, to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal, as soon as practicable after the expiration or termination of the Offer. All Shares represented by Certificate(s) delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or instruments of transfer are signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to Purchaser of that person's authority to so act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of Certificates or separate instruments of transfer are required unless payment is to be made, or Certificates not tendered or not purchased are to be issued or returned, to a person other than the registered holder(s). Signatures on the Certificates or instruments of transfer must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares evidenced by the Certificate(s) listed and transmitted hereby, the Certificate(s) must be endorsed or accompanied by appropriate instruments of transfer, in either case signed exactly as the name(s) of the registered holder(s) appear on the Certificate(s). Signatures on the Certificate(s) or instruments of transfer must be guaranteed by an Eligible Instruction. 6. TRANSFER TAXES. Except as set forth in this Instruction 6, Purchaser will pay or cause to be paid any transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or (in the circumstances permitted hereby) if Certificates for Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased, unless evidence satisfactory to Purchaser of the payment of such taxes or exemption therefrom is submitted. 7 EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby is to be issued, or a Certificate evidencing Shares not tendered or not purchased is to be issued in the name of a person other than the persons signing this Letter of Transmittal or if such check or any such Certificate is to be sent to someone other than the persons signing this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal must be completed. If any tendered Shares are not purchased for any reason and the Shares are delivered by Book-Entry Transfer Facility, the Shares will be credited to an account maintained at the appropriate Book-Entry Transfer Facility. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Information Agent (as defined below) at its address or telephone number set forth below and requests for additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent or brokers, dealers, commercial banks and trust companies and such materials will be furnished at Purchaser's expense. 9. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by Purchaser, (subject to certain limitations in the Merger Agreement (as defined in the Offer to Purchase)), in whole or in part, at any time or from time to time, in Purchaser's sole discretion. 10. BACKUP WITHHOLDING TAX. Each tendering Stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below and to certify under penalties of perjury, that such number is correct and that the Stockholder is not subject to backup withholding or federal income tax. Failure to provide the information on the Substitute Form W-9 may subject the tendering Stockholder to a penalty and 31% federal income tax withholding on the payment of the purchase price for the Shares. If the tendering Stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future, the tendering Stockholder should check the box in Part III of the Substitute Form W-9 and sign and date both the Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification." If the Stockholder has indicated in the box in Part III that a TIN has been applied for and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% of all payments of the purchase price, if any, made thereafter pursuant to the Offer until a TIN is provided to the Depositary. 11. LOST OR DESTROYED CERTIFICATES. If any Certificate(s) representing Shares has been lost, destroyed or stolen, the Stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares lost. The Stockholders will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed Certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE (TOGETHER WITH CERTIFICATES OR A BOOK-ENTRY CONFIRMATION FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under current federal income tax law, a Stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with such Stockholder's correct TIN on Substitute Form W-9 below. If such Stockholder is an individual, the TIN is his social security number. If the tendering Stockholder 8 has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future, the Stockholder should so indicate on the Substitute Form W-9. See Instruction 10. If the Depositary is not provided with the correct TIN, the Stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to the Stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup federal income tax withholding at a 31% rate. Certain Stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements and should indicate their status by writing "exempt" across the face of, and by signing and dating, the Substitute Form W-9. In order for a foreign individual to qualify as an exempt recipient, that Stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Forms for such statements can be obtained from the Depositary. See the enclosed Guidelines for Certificates of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Stockholder. Backup withholding is not an additional tax. Rather, the 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 taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup federal income tax withholding with respect to payment of the purchase price for Shares purchased pursuant to the Offer, a Stockholder must provide the Depositary with his correct TIN by completing the Substitute Form W-9 below, certifying that the TIN provided on Substitute Form W-9 is correct (or that the Stockholder is awaiting a TIN) and that (1) the Stockholder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of a failure to report all interest or dividends or (2) the Internal Revenue Service has notified the Stockholder that he is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The Stockholder is required to give the Depositary the Social Security Number or employer identification number of the record holder of the Shares tendered hereby. If the Shares are registered in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 9 IMPORTANT STOCKHOLDER: SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE .................................................................... (SIGNATURE(S) OF STOCKHOLDER(S)) .................................................................... (SIGNATURE(S) OF STOCKHOLDER(S)) Dated: .................., 1996 (Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Certificate or on a security position listing or by person(s) authorized to become registered holder(s) by Certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, agents, officers or corporations or others acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s).................................................................... .................................................................... (PLEASE TYPE OR PRINT) Capacity (Full Title)...................................................... (SEE INSTRUCTION 5) Address.................................................................... .................................................................... (INCLUDE ZIP CODE) Daytime Area Code and Telephone Number: ................................... (HOME) .......................................... (BUSINESS) Tax Identification or Social Security No................................... (Complete Substitute Form W-9 on Reverse Side) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) ........................................................................... (AUTHORIZED SIGNATURE(S)) ........................................................................... (NAME) ........................................................................... (NAME OF FIRM) ........................................................................... ........................................................................... (ADDRESS INCLUDING ZIP CODE) ........................................................................... (AREA CODE AND TELEPHONE NUMBER) Dated: .................., 1996 10 PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - ------------------------------------------------------------------------------- PART I--PLEASE PROVIDE YOUR PART III--Social SUBSTITUTE TIN IN THE BOX AT RIGHT AND Security Number OR FORM W-9 CERTIFY BY SIGNING AND Employee DEPARTMENT OF DATING BELOW. Identification THE TREASURY Number INTERNAL REVENUE SERVICE ------------------- (If awaiting TIN write "Applied for") PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) ------------------------------------------------------ PART II--For Payees exempt from backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as instructed therein. - ------------------------------------------------------------------------------- Certifications--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding, you receive another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed guidelines). - ------------------------------------------------------------------------------- SIGNATURE __________________________________________ DATE ________ NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN THE BOX IN PART III OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalty of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number by the time of payment, 31% of all payments of the purchase price pursuant to the Offer made to me thereafter will be withheld until I provide a number. Signature __________________________________________ Date ________ The Information Agent for the Offer is: D.F. KING & CO., INC. United States Europe 77 Water Street Royex House New York, New York 10005 Aldermanbury Square 1-800-848-3155 (toll free) London, England EC2V 7HR (212) 269-5550 (collect) (44) 171-600-5005 (collect) The Dealer Manager for the Offer is: CS FIRST BOSTON Park Avenue Plaza 55 East 52nd Street New York, New York 10055 1-800-917-2291 November 7, 1996 11 EX-99.A.3 4 NOTICE OF GUARANTEED DELIVERY EXHIBIT (a)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF ECKERD CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. This Notice of Guaranteed Delivery or a notice substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates representing the common stock, $.01 par value per share (the "Shares"), of Eckerd Corporation, a Delaware corporation, are not immediately available or the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach ChaseMellon Shareholder Services, L.L.C. (the "Depositary") prior to the Expiration Date (as defined in the Offer to Purchase). This Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Facsimile: By Hand/Overnight Courier: Midtown Station (For Eligible 120 Broadway--13th Floor P.O. Box 798 Institutions Only) New York, NY 10271 New York, NY 10018 (201) 329-8936 Attn: Attn: Confirm by Telephone Reorganization Reorganization (201) 296-4209 Department Department DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to the Eligible Institution. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED Ladies and Gentlemen: The undersigned hereby tenders to Omega Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 7, 1996 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Number of Shares: Name(s) of Record Holder(s): --------------- ---- Certificate Nos. (if --------------------------------- available): (Please Type or Print) --------------------- Address(es): -------------------- - ---------------------------------- --------------------------------- Check ONE box if Shares will be (Zip Code) tendered by book-entry transfer: Area Code and Tel. No.: --------- Signature(s): [_] The Depository Trust Company ------------------- [_] Philadelphia Depository Trust Company --------------------------------- Account Number: ----------------- Date: , 1996 -------------------- THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, an Eligible Institution (as such term is defined in Section 3 of the Offer to Purchase), hereby (a) represents that the above-named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that the tender of Shares effected hereby complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary the certificates evidencing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to such Shares, in either case together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and any other documents required by the Letter of Transmittal, all within three New York Stock Exchange, Inc. trading days after the date hereof. Name of Firm: --------------------------------- ------------------- (Authorized Signature) Address: ------------------------ Name: --------------------------- --------------------------------- (Please Type or Print) (Zip Code) Title: Area Code and Tel. No.: -------------------------- --------- Date: --------------------------- NOTE: DO NOT SEND CERTIFICATES EVIDENCING SHARES WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES FOR SHARES SHOULD ONLY BE SENT TOGETHER WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.A.4 5 LETTER TO BROKERS EXHIBIT (a)(4) [LOGO] CS FIRST BOSTON CS First Boston Corporation Park Avenue Plaza 55 East 52nd Street New York, New York 10055 OFFER TO PURCHASE FOR CASH 35,252,986 SHARES OF COMMON STOCK OF ECKERD CORPORATION AT $35.00 NET PER SHARE BY OMEGA ACQUISITION CORPORATION A WHOLLY-OWNED SUBSIDIARY OF J. C. PENNEY COMPANY, INC. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. November 7, 1996 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been engaged by Omega Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation ("Parent"), to act as Dealer Manager in connection with Purchaser's offer to purchase 35,252,986 shares of common stock, $.01 par value per share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at a purchase price of $35.00 per Share (such amount, or any greater amount per Share paid pursuant to the Offer (as defined below), being hereinafter referred to as the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 7, 1996 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE 35,252,986 SHARES OR SUCH OTHER NUMBER OF SHARES REPRESENTING 50.1% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE DATE OF PURCHASE. THE OFFER ALSO IS SUBJECT TO CERTAIN OTHER CONDITIONS, WHICH ARE SET FORTH IN THE OFFER TO PURCHASE. SEE THE INTRODUCTION AND SECTIONS 1 AND 14 OF THE OFFER TO PURCHASE. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase dated November 7, 1996. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Manually signed facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. A letter to stockholders of the Company from Stewart Turley, Chairman of the Board of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company. 4. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if neither of the two procedures for tendering Shares set forth in the Offer to Purchase can be completed on a timely basis. 5. A printed form of letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominees, with space provided for obtaining such clients' instructions regarding the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to ChaseMellon Shareholder Services, L.L.C., the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. Please note the following: 1. The tender price is $35.00 per Share, net to the seller in cash, without interest thereon. 2. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, December 6, 1996, unless the Offer is extended. 3. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will purchase, by accepting for payment, and will pay for 35,252,986 Shares (or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase) validly tendered on or prior to the Expiration Date, and not properly withdrawn, promptly after the later to occur of (i) the Expiration Date (as defined in the Offer to Purchase) and (ii) the satisfaction or waiver of the conditions to the Offer set forth in Section 14 of the Offer to Purchase. 4. Tendering stockholders who have Shares registered in their names will not be charged brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. However, backup federal income tax withholding at a rate of 31% may be required, unless an exemption applies or unless the required taxpayer identification information is provided. See Instruction 10 of the Letter of Transmittal. 5. The Board of Directors of the Company has unanimously determined that the Offer and the Merger (as defined in the Offer to Purchase) are fair to, and in the best interest of, the stockholders of the Company, has approved the Merger Agreement (as defined in the Offer to Purchase) and the transactions contemplated thereby, including the Offer at the Offer Price and the Merger, and recommends that the stockholders of the Company that wish to receive cash for their Shares accept the Offer and tender their Shares to Purchaser pursuant to the Offer. 6. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to) such Shares, (b) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed with any required signature guarantees or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and (c) any other documents required by the Letter of Transmittal. 2 Accordingly, payment to all tendering stockholders may not be made at the same time depending upon when certificates for Shares or Book-Entry Confirmation with respect to Shares are actually received by the Depositary. In order to take advantage of the Offer, (a) a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees or an Agent's Message in connection with a book-entry transfer or other required documents should be sent to the Depositary and (b) certificates representing the tendered Shares or a timely Book-Entry Confirmation with respect to such Shares should be delivered to the Depositary in accordance with the instructions set forth in the Letter of Transmittal and in the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in the Offer to Purchase), a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. Neither Purchaser nor Parent will pay any fees or commissions to any broker or dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than the Dealer Manager and the Depositary as described in the Offer to Purchase). Purchaser will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to CS First Boston Corporation, the Dealer Manager for the Offer, at Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055, 1-800-917-2291 or D.F. King & Co., Inc., the Information Agent for the Offer, at 77 Water Street, New York, New York 10005, 1-800-848-3155. Requests for copies of the enclosed materials may also be directed to the Dealer Manager or the Information Agent at the above addresses and telephone numbers. Very truly yours, CS FIRST BOSTON CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE DEALER MANAGER, THE DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A.5 6 LETTER TO CLIENTS EXHIBIT (a)(5) OFFER TO PURCHASE FOR CASH 35,252,986 SHARES OF COMMON STOCK OF ECKERD CORPORATION AT $35.00 NET PER SHARE BY OMEGA ACQUISITION CORPORATION A WHOLLY-OWNED SUBSIDIARY OF J. C. PENNEY COMPANY, INC. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. November 7, 1996 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated November 7, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") in connection with the offer by Omega Acquisition Corporation, a Delaware corporation ("Purchaser"), and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation, to purchase 35,252,986 shares of common stock, $.01 par value per share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at a purchase price of $35.00 per Share (such amount, or any greater amount per Share paid pursuant to the Offer, being hereinafter referred to as the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. Holders of Shares whose certificates for such Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary (as defined in the Offer to Purchase) or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instruction as to whether you wish to have us tender, on your behalf, any or all Shares held by us for your account pursuant to the terms and conditions set forth in the Offer. Please note the following: 1. The tender price is $35.00 per Share, net to the seller in cash, without interest thereon. 2. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York city time, on Friday, December 6, 1996, unless the Offer is extended. 3. The Offer is being made for 35,252,986 Shares or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase. 4. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date 35,252,986 Shares or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of the purchase. The Offer also is subject to certain other conditions, which are set forth in the Offer to Purchase. 5. Tendering stockholders who have Shares registered in their names will not be charged brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. However, backup federal income tax withholding at a rate of 31% may be required, unless an exemption applies or unless the required taxpayer identification information is provided. See Instruction 10 of the Letter of Transmittal. 6. The Board of Directors of the Company has unanimously determined that the Offer and the Merger (as defined in the Offer to Purchase) are fair to, and in the best interest of, the stockholders of the Company, has approved the Merger Agreement (as defined in the Offer to Purchase) and the transactions contemplated thereby, including the Offer at the Offer Price and the Merger, and recommends that the stockholders of the Company that wish to receive cash for their Shares accept the Offer and tender their Shares to Purchaser pursuant to the Offer. 7. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation (as defined in Section 3 to the Offer to Purchase) with respect to) such Shares, (b) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed with any required signature guarantees or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment to all tendering stockholders may not be made at the same time depending upon when certificates for Shares or Book-Entry Confirmation with respect to Shares are actually received by the Depositary. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth below. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form set forth below. An envelope to return your instructions to us is enclosed herewith. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer to holders of Shares in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH 35,252,986 SHARES OF COMMON STOCK OF ECKERD CORPORATION The undersigned acknowledge(s) receipt of your letter, the enclosed Offer to Purchase, dated November 7, 1996, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer") in connection with the offer by Omega Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation, to purchase 35,252,986 shares of common stock, par value $.01 per share ("Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at a purchase price of $35.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. This will instruct you to tender to Purchaser the number of Shares indicated below (or if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered*: SIGN HERE Shares ------------------------------------- - ------------------------------ ------------------------------------- Certificate Nos. (if available): SIGNATURE(S) ---- - ------------------------------------- ------------------------------------- ------------------------------------- Account Number: PLEASE TYPE OR PRINT NAME(S) HERE --------------------- ------------------------------------- Dated: , 1996 ----------------------- ------------------------------------- * Unless otherwise indicated, it PLEASE TYPE OR PRINT ADDRESS(ES) will be assumed that all Shares HERE held by us for your account are to ------------------------------------- be tendered. ------------------------------------- AREA CODE AND TELEPHONE NUMBER ------------------------------------- ------------------------------------- TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S) 3 EX-99.A.6 7 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID EXHIBIT (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ------------------------------------------------------------------------------- GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF -- - -------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor (Uniform Gift to Minors Act) The minor(2) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian or committee for a or incompetent designated ward, minor, or incompetent person person(3) 7. a The usual revocable savings trust account (grantor is The grantor- also trustee) b So-called trust account that is not a trustee(1) legal or valid trust under State law The actual owner(1) 8. Sole proprietorship account The owner(4)
- ------------------------------------------------------------------------------ GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ------------------------------------------------------------------------------ 9. A valid trust, estate, or pension trust The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or educational organization The organization account 12. Partnership account held in the name of the business The partnership 13. Association, club, or other tax-exempt organization The organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of Agriculture in the The public entity name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your num- ber, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a), or an individual re- tirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a) . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDEN- TIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.-- Section 6109 requires most recipients of dividend, in- terest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are re- quired to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Cer- tain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are sub- ject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or pat- ronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under- payment attributable to that failure unless there is clear and convincing evi- dence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or im- prisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.7 8 FORM OF SUMMARY ADVERTISEMENT EXHIBIT (a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated November 7, 1996 and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In those jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Omega Acquisition Corporation by CS First Boston Corporation ("CS First Boston") or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash 35,252,986 Shares of Common Stock of Eckerd Corporation at $35.00 NET PER SHARE by Omega Acquisition Corporation a wholly-owned subsidiary of J. C. PENNEY COMPANY, INC. Omega Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of J. C. Penney Company, Inc., a Delaware corporation ("Parent"), hereby offers to purchase 35,252,986 shares of common stock, par value $.01 per share (the "Shares"), of Eckerd Corporation, a Delaware corporation (the "Company"), or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, at a price of $35.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 7, 1996 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"). Tendering stockholders who have Shares registered in their names will not be charged brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Following the consummation of the Offer, Purchaser intends to effect the merger described below. THE OFFER, THE PROBATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 6, 1996, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) 35,252,986 SHARES OR SUCH OTHER NUMBER OF SHARES REPRESENTING 50.1% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE DATE OF PURCHASE (THE "MINIMUM CONDITION") AND (2) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIODS IMPOSED BY THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. SEE THE INTRODUCTION AND SECTIONS 1 AND 14 OF THE OFFER TO PURCHASE. The Offer is being made pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of November 2, 1996 (the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, for the commencement of the Offer by Purchaser and further provides that, after the purchase of Shares pursuant to the Offer and subject to the satisfaction or waiver of certain conditions set forth therein, (i) if the Stock Condition (as defined herein) has been satisfied, the Company will be merged with and into Purchaser (the "Forward Merger"), with Purchaser surviving the merger as a direct wholly-owned subsidiary of Parent, or (ii) if the Stock Condition has not been satisfied, Purchaser will be merged with and into the Company ( the "Reverse Merger") with the Company surviving the merger as a direct wholly-owned subsidiary of Parent (the Forward Merger and Reverse Merger are collectively referred to as the "Merger"). The "Stock Condition" will have been satisfied if (i) the aggregate market value of the shares of Parent Common Stock (as defined below) deliverable upon consummation of the Forward Merger (the "Stock Value"), based upon the closing price of such stock on the New York Stock Exchange Composite Tape on the date immediately prior to the effective time of the Merger (the "Effective Time"), is at least 45% of the sum of (y) the Stock Value and (z) the aggregate amount paid by Purchaser to purchase Shares pursuant to the Offer and (ii) if legal counsel to the Company delivers to the Company and legal counsel to Parent delivers to Parent opinions that the Forward Merger will constitute a "tax-free reorganization" (as more fully described in the Merger Agreement). Notwithstanding the foregoing, Parent may, in its sole discretion, increase the number of shares of Parent Common Stock into which Shares will be converted in the Forward Merger so as to satisfy the Stock Condition. Pursuant to the Merger, each Share issued and outstanding immediately prior to the Effective Time (other than (i) Shares owned by the Company, Parent, Purchaser or any other subsidiary of Parent, which Shares shall automatically be cancelled and retired and cease to exist and (ii) in the event of a Reverse Merger, Shares owned by holders who shall have properly exercised their appraisal rights under the Delaware General Corporation Law, if any) will be converted into the right to receive (i) if the Stock Condition has been satisfied and the Forward Merger is effected, 0.6604 shares of Parent's common stock, $.50 par value per share ("Parent Common Stock"), or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, $35.00 in cash (or such greater amount per Share paid pursuant to the Offer) (the "Offer Price"), without interest. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTEREST OF, THE STOCKHOLDERS OF THE COMPANY, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AT THE OFFER PRICE AND THE MERGER, AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY THAT WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES. Purchaser reserves the right, subject to the terms of the Merger Agreement, to extend the Offer by giving oral or written notice of such extension to the Depositary (as defined below). Pursuant to the Merger Agreement, (i) Purchaser may, without the consent of the Company, extend the Offer so as to comply with applicable rules and regulations of the Securities and Exchange Commission and (ii) so long as the Merger Agreement has not been terminated in accordance with its terms, if at the Expiration Date any of the conditions to Purchaser's obligations to accept for payment and pay for Shares are not satisfied or waived, Purchaser will extend the Offer on one or more occasions, provided that Purchaser will not be obligated to extend the Expiration Date beyond February 1, 1997, except in certain circumstances. Any such extension, amendment or termination will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension, to be issued not later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. If more than 35,252,986 Shares, or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, are properly tendered prior to the Expiration Date and not withdrawn in accordance with Section 4 of the Offer to Purchase, Purchaser will, upon the terms and subject to the conditions of the Offer, purchase 35,252,986 Shares, or such other number of Shares representing 50.1% of the Company's outstanding common stock on the date of purchase, on a pro rata basis (with adjustments to avoid purchases of fractional Shares) based upon the number of Shares properly tendered prior to the Expiration Date and not withdrawn. If fewer than 35,252,986 Shares, or fewer than such other number of Shares representing 50.1% of the Company's common stock on the date of purchase, shall have been properly tendered prior to the Expiration Date and not withdrawn, Purchaser shall (i) extend the Offer and retain all such Shares until the expiration of the Offer, as extended, subject to the terms of the Offer, including any rights of stockholders to withdraw their Shares, or (ii) with the consent of the Company, waive the Minimum Condition and purchase all properly tendered Shares. Due to the difficulty of determining the precise number of Shares properly tendered and not withdrawn, if proration is required, Purchaser does not expect to announce the final results of proration or pay for any Shares until at least seven New York Stock Exchange, Inc. trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Holders of Shares may obtain such preliminary information when it becomes available from the Information Agent and may be able to obtain such information from their brokers. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, December 6, 1996, unless and until Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered and not withdrawn, if and when Purchaser gives oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of Purchaser's acceptance of such Shares for payment pursuant to the Offer. In all cases, upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary which will act as agent for tendering stockholders for the purpose of receiving payment from Purchaser and transmitting payment to tendering stockholders. Under no circumstances will interest on the purchase price for Shares be paid by Purchaser by reason of any delay in making such payment. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for such Shares ("Certificates") or a book entry confirmation of the book entry transfer of such Shares into the Depositary's account at the Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth in the Offer to Purchase, (b) the Letter of Transmittal, or facsimile thereof, properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book entry transfer, and (c) any other documents required by the Letter of Transmittal. If, for any reason, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or if Purchaser is unable to accept for payment or pay for Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's rights set forth in the Offer to Purchase, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares and such Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to and duly exercises withdrawal rights as described in Section 4 of the Offer to Purchase. If certain events occur, Purchaser will not be obligated to accept for payment or pay for any Shares tendered pursuant to the Offer. If any tendered Shares are not purchased pursuant to the Offer for any reason, including because of proration, or are not paid for because of invalid tender, or if Certificates are submitted representing more Shares than are tendered, Certificates representing unpurchased or untendered Shares will be returned, without expense to the tendering stockholder (or in the case of Shares delivered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3 of the Offer to Purchase, such Shares will be credited to an account maintained within such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Purchaser pursuant to the Offer, may also be withdrawn at any time after January 5, 1997. In order for a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and the name of the registered holder, if different from that of the person who tendered such Shares. If Certificates have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Certificates, the serial numbers shown on such Certificates evidencing the Shares to be withdrawn must be submitted to the Depositary and the signature on the notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company or savings bank having an office or correspondent in the United States (each an "Eligible Institution") unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. Any Shares properly withdrawn will be deemed not to be validly tendered for purposes of the Offer. Withdrawn Shares may, however, be retendered by repeating one of the procedures in Section 3 of the Offer to Purchase at any time before the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, whose judgement will be final and binding on all parties. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to Purchaser its stockholder list and security positions listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Requests for copies of the Offer to Purchase, the Letter of Transmittal and other related materials may be directed to the Information Agent, the Dealer Manager or to brokers, dealers, commercial banks or trust companies. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Call Toll Free: (800) 848-3155 The Dealer Manager for the Offer is: CS FIRST BOSTON Park Avenue Plaza 55 East 52nd Street New York, NY 10055 Call Toll-Free (800) 917-2291 November 7, 1996 EX-99.A.8 9 TEXT OF JOINT PRESS RELEASE EXHIBIT (a)(8) JCPenney NEWS RELEASE FOR IMMEDIATE RELEASE JCPENNEY TO ACQUIRE ECKERD CORPORATION FOR $3.3 BILLION --Combination of Eckerd and Thrift Will Create a $10 Billion Leader in the U.S. Drug Store Industry-- Plano, Texas, November 3, 1996 -- JCPenney Company, Inc. (NYSE: JCP) and Eckerd Corporation (NYSE:ECK) today announced a definitive agreement to combine JCPenney's Thrift and the Eckerd drug store operations through a cash and stock acquisition of Eckerd by JCPenney. The aggregate transaction value, including the assumption of $760 million of Eckerd debt, is $3.3 billion. The transaction will be effected through a cash tender offer at $35.00 per share for approximately 37.1 million shares, or 50.1%, of Eckerd stock, to be followed by a second-step merger in which Eckerd shareholders will receive 0.6604 of a share of JCPenney stock for each remaining Eckerd share not purchased in the cash tender offer (valued at $35.00 per Eckerd share, based on the price of JCPenney's stock as of the close of trading on November 1, 1996). In conjunction with the transaction, JCPenney's board has authorized a stock repurchase program of up to 15 million of its shares, which will occur prior to the issuance of approximately 24 million JCPenney shares to be issued as part of the second-step merger. James E. Oesterreicher, Chief Executive Officer of JCPenney Company, said "Our acquisition of Eckerd represents a major strategic step which creates one of the nation's premier drug store businesses. Having been in the drug store business for more than 27 years, it is a business that we know and run well, and that offers an attractive long-term growth platform to complement our strong and growing department store and catalog business, whose outlook remains outstanding." The planned acquisition would create a combined drug store operation with a leading industry position. After the combination, JCPenney is expected to have Public Relations J.C. Penney Company, Inc., 6501 Legacy Drive, Plano, Texas 75024 approximately 2,800 drug stores and approximately 25 million square feet of drug store retail space stretching across the Northeast, Midwest and the Sunbelt, with combined projected fiscal 1997 sales approaching $10 billion. JCPenney has been a leading player in the consolidating drug store sector over the past eighteen months. This acquisition follows on the acquisition of Kerr Drug Stores in North Carolina in 1995, Fay's in the Northeast in October 1996, and the pending purchase of 200 Rite Aid stores which is projected to be completed in early 1997. With the acquisition of Eckerd, JCPenney's drug store operations will represent about one third of its total sales and will be a significant contributor to the company's earnings. Mr. Oesterreicher said, "We were particularly attracted to Eckerd because of its impressive record of sales and earnings growth, its excellent geographic fit with Thrift, and its strong presence and brand name recognition in markets with large and growing populations. We anticipate significant synergy from both cost reductions and revenue enhancements. In addition, JCPenney brings merchandising opportunities and operational expertise which we believe will add further value to the front end of the drug store. The effect of the cost savings, combined with the share repurchase, is expected to make the transaction accretive to JCPenney's earnings per share in 1998." Frank A. Newman, President and Chief Executive Officer of Eckerd, said: "We considered a number of strategic alternatives and the management and Board of Directors of Eckerd unanimously concluded that this transaction with JCPenney is best for Eckerd's shareholders, employees and customers. It is best for our shareholders because they will receive a generous price for their investment in Eckerd and an opportunity to continue to participate in our continuing growth through their investment in JCPenney. Our associates and customers will have the added advantage of benefiting from our alliance with JCPenney, one of America's largest and best known retailers." 2 Mr. Newman will become Chief Executive Officer of the combined Thrift and Eckerd. Mr. Newman will report directly to Mr. Oesterreicher and will become a member of the JCPenney Company Management Committee. A transition team headed by Mr. Newman and including John E. Fesperman, JCPenney Senior Vice President and Chairman of the Board of Thrift, and Robert Hannan, President and Chief Executive Officer of Thrift, has been formed to ensure an orderly integration of the two operations. The transaction, which has been unanimously approved by the Boards of Directors of JCPenney and Eckerd, is subject to Eckerd shareholder and customary regulatory approvals. It is contemplated that the exchange of shares in the second step of the transaction will be tax-free to Eckerd shareholders. It is expected that both the acquisition and the share repurchase will be completed in early 1997. CS First Boston acted as financial advisor to JCPenney and Merrill Lynch & Co. was financial advisor to Eckerd. Eckerd Corporation, a Fortune 500 company, is one of America's largest retail drug chains with sales of over $5.0 billion in 1995. The company operates 1,724 drug stores in 13 states and 542 Eckerd Express Photo labs in eleven states. JCPenney is America's largest department store, operating approximately 1,250 JCPenney stores in all 50 states, Puerto Rico, Mexico, and Chile. The Company merchandises approximately 116 million square feet of space, the majority of which is in premier shopping malls, more store space than any other U.S. department store. In addition, Company licensees operate smaller JCPenney Collections stores offering JCPenney private brand merchandise to consumers in the Middle East, Indonesia, and the Philippines. The JCPenney Catalog is the No. 1 catalog in sales in the United States. Additional businesses include Thrift Drug; JCPenney insurance companies; and JCPenney National Bank. 3 Contact: Duncan Muir (972)431-1913 (Sunday, November 3, 1996) (972)431-1329 (Monday, November 4, 1996) NOTE TO EDITORS: A photo to accompany this story can be retrieved in digital form by media without charge from Wieck Photo DataBase (972)392-0888. ### 4 - -------------------------------------------------------------------------------- Store Locations - -------------------------------------------------------------------------------- 2,814 Stores 24.9 Million Retail Square Feet [GRAPHIC of a MAP] - -------------------------------------------------------------------------------- Source: Directory of Drug Store and HBC Chains, June 1996. - -------------------------------------------------------------------------------- EX-99.B.1 10 COMMITMENT LETTER FROM CREDIT SUISSE EXHIBIT (b)(1) [LETTERHEAD OF CREDIT SUISSE] October 31, 1996 J.C. Penney Company, Inc. 6501 Legacy Drive Plano, TX 75024-3698 Attn: Mr. Donald A. McKay Senior Vice President and Chief Financial Officer Ladies & Gentlemen: You have advised Credit Suisse ("CS") that Acquiror ("Acquiror" or the "Company") intends, either directly or through a newly formed wholly-owned subsidiary ("Acquisition Co."), to acquire a company previously identified to us ("Sunshine") pursuant to a tender offer for up to 50.1% of the common stock of Sunshine ("Tender Offer") followed by a merger in which Acquisition Co. will merge into Sunshine and the Company will acquire the remaining shares of common stock of Sunshine in exchange for common stock of the Company (the "Merger"; collectively the "Acquisition"). Upon completion of the Acquisition, Sunshine will be a wholly-owned subsidiary of the Company. We understand that the Company and its wholly-owned subsidiary, Acquiror Funding Corporation ("Funding"), will require up to S3,000.000.000 of senior bank debt facilities to be used to finance the Acquisition, to refinance certain existing indebtedness of Sunshine (the "Refinacing"), to puruchase in the open market up to 15 million shares of the common stock of the Company (which we understand you expect to do concurrently with the Acquisition) (the "Stock Repurchase") and to pay related fees and expenses and for general corporate purposes. The Acquisition, the Refinancing and the Stock Repurchase are referred to herein as the "Transaction." CS understands that the sources of funds required to consummate the Transaction, to pay the related fees and expenses in connection therewith and to provide for the ongoing working capital needs of the Company and its subsidiaries (including Sunshine after the Merger) will be provided solely from (i) the issuance by the Company to the existing shareholders of Sunshine of shares of the Company's common stock and (ii) the incurrence by the Company and/or Funding of the senior bank financing described below (the "Senior Bank Financing"); provided that the aggregate amount of Senior Bank Financing used to finance the Acquisition will not exceed an amount to be agreed upon. CS further understands that the Senior Bank Financing will be comprised of (i) a 364-day Revolving Credit Facility of up to $l,500,000,000 (the "364-day Facility") and (ii) a five-year Revolving Credit Facility of up to $1,500,000,000 (the "5-year Facility). A summary of certain of the terms and conditions of the Senior Bank Financing are set forth in the attached Summary of Terms and Conditions (the "Term Sheet"). CS is pleased to advise you of its commitment to provide, subject to the terms and conditions contained in this letter and in the Term Sheet, up to $2,500,000,000 of the Senior Bank Financing, on a pro rata basis between the 364-day Facility and the 5-year Facility and that it is willing to act as advisor and arranger (the "Arranger") for the Senior Bank Financing. Please note that the terms and conditions of CS's commitment and undertaking are not limited to those set forth herein or in the Term Sheet. Those matters that are not covered or made clear herein or in the Term Sheet are subject to mutual agreement of the parties. The terms and conditions of CS's commitment and undertaking may be modified only in writing signed by CS. In addition, CS's commitment and undertaking is subject to: (a) the prepartaion, execution and delivery of mutually acceptable loan documentation, including a credit agreement incorporating substantially the terms and conditions outlined herein and in the Term Sheet; (b) there not occurring or becoming known to us any material adverse change in the business, assets, operations, or financial condition of the Company, Funding or the Company and its subsidiaries, taken as a whole, since January 27, 1996 except as disclosed in the Company's quarterly reports on Form 10-Q for the first two quarters of fiscal 1997 or Sunshine and its subsidiaries, taken as a whole, since February 3, 1996 except as disclosed in Sunshine's quarterly reports on Form 10-Q for the first two quarters of Fiscal 1997; (c) since the date of this letter, there not occurring any material change in or material disruption of financing, bank syndication or capital market conditions that in the good faith opinion of the Arranger could materially and adversely affect the syndication of the Senior Bank Financing; (d) our not becoming aware after the date hereof of any information or other matter relating to Acquiror and/or Sunshine which is inconsistent in a material and adverse manner with any information or other matter disclosed by the Company to us prior to the date hereof, and (e) the absence, prior to and during the syndication of the Senior Bank Financing, of any competing offering, placement or arrangement of any debt securities or bank credit facilities for the Company, Sunshine or any of their respective subsidiaries, it being understood that the renewal of the Company's existing bank facilities aggregating $3,000,000,000 be excluded for the purposes of this clause. CS's commitment and undertaking set forth in this letter will terminate on January 29,l997 unless definitive documentation with respect to the Senior Bank Financing satisfactory to CS and its counsel shall have been executed and delivered by the Company and the Lenders on or before such date and the Tender Offer (or the Merger, if there is no Tender Offer) closes on or before such date or such other date as shall be mutually agreed. In connection with the Senior Bank Financing, CS shall act as Administraive Agent. CS intends to syndicate the Senior Bank Financing (including, in its discretion, all or part of CS's commitment hereunder) to a group of financial institutions (together with CS, the "Lenders"). All aspects of the syndication, including decisions as to the selection of institutions to be approached, when their commitments will be accepted, the tiering and allocations of the commitments among the Lenders and the amount, timing and distribution of fees among the Lenders shall, in each case, be subject to mutual agreement of the Arranger and Acquiror. CS intends to commence syndication no later than the launch of the Tender Offer, and you agree actively to assist CS in completing a syndication satisfactory to it. The Company agrees to assist CS in the formation of the syndicate of Lenders both before and after the execution of the definitive credit documentation, which assistance shall include but not be limited to: (a) making senior management and representatives of the Company and Sunshine (if appropriate) and their respective subsidiaries reasonably available to participate in meetings with potential Lenders at such times and places as CS may reasonably request; (b) using all reasonable efforts to ensure that the syndication efforts benefit from the Company's existing bank relationships; and (c) providing CS with all information reasonably deemed necessary to complete the syndication successfully including, without limitation, the preparation of such offering materials as CS may reasonably require. CS has reviewed certain historical and projected pro forma financial statements of the Company and Sunshine prior to giving effect to the Transaction, and of the Company after giving effect to the Transaction. As you are aware, CS has not had the opportunity to complete its business, financial or accounting due diligence with respect to the Transaction, the Company, Sunshine or their respective subsidiaries or perform its legal due diligence analysis and review with respect to the foregoing. CS's willingness to provide or participate in the financing described in this letter is therefore also subject to the completion of such analysis and review (but, in the case of Sunshine such review will be limited to publicly available information and such other information with respect to Sunshine as has been made available to Acquiror) and its satisfaction with the results thereof. In the event that CS's continuing review of the Transaction, the Company, Sunshine or their respective subsidiaries discloses information relating to conditions or events not previously disclosed to CS or relating to new information or additional developments concerning conditions or events previously disclosed to CS which CS believes may have a material adverse effect on the Transaction, or on the condition (financial or otherwise), assets, properties, operations, prospects or business of the Company, Sunshine or their respective subsidiaries, CS may, in its sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the proposed financing. No Lender shall be responsible or liable to you or to any other person or entity for any loss which may be alleged as a result of CS's or such other Lender's failure to provide the Senior Bank Financing. The Company hereby represents and covenants that (a) all information, other than Projections (as defined below), which has been or is hereafter made available to CS or the Lenders by the Company or any of your representatives in connection with the transactions contemplated hereby (the "Information") is and will be complete (at the time it is made available) and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not materially misleading and (b) all financial projections concerning the Company and Sunshine that have been or are hereafter made available to CS or the Lenders by the Company in connection with the transactions contemplated hereby (the "Projections") have been or will be prepared in good faith based upon reasonable assumptions provided however that the former representation and warranty is made only to the best of your knowledge in the case of Information relating to Sunshine and its subsidiaries, which knowledge is principally based upon public disclosure by Sunshine. The Company agrees to supplement the Information and the Projections from time to time until the closing date for the Transaction so that the representation and warranty in the preceding sentence is true and correct on the closing date. The Company acknowledges that in arranging and syndicating the Senior Bank Financing, CS will be using and relying on the Information and the Projections without independent verification thereof. In addition to the fees described in the Term Sheet, the Company agrees to pay the non-refundable fees set forth in the fee letter dated the date hereof with CS (the "Agreed Fees"). The Company agrees to indemnify and hold harmless CS and each other Lender that may participate in the Senior Bank Financing and their respective affiliates and officers, directors, employees, agents and advisors (each an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation of a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with the Senior Bank Financing, whether or not such investigation, litigation or proceeding is brought by the Company, Sunshine, the Company's or Sunshine's shareholders or creditors or an Indemnified Party or an Indemnified Party is otherwise a party thereto and whether or not the Transaction or the Senior Bank Financing and the transactions contemplated hereby and thereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In further consideration of the commitment of CS and recognizing that in connection herewith CS is incurring substantial costs and expenses in connection with the Transaction and the Senior Bank Financing (as well in connection with the preparation and/or review of the documentation with respect thereto), including, without limitation, reasonable fees and expenses of counsel and due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, facsimile, telecommunications, duplication, audit, insurance, consultant, research, filing and recording fees, the Company agrees to pay, from time to time on request, such costs and expenses (whether incurred before or after the date hereof), regardless of whether the Transaction or the Senior Bank Financing is consummated or any loan documentation is entered into. The Company should be aware that CS or its respective affiliates may be providing financing or other services to parties whose interests may conflict with the Company's. However, be assured that , consistent with its long-standing policies to hold in confidence the affairs of its customers, CS and its affiliates will hold all information provided to CS by the Company that is not otherwise publicly available as confidential information in accordance with customary banking practice. The Company should be aware, however, that CS will furnish confidential information to potential Lenders that have agreed to treat such information confidentially. CS reserves the right to employ the services of its affiliates (including CS First Boston Corporation) in providing the services contemplated by this letter and to allocate, in whole or in part, to such affiliates certain fees payable to CS in such manner as CS and its affiliates may agree in their sole discretion. You acknowledge that CS may share with any of its affiliates, and such affiliates may share with CS, any information relating to the Company, Sunshine and their respective affiliates and subsidiaries (including, without limitation, any non-public information regarding the creditworthiness of such entities) or the Transaction subject to CS's customary treatment of customer confidential information. The Company agrees that this letter is for the Company's confidential use only and will not be disclosed by the Company to any person other than the Company's accountants, attorneys and other advisors, and then only in connection with the transaction and on a confidential basis, except that, following the Company's acceptance hereof, the Company may (i) make public disclosure of the existence and amount of CS's commitment, (ii) may file a copy of this letter in any public record in which it is required by law to be filed and (iii) may make such other public disclosures of the terms and conditions hereof as the Company is required by law, in the opinion of the Company's counsel, to make; provided that the disclosure of the fee letter is subject to the restrictions set forth therein. In issuing this commitment and undertaking, as the case may be, CS is relying on the accuracy of the information furnished by the Company on the Company's behalf. This letter is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. Delivery of an executed counterpart of this letter by telecopier shall be effective as delivery of a manually executed counterpart of this letter. The Company hereby irrevocably waives all right to trial by jury of any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this letter, the transactions contemplated hereby or the actions of CS in the negotiation, performance or enforcement hereof. Please evidence your acceptance of the provisions of this letter, the Term Sheet and the other matters referred to above by signing the enclosed copy of this letter, together with the related fee letter, and returning the same to the undersigned at or before 11:59 P.M. (New York City time) on November 1, 1996, the time at which CS's undertaking set forth above (if not so accepted prior thereto) will expire. Very truly yours, CREDIT SUISSE By /s/ Ann Lopez --------------------------------- Title: Member of Senior Management By /s/ Christopher Cunningham --------------------------------- Title: Member of Senior Management ACCEPTED this 31 day ---- of October, 1996 Acquirer By /s/ Robert B. Cavanaugh --------------------------------- Title: Vice President and Treasurer 1 SUMMARY OF TERMS AND CONDITIONS FOR PROJECT SUNSHINE Borrower: Prior to the Merger, the Company, Acquisition Co. and/or Funding. After the Merger, Acquiror, Funding and Sunshine, jointly and severally. Guarantor: All borrowings of Funding, Acquisition Co. and/or Sunshine will be guaranteed by Acquiror on terms consistent with Acquiror's and Funding's existing bank credit facility. Amount: $1,500,000,000 Purpose: Borrowings by Acquiror will be used to provide funds for the Transaction and the balance for general corporate purposes. Borrowings by Funding will be lent to Acquiror or invested in certain permitted investments on terms consistent with Acquiror's and Funding's existing bank credit facility. Arranger, Administrative and Auction Agent: Credit Suisse ("CS") CS's Initial Commitment: $1,250,000,000 Lenders: Syndicate of lenders acceptable to the Borrower. Facility Description: A revolving credit facility with a final maturity of 364 days from the Closing Date. Borrowing Options: LIBOR, CD, Base Rate, and Money Market. Base Rate means the higher of the Agent's publicly announced reference rate or the federal funds rate + 0.50% per annum. Swing Line: A portion of the 364-day Facility not in excess of $25,000,000 shall be available for swing line loans (the "Swing Line Loans" from CS (in such capacity, the "Swing ---------------- ----- Line Lender") on same-day notice. Each other Lender ----------- under the 364-day Facility shall agree to take, under certain circumstances, an irrevocable and unconditional pro rata participation in each Swing Line Loan. All --- ---- Swing Line Loans will be Base Rate Loans. Money Market Option Description: The Borrower may request the Auction Agent to solicit competitive bids from the Lenders at a margin over LIBOR or at an absolute rate. Each Lender will bid at its own discretion for amounts up to the total amount of commitments and the Borrower will be under no obligation 2 to accept any of the bids. Any Money Market advance made by a Lender shall be deemed usage of the facility for the purpose of utilization fees and availability. However, each Lender's advance shall not reduce such Lender's obligation to lend its pro rata share of the remaining undrawn commitment. Bid Selection Mechanism: The Borrower will determine the aggregate amount of bids, if any, it will accept. Bids will be accepted in order of the lowest to the highest rates ("Bid Rates"). If two or more Lenders bid at the same Bid Rate and the amount of such bids accepted is less than the aggregate amount of such bids, then the amount to be borrowed at such Bid Rate will be allocated among such Lenders in proportion to the amount for which each Lender bid at such Bid Rate. If the bids are either unacceptably high to the Borrower or are insufficient in amount, the Borrower may cancel the auction. Pricing: Pricing on the commitments and loans will vary according to the Pricing Level commensurate with credit quality as per the attached Pricing Grid. Facility Fee: A per annum fee calculated on a 360 days basis payable on each Lender's commitment irrespective of usage, quarterly in arrears and on termination of the facility. See attached Pricing Grid. Reference Lenders: CS and two Lenders representative of the lender group. Interest Payments: At the end of each applicable Interest Period or quarterly; if earlier. Interest Periods: Syndicated Borrowings: Base Rate - 30 days. LIBOR Loans - 1, 2, 3, or 6 months. CD Loans - 30, 60, 90, or 180 days. Non-Syndicated Borrowings: Money Market LIBOR Loans - minimum 1 month. Money Market Absolute Rate Loans - minimum 7 days. Swing Line Loans - 1 day. Drawdowns: Minimum amounts of $25 million with additional increment of $1 million for Syndicated Borrowings. Minimum amounts of $10 million for Non-Syndicated Borrowings. Drawndowns are at the Borrower's option with same day notice for Swing Line Loans, one business day's notice for Base Rate Loans, one business day's notice for Money Market Absolute Rate and CD Loans, three business days' notice for LIBOR Loans, and four business days' notice for Money Market LIBOR Loans. 3 Prepayments: Base Rate Loans may be prepaid at any time on one business day's notice. LIBOR and CD loans may be prepaid subject to the payment of funding losses. Money Market Loans may not be prepaid before the end of an Interest Period. Representations and Warranties: To include: 1. Corporate existence 2. Corporate and governmental authorization; no contravention; binding effect 3. Financial information 4. No material adverse change 5. Title to Properties; Possession under leases 6. Restricted Subsidiaries 7. Environmental matters 8. Compliance with ERISA 9. No material litigation 10. Existence, incorporation, etc. of subsidiaries 11. Not an Investment Company 12. Federal Reserve Regulations 13. Full disclosure 14. Any additional representations and warranties appropriate in light of the acquisition of Sunshine and reasonable in the context of a public tender offer. 15. Use if Proceeds 16. Tax returns 17. Material Misstatements 18. Support Agreements Conditions to Borrowing: To include: 1. Absence of default 2. Accuracy of representations and warranties 3. Negotiation and execution of satisfactory closing documentation. 4. Appropriate conditions relating to the acquisition of Sunshine and reasonable in the context of a public tender offer, including, without limitation, fulfillment of conditions to acceptance of tendered shares. Covenants: To include, subject to modification (i) to the extent appropriate in light of the acquisition of Sunshine and (ii) to comply with margin regulations: 1. Limitation on Liens 2. Maintenance of property; insurance coverage. 3. Restricted Subsidiaries 4. Consolidations; mergers and sales of assets 5. Use of proceeds 4 6. Consolidated Net Tangible Assets/Senior Funded Indebtedness consistent with the Acquiror's existing indenture. Events of Default: To include: 1. Failure to pay any principal under the Credit Agreement within one day of when due or interest or fees within five business days of when due. 2. Failure to meet covenants (with 20 days' grace, where appropriate). 3. Representations or warranties false in any materially adverse respect when made. 4. Cross default to Material Debt (defined as $50,000,000) of the Borrower and its Subsidiaries (other than Debt of Sunshine and its Subsidiaries, not to exceed an aggregate principal amount to be agreed, which becomes due and payable as a result of, and is paid within a period to be agreed after, the acquisition of Sunshine) which is triggered by an event which permits or, with the giving of notice or lapse of time (or both), would permit the holder to accelerate its debt or terminate its commitment. 5. Change of ownership or control of Funding. 6. Bankruptcy and insolvency defaults with respect to the Borrower and Material Subsidiaries (defined as subsidiaries having assets greater than $150,000,000). 7. Other defaults including ERISA and judgment default. Increased Costs/Change of Circumstances: The credit agreement will contain customary provisions protecting the Lenders in the event of unavailability of funding, illegality, increased costs and funding losses and new capital adequacy requirements. Indemnification: The Borrower will indemnify the Lenders against all losses, liabilities, claims, damages, or expenses in connection with proceedings relating to the Credit Agreement and the Borrower's use of loan proceeds, including but not limited to reasonable attorneys' fees and settlement costs (except such as result from the indemnitee's gross negligence or willful midconduct). Transfers and Participations: Lenders will have the right to transfer or sell participations in their loans or commitments with the transferability of voting rights limits to change in principal, rate, fees and term. Assignments, in minimum of $10,000,000 (or all of a Lender's loans and commitments ) will be allowed with the consent of the Borrower, not unreasonably withheld, and notification to the Administrative Agent. Assignments to affiliates or to Lenders do not require prior consent of the Borrower. 5 Expenses: Borrower will pay all reasonable legal and other out-of- pocket expenses of the Administrative and Auction Agent (the "Agent") related to this transaction and any subsequent amendments or waivers, including the reasonable fees and expenses of Simpson Thacher & Bartlett, special counsel to the Agent. Governing Law: State of New York. 1 SUMMARY OF TERMS AND CONDITIONS FOR PROJECT SUNSHINE Borrower: Prior to the Merger, the Company, Acquisition Co. and/or Funding. After the Merger, Acquiror, Funding and Sunshine, jointly and severally. Guarantor: All borrowings of Funding, Acquisition Co. and/or Sunshine will be guaranteed by Acquiror on terms consistent with Acquiror's and Funding's existing bank credit facility. Amount: $1,500,000,000 Purpose: Borrowings by Acquiror will be used to provide funds for the Transaction and the balance for general corporate purposes. Borrowings by Funding will be lent to Acquiror or invested in certain permitted investments on terms consistent with Acquiror's and Funding's existing bank credit facility. Arranger, Administrative and Auction Agent: Credit Suisse ("CS") CS's Initial Commitment: $1,250,000,000 Lenders: Syndicate of lenders acceptable to the Borrower. Facility Description: A revolving credit facility with a final maturity of five years from the Closing Date. Borrowing Options: LIBOR, CD, Base Rate, and Money Market. Base Rate means the higher of the Agent's publicity announced reference rate or the federal funds rate + 0.50% per annum. Money Market Option Description: The Borrower may request the Auction Agent to solicit competitive bids from the Lenders at a margin over LIBOR or at an absolute rate. Each Lender will bid at its own discretion for amounts up to the total amount of commitments and the Borrower will be under no obligation to accept any of the bids. Any Money Market advance made by a Lender shall be deemed usage of the facility for the purpose of utilization fees and availability. However, each Lender's advance shall not reduce such Lender's obligation to lend its pro rata share of the remaining undrawn commitment. Bid Selection Mechanism: The Borrower will determine the aggregate amount of bids, if any, it will accept. Bids will be accepted in order of the lowest to highest rates ("Bid Rates"). If two or more Lenders bid at the same Bid Rate and the amount of such bids accepted is less than the aggregate amount of such bids, then the amount to be borrowed at such Bid Rate will be allocated among such Lenders in proportion to the amount for which each Lender bid at such Bid Rate. If the bids are either unacceptably 2 high to the Borrower or are insufficient in amount, the Borrower may cancel the auction. Pricing: Pricing on the commitments and loans will vary according to the Pricing Level commensurate with credit quality as per the attached Pricing Grid. Facility Fee: A per annum fee calculated on a 360 days basis payable on each Lender's commitment irrespective of usage, quarterly in arrears and on termination of the facility. See attached Pricing Grid. Reference Lenders: CS and two Lenders representative of the lender group. Interest Payments: At the end of each applicable Interest Period or quarterly, if earlier. Interest Periods: Syndicated Borrowing: Base Rate - 30 days. LIBOR Loans - 1, 2, 3 or 6 months. CD Loans - 30, 60, 90 or 180 days. Non-Syndicated Borrowings: Money Market LIBOR Loans - minimum 1 month. Money Market Absolute Rate Loans - minimum 7 days. Drawdowns: Minimum amounts of $25 million with additional increment of $1 million for Syndicated Borrowings. Minimum amounts of $10 million for Non-Syndicated Borrowings. Drawdowns are at the Borrower's option with one business day's notice for Base Rate Loans, one business day's notice for Money Market Absolute Rate and CD Loans, three business days' notice for LIBOR Loans, and four business days' notice for Money Market LIBOR Loans. Prepayments: Base Rate Loans may be prepaid at any time on one business day's notice. LIBOR and CD loans may be prepaid subject tot he payment of funding losses. Money Market Loans may not be prepaid before the end of an Interest Period. Representations and Warranties: To include: 1. Corporate existence 2. Corporate and governmental authorization; no contravention; binding effect 3. Financial information 4. No material adverse change 5. Title to Properties; Possession under leases 6. Restricted Subsidiaries 7. Environmental matters 8. Compliance with ERISA 3 9. No material litigation 10. Existence, incorporation, etc. of subsidiaries. 11. Not an Investment Company 12. Federal Reserve Regulations 13. Full disclosure 14. Any additional representations and warranties appropriate in light of the acquisition of Sunshine and reasonable in the context of a public tender offer. 15. Use of Proceeds 16. Tax Returns 17. Material Misstatements 18. Support Agreements Conditions to Borrowing: To include: 1. Absence of default 2. Accuracy of representations and warranties 3. Negotiation and execution of satisfactory closing documentation 4. Appropriate conditions relating to the acquisition of Sunshine and reasonable in the context of a public tender offer, including, without limitation, fulfillment of conditions to acceptance of tendered shares. Covenants: To include, subject to modification (i) to the extent appropriate in light of the acquisition of Sunshine and (ii) to comply with margin regulations: 1. Limitation on Liens 2. Maintenance of property, insurance coverage 3. Restricted Subsidiaries 4. Consolidations; mergers and sale of assets. 5. Use of proceeds 6. Consolidated Net Tangible Assets/Senior Funded Indebtedness consistent with the Acquiror's existing indenture. Events of Default: To include: 1. Failure to pay any principal under the Credit Agreement within one day of when due or interest or fees within five business days of when due. 2. Failure to meet covenants (with 20 days' grace, where appropriate). 3. Representations or warranties false in any materially adverse respect when made. 4. Cross default to Material Debt (defined as $50,000,000) of the Borrower and its Subsidiaries (other than Debt of Sunshine and its Subsidiaries, not to exceed an aggregate principal amount to be agreed, which becomes due and payable as a result of, and is paid within a period to be agreed after, the acquisition of Sunshine) which is triggered by an event which permits or, with the giving of notice or 4 lapse of time (or both), would permit the holder to accelerate its debt or terminate its commitment. 5. Change of ownership or control of Funding. 6. Bankruptcy and insolvency defaults with respect to the Borrower and Material Subsidiaries (defined as subsidiaries having assets greater than $150,000,000). 7. Other defaults including ERISA and judgment default. Increased Costs/Change of Circumstances: The credit agreement will contain customary provisions protecting the Lenders in the event of unavailability of funding, illegality, increased costs and funding losses and new capital adequacy requirements. Indemnification: The Borrower will indemnify the Lenders against all losses, liabilities, claims, damages, or expenses in connection with proceedings relating to the Credit Agreement and the Borrower's use of loan proceeds, including but not limited to reasonable attorneys' fees and settlement costs (except such as result from the indemnitee's gross negligence or willful misconduct). Transfers and Participations: Lenders will have the right to transfer or sell participations in their loans or commitments with the transferability of voting rights limited to changes in principal, rate, fees and term. Assignments, in minimum of $10,000,000 (or all of a Lender's loans and commitments) will be allowed with the consent of the Borrower, not unreasonably withheld, and notification to the Administrative Agent. Assignments to affiliates or to Lenders do not require prior consent of the Borrower. Expenses: Borrower will pay all reasonable legal and other out-of-pocket expenses of the Administrative and Auction Agent (the "Agent") related to this transaction and any subsequent amendments or waivers, including the reasonable fees and expenses of Simpson Thacher & Bartlett, special counsel to the Agent. Governing Law: State of New York. EX-99.C.1 11 AGREEMENT AND PLAN OF MERGER EXHIBIT (c)(1) - ------------------------------------------------------------------------------- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of November 2, 1996 among J.C. PENNEY COMPANY, INC. OMEGA ACQUISITION CORPORATION and ECKERD CORPORATION - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I THE OFFER........................ 2 SECTION 1.1 The Offer................................. 2 SECTION 1.2 Company Action............................ 4 SECTION 1.3 Directors................................. 5 ARTICLE II THE MERGER........................ 6 SECTION 2.1 The Merger................................ 6 SECTION 2.2 Closing................................... 7 SECTION 2.3 Effective Time............................ 7 SECTION 2.4 Effects of the Merger..................... 8 SECTION 2.5 Certificate of Incorporation; By-laws..... 8 SECTION 2.6 Directors; Officers....................... 8 ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS.......... 8 SECTION 3.1 Effect on Capital Stock................... 8 SECTION 3.2 Stock Options............................. 10 ARTICLE IV PAYMENT FOR SHARES.................... 11 SECTION 4.1 Payment For Shares........................ 11 ARTICLE V REPRESENTATIONS AND WARRANTIES.............. 15 SECTION 5.1 Representations and Warranties of Company.............................. 15 SECTION 5.2 Representations and Warranties of Parent and Purchaser................. 28 ARTICLE VI COVENANTS........................ 34 SECTION 6.1 Conduct of Business of Company............ 34 A-i Page ARTICLE VII ADDITIONAL AGREEMENTS.................. 37 SECTION 7.1 Preparation of the Proxy Statement and the Form S-4; Accountant's Letters.. 37 SECTION 7.2 Stockholders Meeting...................... 39 SECTION 7.3 Access to Information; Confidentiality.... 39 SECTION 7.4 Best Efforts.............................. 40 SECTION 7.5 Indemnification; Directors' and Officers Insurance.................. 40 SECTION 7.6 Public Announcements...................... 42 SECTION 7.7 No Solicitation; Acquisition Proposals.... 42 SECTION 7.8 Consents, Approvals and Filings........... 44 SECTION 7.9 Stockholder Litigation.................... 45 SECTION 7.10 Board Action Relating to Stock Option Plans...................... 45 SECTION 7.11 Employment and Employee Benefit Matters... 45 SECTION 7.12 Affiliates and Certain Stockholders....... 45 SECTION 7.13 NYSE Listing.............................. 46 ARTICLE VIII CONDITIONS PRECEDENT................... 46 SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.................... 46 SECTION 8.2 Conditions to Obligations of Parent and Purchaser........................... 46 SECTION 8.3 Conditions to Forward Merger.............. 47 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............ 47 SECTION 9.1 Termination............................... 47 SECTION 9.2 Effect of Termination..................... 49 SECTION 9.3 Amendment................................. 49 SECTION 9.4 Extension; Waiver......................... 50 SECTION 9.5 Procedure for Termination, Amendment, Extension or Waiver.......... 50 ARTICLE X GENERAL PROVISIONS.................... 50 SECTION 10.1 Nonsurvival of Representations and Warranties.......................... 50 SECTION 10.2 Fees and Expenses......................... 50 SECTION 10.3 Definitions............................... 51 SECTION 10.4 Notices................................... 52 SECTION 10.5 Interpretation............................ 52 ii Page SECTION 10.6 Counterparts.............................. 53 SECTION 10.7 Entire Agreement; Third-Party Beneficiaries............... 53 SECTION 10.8 Governing Law............................. 53 SECTION 10.9 Assignment................................ 53 SECTION 10.10 Enforcement............................... 53 SECTION 10.11 Severability.............................. 54 iii AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 2, 1996, among J.C. PENNEY COMPANY, INC., a Delaware corporation ("Parent"), OMEGA ACQUISITION CORPORATION, a Delaware corporation and wholly-owned subsidiary of Parent ("Purchaser"), and ECKERD CORPORATION, a Delaware corporation ("Company"). W I T N E S S E T H : ------------------- WHEREAS, the respective Boards of Directors of Parent, Purchaser and Company have determined that it would be advisable and in the best interests of their respective stockholders for Company to merge with and into Purchaser pursuant and subject to the terms and conditions set forth in this Agreement (the "Forward Merger"); WHEREAS, if the Stock Condition (as defined herein) has not been met, the parties desire to permit an alternate merger structure providing for the merger of Purchaser with and into Company (the "Reverse Merger"), and the surviving corporation shall thereby become a wholly-owned subsidiary of Parent; WHEREAS, to effect either such transaction, it is proposed that Purchaser shall make a tender offer (the "Offer") to acquire 35,252,986 shares of Company's common stock, $.01 par value per share (the "Shares"), or such other number of shares representing 50.1% of Company's outstanding shares, at a price per share of $35, net to the seller in cash (such amount, or any greater amount per share paid pursuant to the Offer, being hereinafter referred to as the "Offer Consideration"), pursuant and subject to the terms and conditions set forth in this Agreement; WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition to Parent's and Purchaser's willingness to enter into this Agreement, Company and Parent have entered into a Stock Option Agreement (the "Stock Option Agreement") attached as Exhibit C; WHEREAS, for Federal income tax purposes, it is intended that the Forward Merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the "Code"); and WHEREAS, Parent, Purchaser and Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto hereby agree as follows: ARTICLE I THE OFFER SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have --------- been terminated pursuant to Article IX and none of the events or conditions set forth in Exhibit A shall have occurred or be existing, Purchaser shall, and Parent shall cause Purchaser to, commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the Offer as promptly as practicable (but in no event later than the fifth business day from and including the date of the initial public announcement of the execution and delivery of this Agreement). Subject to the terms and conditions of the Offer, Purchaser shall accept for payment at the Offer Consideration (and thereby purchase) and pay for 35,252,986 of the Shares that have been validly tendered and not withdrawn pursuant to the Offer (or such other number of shares representing 50.1% of Company's outstanding shares) prior to its expiration date, as it may be extended in accordance with the terms of the Offer (the "Acceptance Date"). The obligation of Purchaser to commence the Offer and accept for payment, purchase and pay for Shares tendered pursuant to the Offer shall be subject to the conditions set forth in Exhibit A hereto including, without limitation, the Minimum Condition (as defined in Exhibit A). Purchaser expressly reserves the right to increase the price per Share payable in the Offer or to make any other changes in the terms and conditions of the Offer, except that without the written consent of Company, Purchaser shall not (i) reduce or increase the number of Shares sought to be purchased pursuant to the Offer, (ii) reduce the price per Share payable in the Offer, (iii) change the form of consideration to be paid in the Offer, (iv) impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of Shares or (v) waive satisfaction of the Minimum Condition, provided -------- that if the price per Share payable in the Offer is increased, the number of Shares of Parent Common Stock into which each Share is to be converted in the Forward Merger will be increased to that number of Shares of Parent Common Shares having a market value, based upon the closing price of such Shares on the New York Stock Exchange Composite Tape on the day the offer price per Share is increased, equal to the Offer Consideration. 2 (b) On the date of commencement of the Offer, Parent and Purchaser shall file with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer (the "Schedule 14D-1") which will contain the offer to purchase and the form of the related letter of transmittal (the Schedule 14D-1 and the documents therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, collectively, the "Offer Documents"). Parent, Purchaser and Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect and Parent agrees to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and be disseminated to holders of Shares, in each case, as and to the extent required by applicable federal securities laws. Parent and Purchaser agree to give Company and its counsel a reasonable opportunity to review and comment upon any Offer Document to be filed with the SEC prior to making any such filing and to provide Company and its counsel with copies of any comments Parent, Purchaser or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Parent and Purchaser agree that Purchaser shall not terminate or withdraw the Offer or extend the expiration date of the Offer unless at the expiration date of the Offer the conditions to the Offer shall not have been satisfied or earlier waived; provided that notwithstanding the foregoing, -------- Purchaser may, without the consent of Company, extend the Offer on one occasion following the time that all of the conditions to the Offer have been satisfied as of the scheduled expiration date of the Offer for a period not to exceed five business days. Notwithstanding anything to the contrary contained herein, (i) Purchaser may without the consent of Company, extend the Offer so as to comply with applicable rules and regulations of the SEC and (ii) so long as this Agreement has not been terminated in accordance with its terms, if at the scheduled expiration date of the Offer any of the conditions to Purchaser's obligation to accept for payment and pay for Shares shall not be satisfied or waived, Purchaser shall extend the Offer on one or more occasions. (d) Purchaser May Transfer Obligations. Purchaser shall have the right, ---------------------------------- effective upon written notice to Company, to transfer or assign, in whole or from time to time in part, to Parent or to one or more other wholly-owned Subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will in no way prejudice the rights of tendering stockholders to receive payment 3 for their Shares validly tendered and accepted for payment pursuant to the Offer. SECTION 1.2 Company Action. (a) Company hereby approves of and consents -------------- to the Offer and represents and warrants that Company's Board of Directors, at a meeting duly called and held, has, subject to the terms and conditions set forth herein, unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to, and in the best interests of, the stockholders of Company, (ii) approved this Agreement, the Offer at the Offer Consideration and the Merger, including for purposes of Section 203 of the General Corporation Law of the State of Delaware (the "DGCL"), and (iii) resolved to recommend that the stockholders of Company that wish to receive cash for their Shares accept the Offer and tender their Shares thereunder to Purchaser for the Offer Consideration and that Stockholders approve and adopt this Agreement and the Merger. Company hereby consents to the inclusion of such recommendation and approval in the Offer Documents; provided, -------- however, that Company's Board of Directors may withdraw, modify or change such - ------- recommendation to the extent that it determines after consultation with and based upon the advice of independent legal counsel to Company, that the failure to do so would result in a breach of the Board of Director's fiduciary duties under applicable laws. Company further represents that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Company's financial advisor ("Merrill Lynch"), has delivered to Company's Board of Directors the opinion of Merrill Lynch that the Offer Consideration and Merger Consideration (as defined in Section 3.1(d)) to be received by the stockholders of Company pursuant to the Offer and the Merger is fair from a financial point of view to such holders. (b) Company hereby agrees, subject to the terms and conditions set forth herein, to file as promptly as practicable with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (such Schedule 14D-9 together with any amendments or supplements thereto, the "Schedule 14D-9") containing the recommendations described in Section 1.2(a) and to mail the Schedule 14D-9 to the stockholders of Company concurrently with the commencement of the Offer; provided, however, that Company's Board of Directors may withdraw, -------- ------- modify or change such recommendation to the extent that it determines after consultation with and based upon the advice of independent legal counsel to Company, that the failure to do so would result in a breach of the Board of Director's fiduciary duties under applicable laws. Each of Company, Parent and Purchaser agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect and Company further 4 agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the holders of Shares, in each case, as and to the extent required by applicable federal securities laws. Company agrees to afford Parent and its counsel a reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its being filed with the SEC and to provide Parent and its counsel with copies of any comments Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, Company shall cause its transfer agent to furnish Purchaser promptly with mailing labels, securities position listings and any available listing or computer file containing the names and addresses of the record holders of the Shares as of a recent date and shall furnish Purchaser with such additional information and assistance (including, without limitation, updated lists of shareholders, mailing labels and lists of securities positions) as Purchaser or its agents may reasonably request in communicating the Offer to the stockholders of Company. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Purchaser shall hold in confidence the information contained in any of such lists or labels and the additional information referred to in the preceding sentence, will use the information contained in any such labels, listings and files only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will deliver to Company all copies of such information then in their possession. SECTION 1.3 Directors. (a) Promptly upon the purchase by Parent or --------- Purchaser of Shares pursuant to the Offer, Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on Company's Board of Directors that equals the product of (i) the total number of directors on Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section 1.3) and (ii) the percentage (expressed as a decimal) that the number of Shares beneficially owned by Parent and Purchaser bears to the total number of Shares outstanding. Company shall, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, take all action necessary to cause all of Parent's designees to be elected or appointed to Company's Board of Directors, including, without limitation, by increasing the size of the Board of Directors or securing the resignations of incumbent directors or both. In addition, Company shall cause persons designated by Parent to constitute the same percentage of members on (i) each committee of the Board, (ii) each board of 5 directors of each Subsidiary of Company and (iii) each committee of each such board, in each case, as Parent is entitled pursuant to this Section 1.3 to designate to Company's Board of Directors. The date on which Parent's designees constitute a majority of Company's Board of Directors is herein referred to as the "Control Date." (b) Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 under the Exchange Act in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3. Parent will supply to Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1 included in the Schedule 14D-9. (c) From and after the Control Date, if any, and prior to the Effective Time (as defined in Section 2.3), any amendment of this Agreement, any termination of this Agreement by Company, any extension of time for performance of any of the obligations of Parent or Purchaser hereunder or any waiver thereof, any waiver of any condition to the obligations of Company or any of Company's rights hereunder or other action by Company hereunder will require the concurrence of, and shall be effective only if approved by, a majority of the directors of Company then in office who are not affiliates of Parent and were not designated by Parent (the "Company Designees"), which action shall be deemed to constitute the action of the full Board of Directors even if such majority of Company Designees does not constitute a majority of all directors then in office; provided, that, if there shall be no Company Designees, such actions may -------- be effected by majority vote of the entire Board of Directors except that no such action shall amend the terms of this Agreement in a manner adverse to the stockholders of Company. ARTICLE II THE MERGER SECTION 2.1 The Merger. Upon the terms and subject to the conditions set ---------- forth in this Agreement, and in accordance with the DGCL, the Forward Merger shall be effected and Company shall be merged with and into Purchaser at the Effective Time (as defined in Section 2.3); provided, however, that if (i) the -------- ------- 6 aggregate market value of the shares of Parent Common Stock (as hereinafter defined) deliverable pursuant to Section 3.1(c) hereof upon consummation of the Forward Merger, based upon the closing price of such stock on the New York Stock Exchange Composite Tape on the date immediately prior to the Effective Time (the "Stock Value"), would be less than 45% of the sum of (y) the Stock Value and (z) the aggregate amount paid by Purchaser to purchase Shares pursuant to the Offer or (ii) either (A) Weil, Gotshal & Manges LLP is unable to deliver to Parent the opinion referred to in Section 8.3(b) or (B) Shearman & Sterling is unable to deliver to Company the opinion referred to in Section 8.3(a) (the requirement that the Stock Value be at least 45% of such sum and that such opinions be delivered being hereinafter referred to as the "Stock Condition"), then the Reverse Merger shall be effected and Purchaser shall be merged with and into Company at the Effective Time. Notwithstanding anything to the contrary contained herein, Parent may, in its sole discretion, increase the number of shares of Parent Common Stock into which the Shares shall be converted in the Forward Merger constituting the Stock Merger Consideration (as defined in Section 3.1(d)) so as to satisfy the Stock Condition. At the Effective Time, if the Forward Merger is effected, then the separate existence of Company shall cease and Purchaser shall continue as the surviving corporation under the name "Company" or, if the Reverse Merger is effected, then the separate existence of Purchaser shall cease and Company shall continue as the surviving corporation. The surviving corporation of the Forward Merger or the Reverse Merger, as the case may be, shall be herein referred to as the "Surviving Corporation" and the Forward Merger and Reverse Merger shall collectively be referred to as the "Merger." SECTION 2.2 Closing. Unless this Agreement shall have been terminated and ------- the transactions herein contemplated shall have been abandoned pursuant to Section 9.1, and subject to the satisfaction or waiver of the conditions set forth in Article VIII, the closing of the Merger (the "Closing") will take place at 10:00 a.m. on the second business day following the date on which the last to be fulfilled or waived of the conditions set forth in Article VIII shall be fulfilled or waived in accordance with this Agreement (the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York, unless another date, time or place is agreed to in writing by the parties hereto. SECTION 2.3 Effective Time. The parties hereto will file with the -------------- Secretary of State of the State of Delaware (the "Delaware Secretary of State") on the date of the Closing (or on such other date as Parent and Company may agree) a certificate of merger or other appropriate documents, executed in accordance 7 with the relevant provisions of the DGCL, and make all other filings or recordings required under the DGCL in connection with the Merger. The Merger shall become effective upon the filing of the certificate of merger with the Delaware Secretary of State, or at such later time as is specified in the certificate of merger (the "Effective Time"). SECTION 2.4 Effects of the Merger. The Merger shall have the effects set --------------------- forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of Company and Purchaser shall vest in the Surviving Corporation, and all debts, liabilities and duties of Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 2.5 Certificate of Incorporation; By-laws. At the Effective Time, ------------------------------------- Purchaser's certificate of incorporation shall be the certificate of incorporation of the Surviving Corporation and shall be amended so that Article I thereof reads in its entirety as follows: "The name of the corporation is Company Corporation." At the Effective Time, the by-laws of Purchaser as in effect at the Effective Time shall, from and after the Effective Time, be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 2.6 Directors; Officers. From and after the Effective Time, (a) ------------------- the directors of Purchaser shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, and (b) the officers of Company shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS SECTION 3.1 Effect on Capital Stock. As of the Effective Time, by virtue ----------------------- of the Merger and without any action on the part of any holder of (i) Shares or any other capital stock of Company or (ii) any shares of capital stock of Sub: (a) Common Stock of Purchaser. Each share of common stock of Purchaser ------------------------- issued and outstanding immediately prior to the Effective Time shall, at the Effective Time, by virtue of the 8 Merger and without any action on the part of the holder thereof, be converted into and become, or remain in the case of the Forward Merger, one validly issued, fully paid and nonassessable share of common stock, $.01 par value per share, of the Surviving Corporation. (b) Cancellation of Treasury Shares and Parent-Owned Shares. Each Share ------------------------------------------------------- issued and outstanding immediately prior to the Effective Time that is owned by Company or by Parent, Purchaser or any other Subsidiary of Parent (other than shares in trust accounts, managed accounts, custodial accounts and the like that are beneficially owned by third parties) shall automatically be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor. (c) Conversion of Shares. Each Share issued and outstanding immediately -------------------- prior to the Effective Time (other than Shares to be cancelled in accordance with Section 3.1(b) and other than Dissenting Shares in the case of the Reverse Merger) shall be converted into the right to receive the Merger Consideration (as defined below) upon surrender of the certificate formerly representing such Share in accordance with this Agreement. (d) Merger Consideration. "Merger Consideration" shall mean (i) if the -------------------- Stock Condition has been satisfied and the Forward Merger is effected, 0.6604 shares of Parent's common stock, $.50 par value per share ("Parent Common Stock") (together with the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of February 14, 1990, as amended, between Parent and Chase Mellon Shareholder Services L.L.C., as rights agent), or such other number of shares of Parent Common Stock to which such number shall have been increased in accordance with Section 1.1 or 2.1 (the "Stock Merger Consideration"), or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, the Offer Consideration. (e) Dissenting Shares. Notwithstanding anything in this Agreement to the ----------------- contrary, in the event the Reverse Merger is effected, Shares issued and outstanding immediately prior to the Effective Time held by a holder (if any) who has the right to demand, and who properly demands, an appraisal of such Shares in accordance with Section 262 of the DGCL (or any successor provision) ("Dissenting Shares") shall not be converted into a right to receive the Merger Consideration unless such holder fails to perfect or otherwise loses such holder's right to such appraisal, if any. If, after the Effective Time, such holder fails to perfect or loses any such right to appraisal, each such 9 Share of such holder shall be treated as a Share that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with this Section 3.1(e). Company shall give prompt notice to Parent of any demands received by Company for appraisal of Shares, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. In the event the Forward Merger is effected, holders of Shares issued and outstanding immediately prior to the Effective Time shall not be entitled to demand an appraisal of such Shares in accordance with Section 262 of the DGCL. SECTION 3.2 Stock Options. (a) Each holder of a then outstanding option ------------- to purchase Shares (collectively, "Options") under Company's 1993 Stock Option and Incentive Plan and 1995 Stock Option and Incentive Plan (collectively, the "Stock Option Plans"), whether or not then exercisable or fully vested, may elect, prior to the Effective Time, in settlement thereof, to receive from Company for each share subject to such Option an amount in cash equal to the difference between the Offer Consideration and the per share exercise price of such Option, to the extent the Offer Consideration is greater than the per share exercise price of such Option (such excess amount, the "Option Consideration"); provided, however, that with respect to any person subject to Section 16(a) of - -------- ------- the Exchange Act, any such amount shall be paid as soon as practicable after the first date payment can be made without liability to such person under Section 16(b) of the Exchange Act. (b) At the Effective Time, each outstanding Option other than Options for which an election to receive cash in settlement thereof has been made pursuant to Section 3.2(a), shall be assumed by Parent and shall constitute a vested option to acquire, on substantially the same terms and subject to substantially the same conditions as were applicable under such Option, including, without limitation, term, exercisability, status as an "incentive stock option" under Section 422 of the Code, and termination provisions, the same number of shares of Parent Common Stock, rounded down to the nearest whole share, determined by multiplying the number of Shares subject to such Option immediately prior to the Effective Time by the Option Exchange Ratio (as defined below); at an exercise price per share of Parent Common Stock (increased to the nearest whole cent) equal to the exercise price per share of Shares immediately prior to the Effective Time divided by the Option Exchange Ratio; provided, however, that in -------- ------- the case of any Option to which Section 421 of the Code applies by reason of its qualification as an incentive stock option under Section 422 of the Code, the 10 conversion formula shall be adjusted if necessary to comply with Section 424(a) of the Code. The "Option Exchange Ratio" shall mean (i) if the Stock Condition has been satisfied and the Forward Merger is effected, the Stock Merger Consideration, or (ii) if the Stock Condition has not been satisfied and the Reverse Merger is effected, the ratio determined by dividing (x) by (y), where (x) is the Offer Consideration and (y) is the average of the mean of the high and low trading prices of the Parent Common Stock on each of the five consecutive trading days up to and including the date the Effective Time occurs. (c) Not later than 30 days prior to the Effective Time, Company shall provide each holder of an Option an election form pursuant to which each such holder may make the election specified in Section 3.2(a). Company shall also use its best efforts to obtain all necessary waivers, consents or releases from holders of Options under the Stock Option Plans and take any such other action as may be reasonably necessary to give effect to the transactions contemplated by this Section 3.2 and, with respect to the Options for which an election to receive cash in settlement thereof has been made, to cause each such Option to be surrendered to Company and cancelled, whether or not any Option Consideration is payable with respect thereto, at the Effective Time. The surrender of an Option to Company shall be deemed a release of any and all rights the holder had or may have had in such Option, other than the right to receive the Option Consideration in respect thereof. (d) Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of substitute Options pursuant to the terms set forth in Section 3.2(b). As soon as practicable after the Effective Time, the shares of Parent Common Stock subject to Options will be covered by an effective registration statement on Form S-8 (or any successor form) or another appropriate form and Parent shall use its reasonable best efforts to maintain the effectiveness of such registration statements for so long as the substitute Options remain outstanding. In addition, Parent shall use all reasonable efforts to cause the shares of Parent Common stock subject to Options to be listed on the NYSE and such other exchanges as Parent shall determine. ARTICLE IV PAYMENT FOR SHARES SECTION 4.1 Payment For Shares. (a) Payment Fund. Immediately prior to ------------------ ------------ the Effective Time, Parent shall deposit, or 11 shall cause to be deposited, with or for the account of a bank or trust company designated by Parent, which shall be reasonably satisfactory to Company (the "Paying Agent"), for the benefit of the holders of Shares, (i) if the Forward Merger is effected, certificates for the shares of Parent Common Stock representing the aggregate Merger Consideration or (ii) if the Reverse Merger is effected, cash in an aggregate amount sufficient to pay the aggregate Merger Consideration (hereinafter collectively referred to as the "Payment Fund"). (b) Letter of Transmittal; Surrender of Certificates. As soon as ------------------------------------------------ reasonably practicable after the Effective Time, Parent shall instruct the Paying Agent to mail to each holder of record (other than Company or any of its Subsidiaries or Parent, Purchaser or any of their Subsidiaries) of a certificate or certificates which, immediately prior to the Effective Time, evidenced outstanding Shares (the "Certificates"), (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent, and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment therefor. Upon surrender of a Certificate for cancellation to the Paying Agent together with such letter of transmittal, duly executed, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in respect thereof (A) if the Forward Merger has been effected, a certificate representing that number of whole shares of Parent Common Stock (and cash in lieu of fractional shares of Parent Common Stock as contemplated by this Section 4.1) which the aggregate number of Shares previously represented by such certificate or certificates surrendered shall have been converted into the right to receive pursuant to Section 3.1(c) of this Agreement or (B) if the Reverse Merger has been effected, cash in an amount equal to the product of (x) the number of Shares theretofore represented by such Certificate and (y) the Merger Consideration, and, in either case, the Certificate so surrendered shall forthwith be canceled. No interest shall be paid or accrued on the Merger Consideration payable upon the surrender of any Certificate. If payment is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be promptly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the surrendered Certificate or established to the satisfaction of Parent and the Surviving Corporation that such tax has been paid or is not applicable. 12 (c) Cancellation and Retirement of Shares; No Further Rights. As of the -------------------------------------------------------- Effective Time, all certificates representing Shares (other than certificates representing Shares to be cancelled in accordance with Section 3.1(b) or in the case of the Reverse Merger Dissenting Shares) issued and outstanding immediately prior to the Effective Time, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a Certificate theretofore representing any such Shares shall cease to have any rights with respect thereto (including, without limitation, the right to vote), except the right to receive the Merger Consideration, without interest, upon surrender of such Certificate in accordance with this Article IV, and until so surrendered, each such Certificate shall represent for all purposes only the right, subject to Section 3.1(d), to receive the Merger Consideration, without interest. The Merger Consideration paid upon the surrender for exchange of Certificates in accordance with the terms of this Article IV shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates. (d) No Fractional Shares. (i) No certificates or scrip representing -------------------- fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of certificates that immediately prior to the Effective Time represented Shares which have been converted pursuant to Section 3.1, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. (ii) In lieu of any such fractional shares, the Paying Agent shall, as soon as practicable after the Effective Time, aggregate all such fractional interests (collectively, the "Fractional Shares") and, at Parent's option, such Fractional Shares shall be purchased by Parent or otherwise sold by the Paying Agent as agent for the holders of such Fractional Shares, in either case, at the then prevailing price on the New York Stock Exchange, Inc. ("NYSE"), all in the manner provided hereinafter. Until the net proceeds of such sale or sales have been distributed to the holders of Fractional Shares, the Paying Agent shall retain such proceeds in trust for the benefit of such holders as part of the Payment Fund. Parent shall pay all commissions, transfer taxes and other out- of-pocket transaction costs, including expenses and compensation of the Paying Agent, incurred in connection with such sale of the Fractional Shares. To the extent not purchased by Parent, the sale of the Fractional Shares by the Paying Agent shall be executed on the NYSE or through one or more member firms of the NYSE and will be executed in round lots to the extent practicable. In either case, the 13 Paying Agent will determine the portion, if any, of the net proceeds of such sale to which each holder of Fractional Shares is entitled by multiplying the amount of the aggregate net proceeds of the sale of the Fractional Shares by a fraction the numerator of which is the amount of Fractional Shares to which such holder is entitled and the denominator of which is the aggregate amount of Fractional Shares to which all holders of Fractional Shares are entitled. (e) Investment of Payment Fund. The Paying Agent shall invest the Payment -------------------------- Fund, as directed by Parent, in (i) direct obligations of the United States of America, (ii) obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of principal and interest, (iii) commercial paper rated the highest quality by either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or (iv) certificates of deposit, bank repurchase agreements or bankers' acceptances of commercial banks with capital exceeding $500 million; and any net earnings with respect to the Payment Fund shall be the property of and paid over to Parent as and when requested by Parent; provided that any such investment or any such payment of earnings shall not delay the receipt by holders of Certificates of the Merger Consideration or otherwise impair such holders' respective rights hereunder. (f) Termination of Payment Fund. Any portion of the Payment Fund which --------------------------- remains undistributed to the holders of Certificates for 180 days after the Effective Time shall be delivered to Parent, upon demand, and any holders of Certificates that have not theretofore complied with this Article IV shall thereafter look only to Parent, and only as general creditors thereof, for payment of their claim for any Merger Consideration. (g) No Liability. None of Parent, Purchaser, the Surviving Corporation or ------------ the Paying Agent shall be liable to any person in respect of any payments or distributions payable from the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 5.1(c))), any amounts payable in respect of such certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. 14 (h) Withholding Rights. Parent shall be entitled to deduct and withhold, ------------------ or cause to be deducted or withheld, from the consideration otherwise payable pursuant to this Agreement to any holder of Shares, Options or Certificates such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or any provision of applicable state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such holders in respect of which such deduction and withholding was made. ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of Company. Company represents ----------------------------------------- and warrants to Parent and Purchaser as follows: (a) Organization, Standing and Corporate Power. Each of Company and each ------------------------------------------ Subsidiary of Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted except in the case of the Subsidiaries, where the failure to be so organized, existing and in good standing would not have a Material Adverse Effect on Company. Each of Company and each Subsidiary of Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect on Company. Company has delivered to Parent complete and correct copies of its certificate of incorporation and by-laws, as amended to the date of this Agreement. (b) Capital Structure. The authorized capital stock of Company consists of ----------------- (i) 96,481,272 shares of voting common stock, $.01 par value per share, (ii) 3,518,728 shares of non-voting common stock, $.01 par value per share, and (iii) 20,000,000 shares of preferred stock, $.01 par value per share. At the close of business on September 30, 1996: (i) 70,365,241 shares of voting common stock were issued and outstanding, 3,763,283 shares of voting common stock were reserved for issuance pursuant to Stock Option Plans and no shares of common stock were held by Company in its treasury. Except as set forth in the immediately preceding sentence, at the 15 close of business on September 30, 1996, no shares of capital stock (including, without limitation, non-voting common stock or preferred stock) or other equity securities of Company were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of Company are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. No bonds, debentures, notes or other indebtedness of Company or any Subsidiary of Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which the stockholders of Company or any Subsidiary of Company may vote are issued or outstanding. Except as disclosed in Section 5.1(b) of the Disclosure Schedule, all the outstanding shares of capital stock of each Subsidiary of Company have been validly issued and are fully paid and nonassessable and are owned by Company, by one or more Subsidiaries of Company or by Company and one or more such Subsidiaries, free and clear of Liens (as defined in Section 10.3). Except as set forth above or in Section 5.1(b) of the Disclosure Schedule, and except for the Stock Option Agreement, neither Company nor any Subsidiary of Company has or, at or after the Effective Time will have, any outstanding option, warrant, call, subscription or other right, agreement or commitment which either (i) obligates Company or any Subsidiary of Company to issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any shares of the capital stock of Company or any Subsidiary of Company or (ii) restricts the transfer of Company Common Stock. (c) Authority; Noncontravention. Company has the requisite corporate power --------------------------- and authority to enter into this Agreement and, subject to the approval of its stockholders as set forth in Section 7.2 with respect to the consummation of the Merger, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Company and the consummation by Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Company, subject, in the case of the Merger, to the approval of its stockholders as set forth in Section 7.2. The Board of Directors of Company has taken all action necessary to ensure that the restrictions on business combinations set forth in Section 203 of the DGCL do not, and will not, apply to the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Company and, assuming this Agreement constitutes the valid and binding agreement of Parent and Purchaser, constitutes a valid and binding obligation of Company, enforceable against Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies and to general principles of equity. Except as disclosed in Section 16 5.1(c) of the Disclosure Schedule, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, (i) conflict with any of the provisions of the certificate of incorporation or by-laws of Company or the comparable documents of any Subsidiary of Company, (ii) subject to the governmental filings and other matters referred to in the following sentence, conflict with, result in a breach of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or require the consent of any person under, any indenture or other agreement, permit, concession, franchise, license or similar instrument or undertaking to which Company or any of its Subsidiaries is a party or by which Company or any of its Subsidiaries or any of their assets is bound or affected, or (iii) subject to the governmental filings and other matters referred to in the following sentence, contravene any domestic or foreign law, rule or regulation or any order, writ, judgment, injunction, decree, determination or award currently in effect, which, in the case of clauses (ii) and (iii) above, singly or in the aggregate, would have a Material Adverse Effect on Company. No consent, approval or authorization of, or declaration or filing with, or notice to, any domestic or foreign governmental agency or regulatory authority (a "Governmental Entity") which has not been received or made, is required by or with respect to Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Company or the consummation by Company of the transactions contemplated hereby, except for (i) the filing of premerger notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") with respect to the Merger, (ii) the filing with the SEC of (x) the Schedule 14D-9, (y) a proxy statement relating to the approval by the stockholders of Company of the Merger and certain other corporate matters (such proxy statement, as amended or supplemented from time to time, the "Proxy Statement"), and (z) such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement (including, without limitation, a Rule 13e-3 transaction statement on Schedule 13E-3 (the "Schedule 13E-3") to be jointly filed, if required, by Company, Parent and Purchaser), (iii) the filing of the certificate of merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which Company is qualified to do business, (iv) applicable Food and Drug Administration, Drug Enforcement Administration, Medicare/Medicaid, state boards of pharmacy and governmental liquor authorities approvals, (v) such other consents, approvals, authorizations, filings or notices as are set forth in Section 5.1(c) of the Disclosure Schedule and (vi) 17 any other filings, authorizations, consents or approvals the failure to make or obtain which, in the aggregate, would not have a Material Adverse Effect on Company or the Surviving Corporation. (d) SEC Documents. (i) Company has filed all required reports, schedules, ------------- forms, statements and other documents with the SEC since January 1, 1993 (such reports, schedules, forms, statements and other documents are hereinafter referred to as the "SEC Documents"); (ii) as of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents as of such dates contained any untrue statements of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iii) the consolidated financial statements of Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principals (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may otherwise be indicated in the notes thereto) and fairly present the consolidated financial position of Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). (e) Information Supplied. None of the information supplied or to be -------------------- supplied by Company specifically for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance by Parent of shares of Parent Common Stock in the Forward Merger (the "Form S-4") will, at the time the Form S-4 is filed with the SEC, at any time that it is amended or supplemented and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Offer Documents will, at the date on which the Offer Documents are filed with the SEC and at the Acceptance Date, and the Proxy Statement and the Schedule 13E-3 (if required to be filed) will, at the time they are filed with the SEC, at any time that they are amended or supplemented, at the time the Proxy 18 Statement is mailed to Company's stockholders and at the time of the Stockholders Meeting referred to in Section 7.2, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, the Schedule 14D-9 and the Schedule 13E-3 will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Purchaser specifically for inclusion or incorporation by reference in such documents. (f) Absence of Certain Changes or Events; No Undisclosed Material ------------------------------------------------------------- Liabilities. - ----------- (i) Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed SEC Documents") or in Section 5.1(f) of the Disclosure Schedule, since the date of the most recent audited financial statements included in the Filed SEC Documents, Company and its Subsidiaries have conducted their business only in the ordinary course, and there has not been (A) any change, destruction, damage or loss which has or is reasonably likely to have, a Material Adverse Effect on Company, (B) any declaration, setting aside or payment of any dividend or other distribution in respect of shares of Company's capital stock, or any redemption or other acquisition by Company of any shares of its capital stock; (C) any increase in the rate or terms of compensation payable or to become payable by Company or its Subsidiaries to their directors, officers or key employees, except increases occurring in the ordinary course of business consistent with past practices; (D) any entry into, or increase in the rate or terms of, any bonus, insurance, severance, pension or other employee or retiree benefit plan, payment or arrangement made to, for or with any such directors, officers or employees, except increases occurring in the ordinary course of business consistent with past practices or as required by applicable law; (E) any entry into any agreement, commitment or transaction by Company or any of its Subsidiaries which is material to Company and its Subsidiaries taken as a whole, except for agreements, commitments or transactions in the ordinary course of business; (F) any material labor dispute involving the employees of Company or its Subsidiaries; (G) any change by Company in accounting methods, principles or practices except as required or permitted by generally accepted accounting principles; (H) any write-off or write-down of, or any determination to write- off or write-down, any asset of Company or any of its Subsidiaries or any portion thereof which write-off, write-down, or determination exceeds 19 $5 million individually or $15 million in the aggregate; or (I) any agreements by Company to (1) do any of the things described in the preceding clauses (A) through (H) other than as expressly contemplated or provided for herein or (2) take, whether in writing or otherwise, any action which, if taken prior to the date of this Agreement, would have made any representation or warranty of Company in this Agreement untrue or incorrect. (ii) Except as set forth in Section 5.1(f) of the Disclosure Schedule, as of the date hereof, there are no liabilities of Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, whether due or to become due, determined, determinable or otherwise, that are reasonably likely to have a Material Adverse Effect with respect to Company, other than as set forth in the Filed SEC Documents. (g) Absence of Changes in Benefit Plans. Except as disclosed in the Filed ----------------------------------- SEC Documents or in Section 5.1(g) of the Disclosure Schedule, since the date of the most recent audited financial statements included in the Filed SEC Documents, there has not been any adoption or amendment or any agreement to adopt or amend in any material respect by Company or any of its Subsidiaries of any collective bargaining agreement or any Benefit Plan (as defined in Section 5.1(h)). (h) Benefit Plans. (i) Each "employee pension benefit plan" (as defined ------------- in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (hereinafter a "Pension Plan"), each "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and each other material plan, arrangement, policy or payroll practice (written or oral) including but not limited to stock option, stock purchase, incentive compensation, deferred compensation, severance, vacation pay, company awards, salary continuation for disability, sick leave, insurance, bonus or other incentive or employee benefit plan, in each case, maintained or contributed to, or required to be maintained or contributed to, by Company and/or its Subsidiaries for the benefit of any present or former officers, employees, agents, directors or independent contractors of Company or any of its Subsidiaries (all the foregoing being herein collectively called "Benefit Plans") shall be given to or made available to Parent as soon as practical following the date hereof. Section 5.1(h) of the Disclosure Schedule sets forth a correct and complete list of all Benefit Plans. (ii) Except as disclosed in the Filed SEC Documents or in Section 5.1(h) of the Disclosure Schedule: 20 (a) none of Company or any other person or any trade or business (whether or not incorporated) that together with Company is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each a "Commonly Controlled Entity") has incurred any liability to, or with respect to, any "employee pension benefit plan" as defined in Section 3(2) of ERISA covered by Title IV or ERISA (other than for contributions not yet due) or to the Pension Benefit Guaranty Corporation (other than for the payment of premiums not yet due); (b) none of the Benefit Plans is a "multiemployer plan" within the meaning of ERISA; (c) no Commonly Controlled Entity (x) is, or has been during the preceding five years, required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) ("Multiemployer Plan") (y) has withdrawn from any Multiemployer Plan where such withdrawal has resulted or would result in any "withdrawal liability" (within the meaning of Section 4201 of ERISA) that has not been fully paid, and (z) has any outstanding liability with respect to a Multiemployer Plan; (d) nothing done or omitted to be done and no transaction or holding of any asset under or in connection with any Benefit Plan has or will make Company or any of its Subsidiaries or any officer or director of Company or any of its Subsidiaries subject to any liability under Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code; (e) each Benefit Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period from its adoption to date, and each trust forming a part thereof is exempt from tax pursuant to Section 501(a) of the Code, and nothing has occurred with respect to the operation of any such Plan which could cause the loss of such qualification or exemption or the imposition of any liability, penalty or tax under ERISA or the Code; (f) none of the Benefit Plans promises or provides retiree medical or life insurance benefits to any person; (g) each Benefit Plan has been operated in all material respects in accordance with its terms and the requirements of all applicable law; (h) each of Company and its Subsidiaries and ERISA Affiliates which maintain a "benefit plan" within the meaning of Section 5000(b)(1) of the Code has complied in all material respects with the notice and continuation requirements of Section 4980B of the Code, COBRA and the regulations thereunder; and 21 (i) neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (A) any payment or increase in any benefits becoming due under any Benefit Plan or any compensation arrangement, (B) the acceleration of the time of payment or vesting of any such benefits or (c) an increase in severance benefit payable under any plan or agreement; provided, however, that the failure of the representations set forth in clauses (a), (d), (e), (g) and (h) to be true and correct shall not be deemed to be a breach of any such representation unless any such failure, individually or in the aggregate is reasonably likely to result in a Material Adverse Effect. (i) Taxes. Except as set forth in Section 5.1(i) of the Disclosure ----- Schedule: (A) Except where the failure to do so would not have a Material Adverse Effect on Company, each of Company and its Subsidiaries (and any affiliated or unitary group of which any of them was a member) has (i) timely filed all federal and all state, local and foreign returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed by or for it on or prior to the date hereof in respect of any Taxes (as defined below) and have completed such Returns so as to be true, complete and correct in all material respects, (ii) established reserves that are adequate for the payment of all Taxes not yet due and payable with respect to the results of operations of Company and its Subsidiaries through the date hereof, and (iii) timely withheld and paid over to the proper governmental authorities all Taxes and other amounts required to be so withheld and paid over. Each of Company and its Subsidiaries (and any affiliated or unitary group of which any of them was a member) has timely paid all Taxes that are shown as being due on the Returns referred to in the immediately preceding sentence. (B) (i) Section 5.1(i) of the Disclosure Schedule sets forth the last taxable period (x) through which the federal Returns of Company and any of its Subsidiaries have been examined by the Internal Revenue Service ("IRS") or (y) for which the date for assessment and collection of any deficiency of federal income tax has expired; (ii) all deficiencies asserted as a result of any examinations of Returns, the amount of which would have a Material Adverse Effect on Company, have been paid, fully settled or adequately provided for in Company's most recent financial statements included in the Filed SEC Documents; (iii) no tax audits or other administrative proceedings or court proceedings are presently pending with respect to Company or any of its Subsidiaries with regard to any Taxes the amount of which would 22 have a Material Adverse Effect on Company; and (iv) Company has not received notice that any deficiency for any Taxes, the amount of which would have a Material Adverse Effect on Company, has been proposed, asserted or assessed against Company or any of its Subsidiaries, by any federal, state, local or foreign taxing authority or court with respect to any period. (C) Neither Company nor any of its Subsidiaries has executed or entered into with the IRS or any other taxing authority any agreement or other document that continues in force and effect beyond the Effective Time and that extends or has the effect of extending the period for assessments or collection of any federal, state, local or foreign Taxes the amount of which would have a Material Adverse Effect on Company. (D) Neither Company nor any of its Subsidiaries has made an election under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by Company or any of its Subsidiaries. (E) Neither Company nor any of its Subsidiaries is a party to, is bound by or has any obligation under any material tax sharing agreement or similar agreement or arrangement. (F) Company has not agreed to make, nor is it required to make any material adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. (G) Neither Company nor any of its Subsidiaries is, or has been, a United States Real Property Holding Corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). For purposes of this Agreement, "Taxes" shall mean all Federal, state, local, foreign income, property, sales, excise, employment, payroll, franchise, withholding and other taxes, tariffs, charges, fees, levies, imposts, duties, licenses or other assessments of every kind and description, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority. (j) Section 162 (m) of the Code. Except as disclosed in Section 5.1(j) of --------------------------- the Disclosure Schedule, to the knowledge of Company the disallowance of a deduction under Section 162(m) of the Code for employee remuneration will not apply to any amount paid or payable by Company or any subsidiary of Company under any 23 contract, Benefit Plan, program, arrangement or understanding currently in effect. (k) Voting Requirements. If Section 253 of the DGCL is inapplicable or ------------------- unavailable to effectuate the Merger, then the affirmative vote of a majority of the votes cast by the holders of Shares entitled to vote thereon at the Stockholders Meeting described in Section 7.2 with respect to the approval of the Merger is the only vote of the holders of any class or series of Company's capital stock or other securities necessary to approve this Agreement, the Merger and the other transactions contemplated by this Agreement. (l) Compliance with Applicable Laws. All federal, state, local and foreign ------------------------------- governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights ("Permits," including, without limitation, Permits required under Environmental Laws) necessary for each of Company and its Subsidiaries to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the lack of Permits and for defaults under Permits which lack or default individually or in the aggregate would not have a Material Adverse Effect on Company. Except as disclosed in the Filed SEC Documents or in the Disclosure Schedule, Company and its Subsidiaries are in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for non-compliance which individually or in the aggregate would not have a Material Adverse Effect on Company. (m) Opinion of Financial Advisor. Company has received the opinion of ---------------------------- Merrill Lynch, dated the date hereof (a true and complete copy of which has been delivered to Parent), to the effect that, as of such date, the consideration to be received in the Offer and the Merger by Company's stockholders is fair to Company's stockholders from a financial point of view, and, as of the date hereof, such opinion has not been withdrawn or modified. (n) Brokers. No broker, investment banker, financial advisor or other ------- person, other than Merrill Lynch, the fees and expenses of which will be paid by Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Company. (o) Litigation, etc. As of the date hereof, except as disclosed in Section --------------- 5.1(o) of the Disclosure Schedule, (i) there 24 is no suit, claim, action or proceeding (at law or in equity) pending or, to the knowledge of Company, threatened against Company or any of its Subsidiaries (including, without limitation, any product liability claims) before any court or governmental or regulatory authority or body, and (ii) neither Company nor any of its Subsidiaries is subject to any outstanding order, writ, judgement, injunction, order, decree or arbitration order that, in any such case described in clauses (i) and (ii), (A) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Company or (B) involves an allegation of criminal misconduct or a violation of the Racketeer and Influenced Corrupt Practices Act, as amended. As of the date hereof, there are no suits, actions, claims, proceedings or investigations pending or, to the knowledge of Company, threatened, seeking to prevent, hinder, modify or challenge the transactions contemplated by this Agreement. (p) Environmental Laws. (i) For purposes of this Agreement, the following ------------------ terms shall have the following meanings: (i) "Hazardous Substances" means (A) -------------------- those substances defined in or regulated under the following federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum and petroleum products including crude oil and any fractions thereof; (C) natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) any other contaminant; and (F) any substance with respect to which a federal, state or local agency requires environmental investigation, monitoring, reporting or remediation; and (ii) "Environmental Laws" means any federal, state or local law relating to (A) - ------------------- releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (B) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (C) otherwise relating to pollution of the environment or the protection of human health. (ii) Except as disclosed in Section 5.1(p) of the Disclosure Schedule and except as would not have a Material Adverse Effect: (i) Company has not violated and is not in violation of any Environmental Law; (ii) none of the properties owned or leased by Company (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance; (iii) Company is not actually or potentially nor, to the best knowledge of Company, allegedly liable for any off-site contamination; (iv) Company is not actually or 25 potentially nor, to the best knowledge of Company, allegedly liable under any Environmental Law (including, without limitation, pending or threatened liens); (v) Company has all material permits, licenses and other authorizations required under any Environmental Law ("Environmental Permits"); and (vi) Company is in --------------------- material compliance with its Environmental Permits. (q) Material Contracts. There have been made available to Parent, its ------------------ affiliates and their representatives true and complete copies of all of the following contracts to which Company or any of its subsidiaries is a party or by which any of them is bound (collectively, the "Material Contracts"): (i) contracts with any current officer or director of Company or any of its Subsidiaries; (ii) contracts for the sale of any of the assets of Company or any of its Subsidiaries other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets other than inventory in the ordinary course of business; (iii) contracts containing covenants of Company or any of its Subsidiaries not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with Company or any of its Subsidiaries in any line of business or in any geographical area; (iv) material indentures, credit agreements, mortgages, promissory notes, and all contracts relating to the borrowing of money; and (v) all other agreements contracts or instruments which, in the reasonable opinion of Company, are material to Company. Except as set forth on Schedule 5.1(q), all of the Material Contracts are in full force and effect and are the legal, valid and binding obligation of Company and/or its Subsidiaries, enforceable against them in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Except as set forth on Schedule 5.1(q), neither Company nor any Subsidiary is in default in any material respect under any Material Contract nor, to the knowledge of Company, is any other party to any Material Contract in default thereunder in any material respect except for those defaults that individually or in the aggregate would not have a Material Adverse Effect. (r) Unlawful Payments and Contributions. To the knowledge of Company, ----------------------------------- neither Company, any Subsidiary nor any of their respective directors, officers or any of their respective employees or agents has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic 26 government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any person. (s) Real Property; Other Assets. (i) Section 5.1(s)(i) of the Disclosure --------------------------- Schedule sets forth all of the real property owned in fee by Company and its Subsidiaries (the "Owned Real Property"). Each of Company and its Subsidiaries has good and marketable title to each parcel of Owned Real Property free and clear of all Liens except (A) those reflected or reserved against in the latest balance sheet of Company included in the Filed SEC Documents (the "Balance Sheet"), (B) taxes and general and special assessments not in default and payable without penalty and interest, and (C) Liens of record and other Liens which individually or in the aggregate would not have a Material Adverse Effect on Company (collectively "Permitted Liens"). (ii) Company has heretofore made available to Parent true, correct and complete copies (or accurate summaries or abstracts) of all leases, subleases and other agreements (the "Real Property Leases") under which Company or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, any real property or facility (the "Leased Real Property") (including all modifications, amendments and supplements thereto). Except in each case where the failure individually or in the aggregate would not have a Material Adverse Effect on Company (i) each Real Property Lease is valid and binding on Company and in full force and effect, (ii) all rent and other sums and charges payable by Company and its Subsidiaries as tenants thereunder are current in all material respects, and (iii) no termination event or condition or uncured default of a material nature on the part of Company or any such Subsidiary or, to Company's knowledge, the landlord, exists under any Real Property Lease. Except as would not individually or in the aggregate have a Material Adverse Effect on Company, each of Company and its Subsidiaries has a good and valid leasehold interest in each parcel of Leased Real Property free and clear of all Liens, except for Permitted Liens. (t) Labor Matters. (i) Except as set forth on Section 5.1(t)(i) of the ------------- Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to any employment, labor or collective bargaining agreement, and there are no employment, labor or collective bargaining agreements which pertain to employees of Company or any of its Subsidiaries. Company has heretofore made available to Parent true, complete and correct copies of the (A) employment agreements listed on Section 5.1(t)(i) of the Disclosure Schedule and (B) labor or collective 27 bargaining agreements listed on such Schedule, together with all amendments, modifications, supplements or side letters affecting the duties, rights and obligations of any party thereunder. (ii) No employees of Company or any of its Subsidiaries are represented by any labor organization. To the knowledge of Company, no labor organization or group of employees of Company or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. To the knowledge of Company, there are no organizing activities involving Company or any of its Subsidiaries pending with any labor organization or group of employees of Company or any of its Subsidiaries. (iii) Except as set forth on Section 5.1(t)(iii) of the Disclosure Schedule, there are no (A) unfair labor practice charges, grievances or complaints pending or threatened in writing by or on behalf of any employee or group of employees of Company or any of its Subsidiaries which, if resolved against Company or any of its Subsidiaries, as the case may be, would cause a Material Adverse Effect on Company, or (B) complaints, charges or claims against Company or any of its Subsidiaries pending, or threatened in writing to be brought or filed, with any Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by Company or any of its Subsidiaries which, if resolved against Company or any of its Subsidiaries, as the case may be, would cause a Material Adverse Effect. SECTION 5.2 Representations and Warranties of Parent and Purchaser. ------------------------------------------------------ Parent and Purchaser represent and warrant to Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and ------------------------------------------ Purchaser, and each Significant Subsidiary (as defined below) of Parent is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Purchaser and each other Subsidiary of Parent is duly qualified or licensed to do business and is in good standing in cash jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed 28 (individually or in the aggregate) would not have a Material Adverse Effect on Parent. Parent has delivered to Company true and complete copies of the certificate of incorporation and by-laws of each of Parent and Purchaser, as amended to the date of this Agreement. As used herein, "Significant Subsidiary" means a Subsidiary that would constitute a Significant Subsidiary within the meaning of Rule 1-02 of Regulation S-X of the SEC. (b) Capital Structure. The authorized capital stock of Parent consists of ----------------- (i) 1,250,000,000 shares of Parent Common Stock, and (ii) 25,000,000 shares of preferred stock, without par value, of which 1,400,000 shares have been designated Series B ESOP Convertible Preferred Stock, and 1,600,000 shares have been designated Series A Junior Participating Preferred Stock. At the close of business on October 31, 1996, (i) 228,852,781 shares of Parent Common Stock and 955,813.643 shares of Series B ESOP Convertible Preferred Stock were issued and outstanding, (ii) 14,700 shares of Parent Common Stock were held by Parent in its treasury, (iii) 7,531,041 shares of Parent Common Stock were reserved for issuance pursuant to outstanding options to purchase shares of Parent Common Stock granted under Parent's stock option plans, (iv) 1,600,000 shares of Series A Junior Participating Preferred Stock were reserved for issuance pursuant to the Rights, and (v) 2,318,541 shares of Parent Common Stock were reserved for issuance in connection with Parent's recent acquisition of Fay's Incorporated and 80,480 shares of Parent Common Stock were reserved for issuance in connection with certain stock option plans assumed by Parent in connection with the Fay's Incorporated acquisition. Except as set forth above, at the close of business on October 31, 1996, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of Parent are, and all shares of Parent Common Stock which may be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. The authorized capital stock of Purchaser consists of 1,000 shares of common stock, $.01 par value per share, 100 of which have been validly issued, are fully paid and nonassessable and are owned by Parent free and clear of any Lien. No bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which the stockholders of Parent may vote are issued or outstanding. Except as set forth above, Parent does not have any outstanding option, warrant, subscription or other right, agreement or commitment which either (i) obligates Parent to issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any shares of the capital stock of Parent or (ii) restricts the transfer of Parent Common Stock. 29 (c) Authority Noncontravention. Parent and Purchaser have all requisite -------------------------- corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Purchaser and the consummation by Parent and Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Purchaser. This Agreement has been duly executed and delivered by each of Parent and Purchaser and, assuming this Agreement constitutes the valid and binding agreement of Company, constitutes a valid and binding obligation of each of Parent and Purchaser, enforceable against each such party in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies and to general principals of equity. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not (i) conflict with any of the provisions of the respective certificates of incorporation or by-laws of Parent or Purchaser, (ii) subject to the governmental filings and other matters referred to in the following sentence, conflict with, result in a breach of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or require the consent of any person under, any indenture, or other agreement, permit, concession, franchise, license or similar instrument or undertaking to which Parent or Purchaser is a party or by which Parent or Purchaser or any of their assets is bound or affected, or (iii) subject to the governmental filings and other matters referred to in the following sentence, contravene any law, rule or regulation, or any order, writ, judgment, injunction, decree, determination or award currently in effect, which, in the case of clauses (ii) and (iii) above, singly or in the aggregate, would have a Material Adverse Effect on Parent. No consent, approval or authorization of, or declaration or filing with, or notice to, any Governmental Entity which has not been received or made is required by or with respect to Parent or Purchaser in connection with the execution and delivery of this Agreement by Parent or Purchaser or the consummation by Parent or Purchaser, as the case may be, of any of the transactions contemplated by this Agreement, except for (i) the filing of premerger notification and report forms under the HSR Act with respect to the Merger, (ii) the filing with the SEC of (A) the Form S-4, (B) the Offer Documents, and (C) such other reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby (including, if required, the Schedule 13E-3), (iii) the filing of the certificate of merger with the 30 Delaware Secretary of State, and appropriate documents with the relevant authorities of other states in which Company is qualified to do business, (iv) FDA, DEA, Medicare/Medicaid, State Boards of Pharmacy and governmental liquor authorities' approvals, (v) state "blue-sky" filings, (vi) NYSE approvals, (vii) such other consents, approvals, authorizations, filings or notices as are set forth in Section 5.2(c) of the Disclosure Schedule and (viii) any other applicable filings, authorizations, consents or approvals the failure to make or obtain which, in the aggregate, would not have a Material Adverse Effect. (d) SEC Documents. (i) Parent has filed all required reports, schedules, ------------- forms, statements and other documents with the SEC since January 1, 1993 (the "Parent SEC Documents"). As of their respective dates, the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents as of such dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated herein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Parent and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (ii) As of the date hereof, there are no liabilities of Parent or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, whether due or to become due, determined, determinable or otherwise, that are reasonably likely to have a Material Adverse Effect with respect to Parent, other than as set forth in the Parent SEC Documents. (e) Information Supplied. None of the information supplied or to be -------------------- supplied by Parent or Purchaser specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Forms S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement 31 of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Schedule 14D-1, the Schedule 14D-9, the Proxy Statement or, if required, the Schedule 13E-3 will, at the date such documents are respectively filed with the SEC, at any date on which they may be amended or supplemented and, in the case of the Proxy Statement and the Schedule 14D-9, the date such documents are first mailed to Company's stockholders and at the time of the Stockholders Meeting described in Section 7.2, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Form S-4 and the Schedule 14D-1 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Purchaser with respect to statements made or incorporated by reference in such documents based on information supplied by or on behalf of Company specifically for inclusion or incorporation by reference therein. (f) Absence of Certain Changes of Events. Except as disclosed in the ------------------------------------ Parent SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed Parent SEC Documents"), since the date of the most recent audited financial statements included in the Filed Parent SEC Documents, Parent has conducted its business only in the ordinary course, and there has not been (i) any change which would have a Material Adverse Effect on Parent, (ii) any declaration, setting aside or payment of any dividend or distribution (whether in cash, stock or property) with respect to any of Parent's outstanding capital stock (other than regular quarterly cash dividends of $.52 per share on Parent Common Stock and regular cash dividends on the Parent's Series B ESOP Convertible Preferred Stock, in each case, in accordance with usual record and payment dates and in accordance with the Parent's present dividend policy), (iii) any split, combination or reclassification of any of its outstanding capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iv) any change in accounting methods, principles or practices by Parent materially affecting its assets, liabilities or business, except insofar as may have been disclosed in the Filed Parent SEC Documents or required by a change in generally accepted accounting principles. (g) Purchaser; Financing. Parent owns all of the outstanding capital -------------------- stock of Purchaser. At all times prior to the Effective Time, no person other than Parent has owned, or will own, any of the outstanding capital stock of Purchaser. 32 Purchaser was formed by Parent solely for the purpose of engaging in the transactions contemplated by this Agreement. Except as contemplated by this Agreement, Purchaser has not incurred, and will not incur, directly or through any Subsidiary, any liabilities or obligations for borrowed money or otherwise, except incidental liabilities or obligations not for borrowed money incurred in connection with its organization and except in connection with obtaining financing in connection with the Offer and the Merger. Except as contemplated by this Agreement, Purchaser has not engaged, directly or through any Subsidiary, in any business activities of any type or kind whatsoever. Parent and Purchaser will have, at or before the Acceptance Date, adequate funds to accept for payment, purchase and pay for all of the Shares tendered and not withdrawn pursuant to the Offer and will have funds available pursuant to definitive financing agreements or otherwise to pay the Merger Consideration for the Reverse Merger. (h) Brokers. No broker, investment banker, financial advisor or other ------- person, other than CS First Boston Corporation, the fees and expenses of which will be paid by Parent, is entitled to any broker's, finder's, financial advisor's. or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent. (i) Compliance with Applicable Laws. Each of Parent and its Subsidiaries ------------------------------- has in effect all Permits including, without limitation, Permits required under Environmental Laws necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the lack of Permits and for defaults under Permits which lack or default individually or in the aggregate would not have a Material Adverse Effect on Parent. Except as disclosed in the Parent SEC Documents, Parent and its Subsidiaries are in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for non-compliance which individually or in the aggregate would not have a Material Adverse Effect on Parent. (j) Unlawful Payments and Contributions. To the knowledge of Parent, ----------------------------------- neither Parent, any Subsidiary nor any of their respective directors, officers or any of their respective employees or agents has (i) used any of Parent's funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act 33 of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any person. (k) Environmental Laws. Except as would not have a Material Adverse ------------------ Effect: (i) Parent has not violated and is not in violation of any Environmental Law; (ii) none of the properties owned or leased by Parent (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance; (iii) Parent is not actually or potentially nor, to the best knowledge of Parent, allegedly liable for any off- site contamination; (iv) Parent is not actually or potentially nor, to the best knowledge of Parent, allegedly liable under any Environmental Law (including, without limitation, pending or threatened liens); (v) Parent has all Environmental Permits; and (vi) Parent is in material compliance with its Environmental Permits. ARTICLE VI COVENANTS SECTION 6.1 Conduct of Business of Company Prior to the Merger. Except as -------------------------------------------------- contemplated by this Agreement, during the period from the date of this Agreement to the earlier to occur of (1) the Control Date, and (2) the Effective Time, Company shall, and shall cause its Subsidiaries to, act and carry on their respective businesses in the ordinary course of business and, to the extent consistent therewith, use reasonable efforts to preserve intact their current business organizations, keep available the services of their current key officers and employees and preserve the goodwill of those engaged in material business relationships with them, and to that end, without limiting the generality of the foregoing, Company shall not, and shall not permit any of its Subsidiaries to, without the prior consent of Parent: (i) (x) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of Company's outstanding capital stock, (y) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock, or (z) purchase, redeem or otherwise acquire any shares of outstanding capital stock or any rights, warrants or options to acquire any such shares except, in the case of clause (z), for the acquisition of shares of common stock from holders of Options in full or partial 34 payment of the exercise price payable by such holder upon exercise of Options outstanding on the date of this Agreement; (ii) issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares, voting securities or convertible or exchangeable securities other than (A) upon the exercise of Options outstanding on the date of this Agreement, or (B) pursuant to the Stock Option Agreement; (iii) amend its certificate of incorporation, by-laws or other comparable charter or organizational documents; (iv) directly or indirectly acquire, make any investment in, or make any capital contributions to, any person (other than any direct or indirect wholly- owned Subsidiary of Company) other than the acquisition of drug stores, drug store chains or other home health businesses consistent with Company's current operations for a purchase price not in excess of $20 million individually or $50 million in the aggregate; provided, however, that Company shall not make any -------- ------- acquisition of drug stores, drug store chains or other home health businesses for a purchase price in excess of $15 million individually or $40 million in the aggregate without prior consultation with Parent; (v) directly or indirectly sell, mortgage or otherwise encumber or subject to any Lien other than Permitted Liens or otherwise dispose of any of its properties or assets that are material to Company and its Subsidiaries taken as a whole, except for the sale of inventory in the ordinary course of business except for immaterial divestitures as may be required by law; (vi) (x) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, other than indebtedness owing to or guarantees of indebtedness owing to Company or any direct or indirect wholly-owned Subsidiary of Company or (y) make any loans or advances to any other person, other than to Company or to any direct or indirect wholly-owned Subsidiary of Company and other than routine advances to employees, except, in the case of clause (x) for borrowings under existing credit facilities in the ordinary course of business; 35 (vii) make any material tax election or settle or compromise any material income tax liability of Company or of any of its Subsidiaries. Company shall, before filing or causing to be filed any material tax return of Company or any of its Subsidiaries, consult with and obtain the approval of Parent and its advisors as to the positions and elections that may be taken or made with respect to such return; (viii) except as disclosed in Section 6.1(a)(viii) of the Disclosure Schedule, pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, (i) in the ordinary course of business consistent with past practice or in accordance with their terms, of claims, liabilities or obligations reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of Company included in the Filed SEC Documents or incurred since the date of such financial statements in the ordinary course of business consistent with past practice or (ii) of claims, liabilities or obligations that are not material to Company and its Subsidiaries taken as a whole; (ix) grant or agree to grant to any employee any increase in wages or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits, or establish any new compensation or benefit plans or arrangements, or amend or agree to amend any existing Employee Benefit Plans, except as may be required under existing agreements (including collective bargaining agreements) or normal, regularly scheduled increases in nonofficer employees consistent with past practices or as required by law; (x) other than in the ordinary course of business consistent with past practices, enter into or amend any employment, consulting, severance or similar agreement with any individual; (xi) waive any claims or rights having a value in excess of $2 million individually or $10 million in the aggregate; (xii) make any change in any method of accounting or accounting practice or policy except as required by any changes in generally accepted accounting principles; (xiii) incur or enter into any material commitment (including, but not limited to, any leases, capital expenditures or purchases of assets) other than in accordance with the existing business plans of Company provided to Parent 36 (including any capital budget contained therein) or purchases of inventory in the ordinary course of business consistent with past practice; (xiv) enter into any agreement, understanding or commitment that restrains, limits or impedes Company's ability to compete with or conduct any business or line of business; (xv) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization or any agreement relating to an Acquisition Proposal (other than as expressly permitted pursuant to this Agreement); (xvi) other than in the ordinary course of business consistent with past practice, engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of Company's affiliates, including, without limitation, any transactions, agreements, arrangements or understandings with any affiliate or other person covered under Item 404 of Regulation S-K under the Securities Act that would be required to be disclosed under such Item 404, other than pursuant to such agreements, arrangements, or understandings existing on the date of this Agreement; (xvii) close, shut down, or otherwise eliminate any of Company's stores other than in the ordinary course of business consistent with past practice; (xviii) change the name of Company's stores; (xix) close, shut down, or otherwise eliminate any of Company's distribution centers; (xx) move the location, close, shut down or otherwise eliminate Company's headquarters, or effect a general staff reduction at such headquarters; (xxi) authorize any of, or commit or agree to take any of, the foregoing actions. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1 Preparation of the Proxy Statement and the Form S-4; ---------------------------------------------------- Accountant's Letters. (a) As soon as practicable following the date hereof: - -------------------- 37 (i) Company shall, in consultation with Parent and Purchaser, prepare and file with the SEC, as soon as practicable after the date hereof, a preliminary proxy or information statement (the "Preliminary Proxy Statement") relating to the Merger in accordance with the Exchange Act and the rules and regulations under the Exchange Act, with respect to the transactions contemplated by this Agreement. Company, Parent and Purchaser shall cooperate with each other in the preparation of the Preliminary Proxy Statement. Company shall use all reasonable efforts to respond promptly to any comments made by the SEC with respect to the Preliminary Proxy Statement, and to cause the Proxy Statement to be mailed to Company's stockholders at the earliest practicable date after the Form S-4 is declared effective by the SEC. Company agrees to afford Parent and its counsel a reasonable opportunity to (i) review and comment upon the Preliminary Proxy Statement prior to its being filed with the SEC and to provide Parent and its counsel with copies of any comments Company or its counsel may receive from the SEC or its staff with respect thereto promptly after the receipt of such comments and (ii) review and comment upon the Proxy Statement prior to its being mailed to Company's stockholders. (ii) Parent shall prepare and file with the SEC the Form S-4, in which the Proxy Statement will be included as a prospectus. Each of Company and Parent shall use all reasonable efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing; provided, -------- however, that Parent may delay the effectiveness of the Form S-4 for up to 21 - ------- days, or such longer period of time consented to by Company, which consent shall not be unreasonably withheld, in order for Parent to implement its proposed stock repurchase program; provided, further, that Parent shall use its best -------- ------- efforts to cause such repurchase program to be implemented as promptly as practicable after the date hereof. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Stock in the Merger, and Company shall furnish all information concerning Company and the holders of the Shares as may be reasonably requested in connection with any such action. (iii) If required under the Exchange Act, Company and Parent shall jointly file with the SEC the Schedule 13E-3 with respect to the transactions contemplated by this Agreement at the time such filing may be required, and Company and Parent shall respectively cause the Form S-4, the Proxy Statement and the Schedule 13E-3 to be amended as and when required by the Exchange Act. 38 (b) Company shall use its best efforts to cause to be delivered to Parent a letter of KPMG Peat Marwick LLP, Company's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective, and a letter of KPMG Peat Marwick LLP, dated a date within two business days before the Closing Date, each addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for letters delivered by independent accountants in connection with registration statements similar to the Form S-4. (c) Parent shall use its best efforts to cause to be delivered to Company a letter of KPMG Peat Marwick LLP, Parent's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and a letter of KPMG Peat Marwick LLP, dated a date within two business days before the Closing Date, each addressed to Company, in form and substance reasonably satisfactory to Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 7.2 Stockholders Meeting. Company shall (and after the Control -------------------- Date Parent shall), take all action necessary, in accordance with the DGCL, the Exchange Act and other applicable law, the rules of the NYSE, and its certificate of incorporation and by-laws, to convene a special meeting of the stockholders of Company (the "Stockholders Meeting"), if necessary, as promptly as practicable after the consummation of the Offer and the effectiveness of the Registration Statement for the purpose of considering and voting upon this Agreement and the transactions contemplated hereby, including the Merger. Subject to Section 7.8, the Board of Directors of Company shall recommend that the holders of the Shares vote in favor of and approve this Agreement and the Merger at the Stockholders Meeting. At the Stockholders Meeting, Parent and Purchaser shall vote all Shares beneficially owned by them in favor of the adoption and approval of this Agreement and the Merger. SECTION 7.3 Access to Information; Confidentiality. (a) Company shall, -------------------------------------- and shall cause each of its Subsidiaries to, afford to Parent and to Parent's officers, employees, counsel, financial advisors and other representatives reasonable access during normal business hours during the period prior to the Effective Time to all its owned and leased properties, books, contracts, commitments, tax returns, personnel and records and, during such period, Company shall, and shall cause each of its Subsidiaries to, furnish as promptly as practicable to Parent such information concerning its business, properties, financial condition, operations and personnel as Parent may from time to 39 time reasonably request. Parent shall, and shall cause each of its Subsidiaries to, afford to Company and to Company's officers, employees, counsel, financial advisors and other representatives reasonable access during normal business hours during the period prior to the Effective Time to all its books, contracts, commitments, tax returns, personnel and records and during such period, parent shall, and shall cause each of its Subsidiaries to, furnish as promptly as practicable to Company such information concerning its business, properties, financial condition, operations and personnel as Company may from time to time reasonably request. Any such investigation by Parent or Company shall not affect the representations or warranties contained in this Agreement. Except as required by law, Parent and Company will hold, and will cause their respective directors, officers, partners, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any non-public information obtained from the other party in confidence to the extent required by, and in accordance with the provisions of the letter dated October 16, 1996, between Parent and Company. SECTION 7.4 Best Efforts. Upon the terms and subject to the conditions ------------ and other agreements set forth in this Agreement, each of the parties agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer and the Merger and the other transactions contemplated by this Agreement, including the satisfaction of the respective conditions set forth in Article VIII. SECTION 7.5 Indemnification; Directors' and Officers Insurance. (a) The -------------------------------------------------- certificate of incorporation and by-laws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the certificate of incorporation and by-laws of Company on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors or officers of Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by law. (b) Company shall, and from and after the Effective Time, Parent and the Surviving Corporation shall, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the 40 Effective Time, an officer or director of Company (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including reasonable attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement with the approval of the indemnifying party (which approval shall not be unreasonably withheld) of or in connection with any threatened or actual claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of Company whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities"), including all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case, to the full extent a corporation is permitted under the DGCL to indemnify its own directors or officers as the case may be (and Parent and the Surviving Corporation, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law). (c) Without limiting the foregoing, in the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Parties (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain counsel satisfactory to them and Company (or them and Parent and the Surviving Corporation after the Effective Time) and Company (or after the Effective Time, Parent and the Surviving Corporation) shall pay all fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; and (ii) Company (or after the Effective Time, Parent and the Surviving Corporation) shall use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither Company, Parent nor -------- the Surviving Corporation shall be liable for any settlement effected without its prior written consent. Any Indemnified Party wishing to claim indemnification under this Section 7.5, upon learning of any such claim, action, suit, proceeding or investigation, shall notify Company (or after the Effective Time, Parent and the Surviving Corporation) (but the failure so to notify shall not relieve a party from any liability which it may have under this Section 7.5 except to the extent such failure prejudices such party), and shall deliver to Company (or after the Effective Time, Parent and the Surviving Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. Company, 41 Parent and Purchaser agree that all rights to indemnification, including provisions relating to advances of expenses incurred in defense of any action or suit, existing in favor of the Indemnified Parties with respect to matters occurring through the Effective Time, shall survive the Merger and shall continue in full force and effect for a period of not less than six years from the Effective Time; provided, however, that all rights to indemnification in -------- ------- respect of any Indemnified Liabilities asserted or made within such period shall continue until the disposition of such Indemnified Liabilities. (d) For a period of two years after the Effective Time, Parent shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by Company (provided that Parent may substitute therefor policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous in any material respect to the Indemnified Parties) with respect to matters arising before the Effective Time, provided that Parent shall not be required to pay an annual premium for such insurance in excess of 150% of the last annual premium paid by Company prior to the date hereof, but in such case shall purchase as much coverage as possible for such amount. (e) The provisions of this Section 7.5 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and his or her personal representatives and shall be binding on all successors and assigns of Parent, Purchaser, Company and the Surviving Corporation. SECTION 7.6 Public Announcements. Parent and Purchaser, on the one hand, -------------------- and Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release, SEC filing or other public statements with respect to the transactions contemplated by this Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. SECTION 7.7 No Solicitation; Acquisition Proposals. Until the termination -------------------------------------- of this Agreement, Company shall not, and shall not permit any of its Subsidiaries, or any of its or their officers, directors, employees, representatives, agents or affiliates (including, without limitation, any investment banker, attorney or accountant retained by Company or any of its Subsidiaries), to, directly or indirectly, initiate, solicit or 42 encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, an Acquisition Proposal (as defined below), or enter into or maintain or continue discussions or negotiate with any person in furtherance of such inquiries or to obtain an Acquisition Proposal or agree to or endorse any Acquisition Proposal, or authorize or permit any of its or their officers, directors or employees or any of its Subsidiaries or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its Subsidiaries to take any such action; provided, however, that nothing in this Agreement shall -------- ------- prohibit the Board of Directors of Company from furnishing information to, or entering into, maintaining or continuing discussions or negotiations with, any person that makes an unsolicited Acquisition Proposal after the date hereof, if the Board of Directors of Company, after consultation with and based upon the advice of independent legal counsel, determines in good faith that (a) such Acquisition Proposal would be more favorable to Company's stockholders than the Offer and the Merger, (b) such Acquisition Proposal contains no financing condition and (c) the failure to take such action would result in a breach by the Board of Directors of Company of its fiduciary duties to Company's stockholders under applicable law, and, prior to taking such action, Company (i) provides prompt notice to Parent of receipt of any such proposal to the effect that it is taking such action (which notice shall identify the nature and material terms of the proposal) and (ii) prior to furnishing any non-public information to such person, receives from such person an executed confidentiality agreement with provisions no less favorable to Company than the letter referred to in the last sentence of Section 7.3. Company shall keep Parent fully and timely informed of the status of the same. For purposes of this Agreement, "Acquisition Proposal" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by this Agreement with Parent or Purchaser) involving Company: (w) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction; (x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all the assets of Company and its Subsidiaries, taken as a whole, in a single transaction or series of related transactions; (y) any tender offer or exchange offer for 33-1/3 percent or more of the outstanding shares of capital stock of Company or the filing of a registration statement under the Securities Act in connection therewith; or (z) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. Nothing contained in this Section 7.7 shall prohibit Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated 43 under the Exchange Act or from making any disclosure to Company's stockholders which, in the good faith judgment of the Board of Directors of Company based on the advice of outside counsel, is required under applicable law; provided that -------- Company does not withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger or approve or recommend, or propose to approve or recommend, an Acquisition Proposal except as expressly permitted above. SECTION 7.8 Consents, Approvals and Filings. (a) Upon the terms and ------------------------------- subject to the conditions hereof, each of the parties hereto shall (i) make promptly its respective filings, and thereafter make any other required submissions, under the HSR Act, the Securities Act and the Exchange Act, with respect to the Offer and Merger and the other transactions contemplated herein (together, the "Transactions") and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions, including, without limitation, using its reasonable best efforts to obtain all licenses, permits (including, without limitation, Environmental Permits), consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with Company and its Subsidiaries as are necessary for the consummation of the Transactions and to fulfill the conditions to the Offer and the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such action. (b) Without limiting the generality of the foregoing, each of the parties hereto agrees, and shall cause each of its respective Subsidiaries to cooperate and to use their respective best efforts to obtain any government clearances required for completion of the Transactions (including through compliance with the HSR Act), to respond to any government requests for information, and to contest and resist any action, including any legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") that restricts, prevents or prohibits the consummation of any of the Transactions, including, without limitation, by vigorously pursuing all available avenues of administrative and judicial appeal and all available legislative action. Each of the parties hereto also agrees to take any and all of the following actions to the extent necessary to obtain the approval of any governmental entity with jurisdiction over the enforcement of any applicable laws regarding the 44 Transactions; entering into negotiations; providing information; substantially complying with any second request for information pursuant to the HSR Act; entering into and performing agreements or submitting to judicial or administrative orders and selling or otherwise disposing of, or holding separate (through the establishment of a trust or otherwise) particular assets or categories of assets, or businesses of Parent, Company or any of their affiliates. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or in behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other federal, state or foreign antitrust or fair trade law. Parent shall be entitled to direct any proceedings or negotiations with any governmental entity relating to any of the foregoing, provided that it shall afford Company a reasonable opportunity to participate therein. SECTION 7.9 Stockholder Litigation. Company shall give Parent the ---------------------- opportunity to participate in the defense or settlement of any stockholder litigation against Company and its directors relating to the transactions contemplated by this Agreement; provided, however, that no such settlement shall -------- ------- be agreed to without Parent's consent, which consent shall not be unreasonably withheld. SECTION 7.10 Board Action Relating to Stock Option Plans. As soon as ------------------------------------------- practicable following the date of this Agreement, the Board of Directors of Company (or, if appropriate, any committee administering a Stock Option Plan) shall adopt such resolutions or take such actions as may be required to adjust the terms of all outstanding Options in accordance with Section 3.2 and shall make such other changes to Stock Option Plans as it deems appropriate to give effect to the Merger (subject to the approval of Parent, which shall not be unreasonably withheld). SECTION 7.11 Employment and Employee Benefit Matters. Parent, Purchaser --------------------------------------- and Company agree with respect to employment and employee benefit matters as set forth in Annex 3. SECTION 7.12 Affiliates and Certain Stockholders. Prior to the Closing ----------------------------------- Date, Company shall deliver to Parent a letter identifying all persons who are, at the time the Merger is submitted for approval to the stockholders of Company, "affiliates" of Company for purposes of Rule 145 under the Securities Act. Company shall use its best efforts to cause each such person to deliver to Parent on or prior to the Closing Date a written agreement substantially in the form attached as Exhibit B hereto. Parent shall not be required to maintain the 45 effectiveness of the Form S-4 or any other registration statement under the Securities Act for the purposes of resale of Parent Common Stock by such affiliates, and the certificates representing Parent Common Stock received by such affiliates in the Merger shall bear a customary legend regarding applicable Securities Act restrictions. SECTION 7.13 NYSE Listing. Parent shall use its best efforts to cause the ------------ shares of Parent Common Stock to be issued in the Merger if the Stock Condition has been met to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Closing Date. ARTICLE VIII CONDITIONS PRECEDENT SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger. ---------------------------------------------------------- The respective obligation of each party to effect the Merger is subject to the satisfaction or written waiver on or prior to the Closing Date of the following conditions: (a) Stockholder Approval. This Agreement and the Merger shall have been -------------------- approved and adopted by the affirmative vote of the requisite number of stockholders of Company, and in the manner, as shall be required pursuant to Company's certificate of incorporation, by-laws, the DGCL and other applicable law, and the rules of the NYSE. (b) No Injunctions or Restraints. No temporary restraining order, ---------------------------- preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Offer and the Merger shall be in effect; provided, however, -------- ------- that the party invoking this condition shall have complied with its obligations under Section 7.8. (c) NYSE Listing. The shares of Parent Common Stock issuable to Company's ------------ stockholders pursuant to this Agreement if the Stock Condition has been satisfied shall have been approved for listing on the NYSE, subject to official notice of issuance. (d) Form S-4. The Form S-4 shall have been declared effective under the -------- Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order. SECTION 8.2 Conditions to Obligations of Parent and Purchaser. The ------------------------------------------------- obligations of Parent and Purchaser to effect the Merger are further subject to the following conditions: 46 (a) Purchase of Shares in the Offer. Parent or Purchaser shall have ------------------------------- accepted for payment and paid for Shares pursuant to the Offer in accordance with the terms thereof; provided, however, that this condition shall not be -------- ------- applicable to the obligations of Parent or Purchaser if, in breach of this Agreement or the terms of the Offer, Purchaser fails to purchase any Shares validly tendered and not withdrawn pursuant to the Offer. SECTION 8.3 Conditions to Forward Merger. The obligation of the Parties ---------------------------- to effect the Forward Merger is subject to the following conditions: (a) Company Tax Opinion. Company shall have received an opinion of ------------------- Shearman & Sterling, dated the Closing Date, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (ii) each of Parent, Purchaser and Company will be a party to the reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, Shearman & Sterling may receive and rely upon representations contained in certificates of Parent and Company substantially in the form of Annex 1 hereto. (b) Parent Tax Opinion. Parent shall have received an opinion of Weil, ------------------ Gotshal & Manges LLP, dated the Closing Date, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; (ii) each of Parent, Purchaser and Company will be a party to the reorganization within the meaning of Section 368(b) of the Code; and (iii) no gain or loss will be recognized by Parent, Purchaser or Company as a result of the Merger. In rendering such opinion, Weil, Gotshal & Manges LLP may receive and rely upon representations contained in certificates of Parent and Company substantially in the form of Annex 2 hereto. (c) Conversion to Reverse Merger. If either the opinion of Weil, Gotshal ---------------------------- & Manges LLP or the opinion of Shearman & Sterling referred to above cannot be rendered, then the Reverse Merger shall be effected pursuant to Section 2.1. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER SECTION 9.1 Termination. (a) This Agreement may be terminated and the ----------- transactions contemplated hereby may be abandoned at any time prior to the Control Date (or in the case 47 of clause (v) or (vi) below, the Effective Time), notwithstanding approval thereof by the stockholders of Company, in any one of the following circumstances: (i) By mutual written consent duly authorized by the Boards of Directors of Parent and Company. (ii) By Company, if the Offer has not been timely commenced in accordance with Section 1.1; provided, however, that Company may not terminate this -------- ------- Agreement pursuant to this clause (ii) if Company is in material breach of the Agreement. (iii) By Parent or Company, if, without any material breach by such terminating party of its obligations under this Agreement, the purchase of Shares pursuant to the Offer shall not have occurred on or before February 1, 1997; provided, however, that this Agreement shall be automatically extended for -------- ------- 120 days thereafter if the purchase of Shares shall not have occurred on or before February 1, 1997 as a result of the failure (A) to receive the necessary governmental clearances or (B) to resolve any matter referred to in Section 8.1(b) and the parties are diligently pursuing such governmental clearances or the resolution of such matter. (iv) By Parent or Company, if any federal or state court of competent jurisdiction or other Governmental Entity shall have issued an order, decree or ruling, or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and non-appealable provided that neither party may -------- terminate this Agreement pursuant to this clause (v) if it has not complied with its obligations under Section 7.8. (v) By Parent or Company if, upon a vote at a duly held Stockholders Meeting or any adjournment thereof, any required approval of the stockholders of Company shall not have been obtained. (vi) By Company, if it shall have received an Acquisition Proposal, and Company's Board of Directors, after consultation with and based upon the advice of independent legal counsel, determines in good faith that failure to accept such Acquisition Proposal would result in a breach by the Board of Directors of Company of its fiduciary duties to Company's stockholders under applicable law; provided, however, Company shall have given Parent and Purchaser at least 24 - -------- ------- hours advance written notice of any termination pursuant to this clause (vii) and shall have made the payment to Parent of the Fee and Expenses 48 (each as defined in Section 9.1(b)) required to be paid pursuant to Section 9.1(b). (vii) By Parent, if the Board of Directors of Company shall have (A) withdrawn, modified or amended in any adverse respect its approval or recommendation of this Agreement, the Merger or the transactions contemplated hereby, (B) endorsed or recommended to its stockholders an Acquisition Proposal or (C) resolved to do any of the foregoing. (viii) By Parent or Company, if (A) the other party shall have failed to comply in any material respect with any of the material covenants and agreements contained in this Agreement to be complied with or performed by such party at or prior to such date of termination, and such failure continues for 20 business days after the actual receipt by such party of a written notice from the other party setting forth in detail the nature of such failure, or (B) a material representation or warranty of the other party contained in this Agreement shall have been untrue in any material respect on the date when made and at the expiration date, or in the case of any representations and warranties that are made as of a different date, as of that date. (b) If this Agreement or the transactions contemplated hereby are terminated pursuant to: (A) Section 9.1(a)(vi), or (B) Section 9.1(a)(vii); then, in such event, Company shall pay Parent promptly (but in no event later than one business day after the first of such events shall have occurred) a fee of $90,000,000 (the "Fee"), which amount shall be payable in immediately available funds. SECTION 9.2 Effect of Termination. In the event of the termination and --------------------- abandonment of this Agreement pursuant to Section 9.1(a) hereof, this Agreement (except for the provisions of the last sentence of Section 7.3, and Sections 5.1(n), 5.2(h), 7.6, this Section 9.2, Article X and paragraph (b) of Section 9.1) shall forthwith become void and have no effect, without any liability on the part of any party hereto or its directors, officers or stockholders; provided, however, that nothing in this Section 9.2 shall relieve any party to - -------- ------- this Agreement of liability for any willful or intentional breach of this Agreement. SECTION 9.3 Amendment. Subject to the applicable provisions of the DGCL --------- and the provisions of Section 1.3(c), at 49 any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties; provided, however, that after approval of -------- ------- the Merger by the stockholders of Company, no amendment shall be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. SECTION 9.4 Extension; Waiver. Subject to the provisions of Section ----------------- 1.3(c), at any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to Section 9.3, waive compliance with any of the agreements or conditions of the other parties contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 9.5 Procedure for Termination, Amendment, Extension or Waiver. A --------------------------------------------------------- termination of this Agreement pursuant to Section 9.1, an amendment of this Agreement pursuant to Section 9.3 or an extension or waiver pursuant to Section 9.4 shall, in order to be effective, require in the case of Parent, Purchaser or Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. ARTICLE X GENERAL PROVISIONS SECTION 10.1 Nonsurvival of Representations and Warranties. None of the --------------------------------------------- representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 10.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 10.2 Fees and Expenses. Except as provided otherwise in ----------------- paragraphs (b) and (c) of Section 9.1, whether or not the Merger shall be consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the 50 transactions contemplated hereby, other than the expenses incurred in connection with printing and mailing proxy materials to stockholders, which shall be shared equally by Parent and Company. SECTION 10.3 Definitions. For purposes of this Agreement: (a) an ----------- "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; (b) "business day" means any day other than Saturday, Sunday or any other day on which banks in the City of New York are required or permitted to close; (c) "knowledge" means the actual knowledge of any officer of Company; (d) "Liens" means, collectively, all pledges, claims, liens, charges, mortgages, conditional sale or title retention agreements, hypothecations, collateral assignments, security interests, easements and other encumbrances of any kind or nature whatsoever; (e) a "Material Adverse Effect" with respect to any person means an event that has had or would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of such person and its Subsidiaries taken as a whole, except for any such changes or effects resulting from changes in general economic, regulatory or political conditions or changes that affect generally the drug store industry; (f) the "NYSE" means the New York Stock Exchange; (g) a "person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; and (h) a "Subsidiary" of any person means any other person of which (A) the first mentioned person or any Subsidiary thereof is a general partner, (B) voting power to elect a majority of the board of directors or others performing similar functions with respect to such other person is held by the first mentioned person and/or by any one or more of its Subsidiaries, or (C) at least 50% of the equity interests of such other person is, directly or indirectly, owned or controlled by such first mentioned person and/or by any one or more of its Subsidiaries. 51 SECTION 10.4 Notices. All notices, requests, claims, demands and other ------- communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent, to J.C. Penney Company, Inc. 6501 Legacy Drive Plano, Texas 75024 Attention: General Counsel Telecopy: (972) 431-1133 with a copy (which shall not constitute notice) to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Dennis J. Block, Esq. Telecopy: (212) 310-8007 (ii) if to Company, to Eckerd Corporation 8333 Bryan Dairy Road Largo, Florida 34647 Attention: President and Chief Executive Officer Telecopy: (813) 399-7287 with a copy (which shall not constitute notice) to: Shearman & Sterling 599 Lexington Avenue New York, New York Attention: John A. Marzulli, Jr. and Clare O'Brien Telecopy: (212) 848-7179 SECTION 10.5 Interpretation. When a reference is made in this Agreement -------------- to a Section or Schedule, such reference shall be to a Section of, or a Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or 52 "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". SECTION 10.6 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 10.7 Entire Agreement; Third-Party Beneficiaries. This Agreement ------------------------------------------- constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. This Agreement is not intended to confer upon any person (including, without limitation, any employees of Company), other than the parties hereto and the third party beneficiaries referred to in the following sentence, any rights or remedies. The parties hereto expressly intend the provisions of Section 7.5 (solely in respect of officers and directors of Company and its Subsidiaries) to confer a benefit upon and be enforceable by, as third party beneficiaries of this Agreement, the third persons referred to in, or intended to be benefitted by, such provisions. SECTION 10.8 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 10.9 Assignment. Neither this Agreement nor any of the rights, ---------- interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, and any such assignment that is not consented to shall be null and void, except that Parent and/or Purchaser may assign this Agreement to any direct wholly-owned Subsidiary of Parent without the prior consent of Company; provided that Parent shall remain liable for all -------- of its obligations and all obligations of any of its Subsidiaries or any of its assignees under this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 10.10 Enforcement. The parties agree that irreparable damage ----------- would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this 53 Agreement in any court of the United States located in the State of Delaware, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 10.11 Severability. Whenever possible, each provision or portion ------------ of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. [signature page follows] 54 IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. ECKERD CORPORATION By: /s/ Frank Newman ----------------------------------------------- Name: Frank Newman Title: President and Chief Executive Officer J.C. PENNEY COMPANY, INC. By: /s/ James E. Oesterreicher ----------------------------------------------- Name: James E. Oesterreicher Title: Vice Chairman and Chief Executive Officer OMEGA ACQUISITION CORPORATION By: /s/ Donald A. McKay ----------------------------------------------- Name: Donald A. McKay Title: President Exhibit A to Merger Agreement CONDITIONS OF THE OFFER ----------------------- Unless otherwise defined in this Exhibit A, capitalized terms used in this Exhibit A have the meanings ascribed to them in the Amended and Restated Agreement and Plan of Merger among Parent, Purchaser and Company to which this Exhibit A is attached (the "Agreement"). Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, to pay for any Shares tendered, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any such Shares tendered, and, subject to the provisions of the Agreement, may terminate the Offer (whether or not any Shares have theretofore been purchased or paid for), if, (1) the Minimum Condition (as defined below) shall not have been satisfied, (2) any applicable waiting periods under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer or (3) at any time before acceptance for payment of, or payment for, Shares, any of the following events shall occur or be deemed to have occurred: (A) there shall be pending any suit, action, or proceeding by any Governmental Entity that has not been dismissed or otherwise withdrawn (1) challenging the acquisition by Parent or Purchaser of any Shares under the Offer or seeking to restrain or prohibit the making or consummation of the Offer or Merger, (2) seeking to prohibit or materially limit the ownership or operation by Parent, Company or any of their respective Subsidiaries of a material portion of the business or assets of Company and its Subsidiaries, taken as a whole, and/or Parent and its Subsidiaries, taken as a whole, or to compel Parent or Company to dispose of or hold separate any material portion of the business or assets of Parent and its Subsidiaries, taken as a whole, and/or Company and its Subsidiaries, taken as a whole, as a result of the Offer, the Merger or any of the other transactions contemplated by the Agreement, (3) seeking to impose material limitations on the ability of Parent or Purchaser to acquire or hold, or exercise full rights of ownership of, any Shares accepted for payment pursuant to the Offer, including, without limitation, the right to vote such Shares on all matters properly presented to the stockholders of Company, (4) seeking to prohibit Parent or any of its Subsidiaries from effectively 1 controlling in any material respect any material portion of the business or operations of Company and its Subsidiaries; provided that Parent shall have complied with its obligations under Section 7.8 or (5) otherwise materially adversely affecting the business, financial condition or results of operations of Company except for any such changes or effects resulting from changes in general economic, regulatory or political conditions or changes that affect generally the drug store industry; or (B) any Governmental Entity or federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, rule, regulation, executive order, decree, injunction or other order that is in effect and that, (1) materially restricts, prevents or prohibits consummation of the Offer, the Merger or any material transaction contemplated by the Agreement, (2) prohibits or limits materially the ownership or operation by the Parent, Company or any of their Subsidiaries of all or any material portion of the business or assets of Company and its Subsidiaries taken as a whole, or compels Parent, Company or any of their Subsidiaries to dispose of or hold separate all or any material portion of the business or assets of Company and its Subsidiaries taken as a whole, (3) imposes material limitations on the ability of Parent or any of its Subsidiaries to exercise effectively full rights of ownership of any Shares, including, without limitation, the right to vote any such Shares acquired pursuant to the Offer or otherwise on all matters properly presented to Company's stockholders, including, without limitation, the approval and adoption of the Agreement and the transactions contemplated thereby, (4) requires divestitures by Parent, Purchaser or any other affiliate of Parent of any Shares; provided that Parent shall have complied with its obligations under Section 7.8 or (5) otherwise materially adversely affecting the business, financial condition or results of operations of Company except for any such changes or effects resulting from changes in general economic, regulatory or political conditions or changes that affect generally the drug store industry; or (C) any of the representations and warranties of Company set forth in the Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case, on the date when made and at the expiration date, or in the case of any representations and warranties that are made as of a different date, as of that date; or 2 (D) Company shall have breached or failed to comply in any material respect with any of its obligations under the Agreement and such failure continues for twenty business days after actual receipt by Company of a written notice from Parent setting forth in detail the nature of such failure; or (E) the Agreement shall have been terminated in accordance with its terms or the Offer shall have been amended or terminated with the consent of Company; or (F) it shall have been publicly disclosed or Parent shall have otherwise learned that any person or "group" (as defined in section 13(d)(3) of the Exchange Act), other than Parent and its Subsidiaries or any group of which any of them is a member, shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 under the Exchange Act) of more than 33-1/3 percent of the Shares outstanding, through the acquisition of stock, the formation of a group or otherwise, or shall have been granted an option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 33-1/3 percent of such Shares; or (G) there shall have occurred and continued for at least two business days (1) any general suspension of, or limitation on prices for, trading in securities on the NYSE, (2) the declaration of any banking moratorium or any suspension of payments in respect of banks, or any limitation (whether or not mandatory) by any Governmental Entity on, or other event materially adversely affecting, the extension of credit by lending institutions in the United States, (3) any extraordinary or material adverse change in the financial markets or major stock exchange indices in the United States including a decline of at least 25% in the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 Index, (4) a commencement of a war directly involving the United States or (5) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; which, in the judgment of Parent in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payments. For purposes of the Offer, the "Minimum Condition" shall mean the condition that 35,252,986 Shares or such other number of Shares representing not less than 50.1% of all outstanding Shares 3 as of the expiration of the Offer shall have been validly tendered and not withdrawn prior to the expiration of the Offer. The foregoing conditions are for the sole benefit of Parent, Purchaser and their affiliates and may be asserted by Parent or Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Parent and Purchaser, in whole or in part, from time to time in their sole discretion. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right and may be asserted at any time and from time to time. 4 Exhibit B to Merger Agreement [Form of Affiliate Letter] J.C. Penney Company, Inc. 6501 Legacy Drive Plano, Texas 75024 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of Eckerd Corporation a Delaware corporation (the "Company"), as such term is (i) defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) used in and for purposes of Accounting Series Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of the Amended and Restated Agreement and Plan of Merger, dated as of November 2, 1996 (as amended from time to time, the "Merger Agreement"), among J.C. Penney Company, Inc., a Delaware Corporation ("Parent"), Omega Acquisition Corporation, Inc., a Delaware corporation ("Acquiror"), and the Company, subject to the satisfaction of certain conditions contained in the Merger Agreement, either the Company will be merged with and into Acquiror or Acquiror will be merged with and into the Company (the "Merger"). Pursuant to the Merger Agreement, if the Forward Merger (as defined in the Merger Agreement) is effected, each share of common stock, par value $.01 per share, of the Company owned by me, if any, immediately prior to the effective time of the Merger will be converted into Parent common stock par value $.50 per share (the "Shares"). I represent, warrant and covenant to Parent and Acquiror that, with respect to all Shares received by me as a result of the Merger: 1. I shall not make any sale, transfer or other disposition of the Shares in violation of the Securities Act or the Rules and Regulations. 2. I have carefully read this letter and the Merger Agreement and discussed the requirements of such documents and any other applicable limitations upon my ability to sell, transfer or otherwise dispose of the Shares to the extent I felt necessary, with my counsel or counsel for the Company. 3. I have been advised that the issuance of the Shares to me pursuant to the Merger has been registered with the Commission under the Securities Act. However, I have also been advised that, since at the time the Merger Agreement was submitted for a vote of the stockholders of the Company, I may be deemed to have been an "affiliate" of the Company and the distribution by me of Shares has not been registered under the Act, I may not sell, transfer or otherwise dispose of Shares issued to me in the Merger unless (i) such sale, transfer or other disposition has been registered under the Securities Act or is made in conformity with Rule 145 under the Securities Act, or (ii) in the opinion of counsel reasonably acceptable to Acquiror, or pursuant to a "no action" letter obtained by me from the staff of the Commission, such sale, transfer or other disposition is otherwise exempt from registration under the Securities Act. 4. I understand that Acquiror will give stop transfer instructions to Acquiror's transfer agent with respect to the Shares and that the certificates for the Shares issued to me, or any substitutions therefor, will bear a legend substantial to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED _________ __, 1996, BETWEEN THE REGISTERED HOLDER HEREOF AND J.C. PENNEY COMPANY, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF J.C. PENNEY COMPANY, INC." 5. I also understand that unless the transfer by me of my Shares has been registered under the Securities Act or is a sale made in conformity with the provisions of Rule 2 145, Acquiror reserves the right to place the following legend on the certificates issued to any transferee: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." It is understood and agreed that the legends set forth in paragraphs 4 and 5 above shall be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Securities Act. It is understood and agreed that such legends and the stop orders referred to above will be removed if (i) two years shall have elapsed from the date I acquired the Shares received in the Merger and the provisions of Rule 145(d)(2) are then available to me, (ii) three years shall have elapsed from the date I acquired the Shares received in the Merger and the provisions of Rule 145(d)(3) are then available to me, or (iii) Acquiror has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Acquiror, or a "no-action" letter obtained by me from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Securities Act no longer apply to me. Execution of this letter should not be considered an admission on my part that I am an "affiliate" of the Company as described in the first paragraph of this letter or as a waiver of any rights that I may have to object to any claim that I am such an affiliate on or after the date of this letter. 3 Sincerely, ___________________________________ Name: Accepted this __ day of _______ __, 1996: J.C. PENNEY COMPANY, INC. By:______________________________ Name: Title: 4 Exhibit C to Merger Agreement Exhibit C to the Merger Agreement is filed as Exhibit (c)(2) to this Schedule 14D-1 Annex 1 to Merger Agreement ECKERD CORPORATION OFFICER'S CERTIFICATE In connection with the merger (the "Merger") of Eckerd Corporation (the "Company") with and into Omega Acquisition Corporation ("Purchaser"), a direct wholly-owned subsidiary of J.C. Penney Company, Inc. ("Parent"), pursuant to the Amended and Restated Agreement and Plan of Merger dated as of November 2, 1996 (the "Merger Agreement"), the Company hereby represents the following: 1. The fair market value of the stock of Parent ("Parent Stock") to be received by each shareholder of the Company (other than Parent) will be approximately equal to the fair market value of Company stock surrendered in the exchange. 2. To the best of the knowledge of the management of the Company, there is no plan or intention on the part of the shareholders of the Company to sell, exchange, or otherwise dispose of a number of shares of Parent Stock received in the Merger that would reduce such Company shareholders' ownership of shares of Parent Stock to a number of shares having a value, as of the date of the Merger, of less than 45 percent of the value of all of the formerly outstanding shares of Company stock as of the same date. For purposes of this representation, shares of Company stock exchanged for cash or property or exchanged for cash in lieu of fractional shares of Parent Stock will be treated as outstanding shares of Company stock on the date of the Merger. In addition, and not in limitation of the foregoing, the Company has considered, in making this representation, any shares of Company stock that have been sold, redeemed or otherwise disposed of by shareholders of the Company who own five percent or more of Company stock, or by shareholders who are officers or directors of the Company, after the announcement of the Merger and prior to the Effective Time to the extent the management of the Company has knowledge of any such sales, redemptions or dispositions. Except as set forth on Annex I hereto, to the knowledge of management of the Company, there are no shareholders who own five percent or more of the Company stock. 3. The Company and its shareholders will pay their respective expenses, if any, incurred in connection with the Merger. 4. The Company is not an investment company as defined in section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the "Code"). 5. On the date of the Merger, the fair market value of the assets of the Company transferred to Purchaser will exceed the sum of the liabilities of the Company assumed by Purchaser, plus the amount of liabilities, if any, to which the assets are subject. 6. The Company is not under the jurisdiction of a court in a Title 11, or similar case within the meaning of Section 368(a)(3)(A) of the Code. 7. Purchaser will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets of the Company held immediately prior to the Merger. For purposes of this representation, amounts paid by the Company to Company shareholders who receive cash or other property in the Merger, amounts used by the Company to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by the Company will be included as assets of the Company immediately prior to the Merger. 8. The Merger Agreement represents the full and complete agreement among Parent, Purchaser, and the Company regarding the Merger, and there are no other written or oral agreements regarding the Merger other than those expressly referred to in the Merger Agreement. 2 9. There is no intercorporate indebtedness existing between Parent and the Company or between Purchaser and the Company that was issued, acquired or will be settled at a discount. 10. The liabilities of the Company to be assumed by Purchaser and the liabilities to which the transferred assets of the Company are subject were incurred by the Company in the ordinary course of business. 11. The payment of cash in lieu of fractional shares of Parent Stock is solely for the purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares and does not represent separately bargained-for consideration. 12. None of the Parent Stock received by any shareholder-employees of the Company will be separate consideration for, or allocable to, past or future services. None of the compensation received by any shareholder-employee of the Company is separate consideration for, or allocable to, such shareholder-employee's shares of the Company stock surrendered in the Merger, and the compensation paid to such shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. IN WITNESS WHEREOF, the Company has executed this Certificate on this __ day of _____________, 1996. ECKERD CORPORATION By: _____________________________ Name: Title: 3 Annex 2 to Merger Agreement J.C. Penney Company, Inc. OFFICER'S CERTIFICATE In connection with the merger (the "Merger") of Eckerd Corporation (the "Company") with and into Omega Acquisition Corporation ("Purchaser"), a direct wholly-owned subsidiary of J.C. Penney Company, Inc. ("Parent"), pursuant to the Amended and Restated Agreement and Plan of Merger dated as of November 2, 1996 (the "Merger Agreement"), Parent hereby represents, on behalf of Parent and Purchaser, the following: 1. The fair market value of the stock of Parent ("Parent Stock") to be received by each shareholder of the Company (other than Parent or Purchaser) will be approximately equal to the fair market value of Company stock surrendered in the exchange. 2. Parent has no plan or intention to redeem or otherwise reacquire the Parent Stock issued in the Merger, other than in connection with the repurchase of fractional shares. 3. Parent has no plan or intention to liquidate Purchaser; to merge Purchaser with or into another corporation; to sell or otherwise dispose of the stock of Purchaser; or to cause Purchaser to sell or otherwise dispose of any of the assets of the Company acquired in the Merger, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the "Code"). 4. Parent and Purchaser will pay their respective expenses, if any, incurred in connection with the Merger, and will not pay any of the expenses of the Company or its shareholders. 5. Neither Parent nor Purchaser is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 6. Before the Merger, Parent will be in control of Purchaser within the meaning of Section 368(c) of the Code. 7. Following the Merger, Purchaser will not issue additional shares of its stock that would result in Parent losing control of Purchaser within the meaning of Section 368(c) of the Code. 8. Following the Merger, Purchaser will continue the historic business of the Company or use a significant portion of the historic business assets of the Company in a business. 9. None of the Parent Stock received by any shareholder-employees of the Company will be separate consideration for, or allocable to, past or future services. None of the compensation received by any shareholder-employee of the Company is separate consideration for, or allocable to, such shareholder-employee's shares of the Company stock surrendered in the Merger, and the compensation paid to such shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. 10. The Merger Agreement represents the full and complete agreement among Parent, Purchaser, and the Company regarding the Merger, and there are no other written or oral agreements regarding the Merger other than those expressly referred to in the Merger Agreement. 11. There is no intercorporate indebtedness existing between Parent and the Company or between Purchaser and the Company that was issued, acquired or will be settled at a discount. 12. No stock of Purchaser will be issued in the Merger. 13. The payment of cash in lieu of fractional shares of Parent Stock is solely for the purpose of 2 avoiding the expense and inconvenience to Parent of issuing fractional shares and does not represent separately bargained-for consideration. IN WITNESS WHEREOF, Parent, on behalf of Parent and Purchaser, has executed this Certificate on this __ day of ______________, 1996. J.C. Penney Company, Inc. By: ______________________________ Name: Title: 3 Annex 3 to Merger Agreement EMPLOYEE BENEFIT MATTERS Parent, Acquiror and the Company agree to the following with respect to the compensation and benefit programs of the Surviving Corporation and its Subsidiaries: 1. Continuation of Benefits. For a period of at least twelve months following ------------------------ the Effective Time, Parent shall, or shall cause the Surviving Corporation to, provide employee benefit plans and arrangements which in the aggregate will provide a substantially comparable level of benefits to active and retired employees of the Surviving Corporation and its Subsidiaries, considered as a group, to those provided under the Company employee benefit plans and arrangements as in effect immediately prior to the Effective Time, it being understood and agreed that Parent shall cause the Surviving Corporation to consult with senior management of the Surviving Corporation, including Mr. Newman, before any changes are made in the benefit plans or arrangements of the Surviving Corporation during such twelve month period. Notwithstanding the foregoing, changes to the benefit plans and arrangements applicable to employees of the Surviving Corporation that would not comply with the substantially comparable standard set forth in the immediately preceding sentence shall be permitted to the extent approved by senior management of the Surviving Corporation, including Mr. Newman. All service credited to each employee by the Company or any of its Subsidiaries through the Effective Time shall be recognized by Parent for purposes of eligibility and vesting under any employee benefit plan provided by Parent or its Subsidiaries for the benefit of the employees of the Surviving Corporation and its Subsidiaries; provided, however, -------- ------- that, to the extent necessary to avoid duplication of benefits, amounts payable under employee benefit plans provided by Parent or its Subsidiaries may be reduced by amounts payable under similar the Company plans with respect to the same periods of service. In addition, with respect to any welfare benefit plan established or maintained by Parent or its Subsidiaries for the benefit of employees of the Surviving Corporation or its Subsidiaries, Parent shall, or shall cause the relevant Subsidiary to, waive any pre-existing condition exclusions (other than any pre-existing condition that was not waived by a Company plan) and provide that any covered expenses incurred on or before the Effective Time in respect of the current plan year by any employee of the Company or any of its Subsidiaries (or any covered dependent of such an employee) shall be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Effective Time in respect of such current plan year. 2. Long-Term Incentive Plan. As of the Effective Time (or if later, as soon as ------------------------ practicable following the close of the Company's 1996 fiscal year), a pro rated bonus award will be paid in cash to each executive employee of the Company and its Subsidiaries who has been selected to participate in the Company's Executive Three (3) Year Bonus Plan (the "Three Year Plan") in accordance with Section 14 thereof, so that 100% of such executive employee's long-term bonus for the 1994-1996 cycle, 66 2/3% of his long-term bonus for the 1995-1997 cycle, and 33 1/3% of his long-term bonus for the 1996- 1998 cycle shall be paid, in each case based on the actual performance of the Company through the end of its 1996 fiscal year. The maximum amount payable to all the Company's executive employees pursuant to the preceding sentence shall be $4,000,000. Following the payment of such awards, the Three Year Plan shall terminate. As soon as practicable following such termination, Parent shall cause the Surviving Corporation to implement a new long-term incentive program in place of the Three Year Plan. 3. Annual Incentive Plan. Parent shall cause the Surviving Corporation to --------------------- retain the Company's Key Management Bonus Plan (the "Company Bonus Plan") following the Effective Time, with the same employees eligible for bonuses thereunder, until bonuses are paid with respect to the Company's 1996 fiscal year. The amounts payable to each such employee participating in the Company Bonus Plan with respect to such fiscal year shall be determined pursuant to the terms of the Company Bonus Plan; provided, that appropriate adjustments shall be -------- made to the "Threshold", "Target" and "Goal" levels (as defined in Section 6 of the Company Bonus Plan) to eliminate the effect of legal, investment banking and other extraordinary fees and expenses incurred by the Surviving Corporation as a consequence of the transactions effected pursuant to this Agreement and the preparation and negotiations leading thereto. As soon as practicable following the termination of the Company Bonus Plan, Parent shall cause the Surviving Corporation to implement an annual bonus plan for key employees of Surviving Corporation in place of the Company Bonus Plan. 4. Employment Agreements and Other Arrangements. Parent hereby agrees to cause -------------------------------------------- the Surviving Corporation to honor and assume, and to perform all obligations under, the employment agreements, supplemental executive retirement plans, deferred compensation plans and individual benefit arrangements with current and former employees of the Company and it Subsidiaries set forth on Exhibit 1 to this Annex 3. Nothing contained herein shall be construed as requiring Parent or the Surviving Corporation to continue without modification any specific employee benefit plan or arrangement (except as required by its terms) or to continue the employment of any specific person, it being understood and agreed that Parent or the Surviving Corporation may make modifications to any such employee benefit plan or arrangement only to the extent permitted by the terms thereof. 5. Certain Change in Control Provisions. The Company agrees to take all ------------ actions necessary (if any) to ensure that the transactions contemplated pursuant to this Agreement shall not constitute a "Change of Control" for purposes of (a) The Company's Pension Plan, (b) The Company's Profit Sharing Plan, (c) The Executive Excess Benefit Plan of the Company Corporation, (d) The First Executive Supplemental Benefit Plan of the Company and its Subsidiaries (as Amended and Restated as of February 3, 1996), (e) The Second Executive Supplemental Benefit Plan of the Company and its Subsidiaries (as Amended and 2 Restated as of February 4, 1996), (f) The Executive Deferred Compensation Plan of the Company (as Amended and Restated effective January 1, 1994), (g) The Company's Benefit Plans Trust. 3 EX-99.C.2 12 STOCK OPTION AGREEMENT EXHIBIT (c)(2) AMENDED AND RESTATED STOCK OPTION AGREEMENT ------------------------------------------- AMENDED AND RESTATED STOCK OPTION AGREEMENT, dated as of November 2, 1996, by and between ECKERD CORPORATION, a Delaware corporation ("Eckerd"), and J. C. PENNEY COMPANY, INC., a Delaware corporation ("Parent"). WHEREAS, concurrently with the execution and delivery of this Agreement, Eckerd, Parent and Omega Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("Sub"), are entering into an Amended and Restated Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides that, among other things, upon the terms and subject to the conditions thereof, Sub will be merged with Eckerd (the "Merger"); and WHEREAS, as a condition to Parent's and Sub's willingness to enter into the Merger Agreement, Parent has requested that Eckerd agree, and in order to induce Parent to enter into the Merger Agreement, Eckerd has so agreed, to grant to Parent an option with respect to certain shares of Eckerd's common stock on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. GRANT OF OPTION. Eckerd hereby grants Parent an irrevocable option (the "Stock Option") to purchase up to 10,554,786 shares of common stock, $.01 par value per share, of Eckerd (the "Eckerd Common Stock"), or such other number of shares of Eckerd Common Stock as equals 15% of the issued and outstanding shares of Eckerd Common Stock at the time of exercise of the Stock Option, in the manner set forth below, at a price of $35 per share (the "Exercise Price"), payable in cash in accordance with Section 4 hereof. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Merger Agreement. 2. EXERCISE OF OPTION. The Stock Option may be exercised by Parent, in whole or in part, at any time or from time to time (a) after the Merger Agreement is terminated pursuant to Section 9.1(a)(vi) or (vii) (a "Trigger Event") or (b) at any time after the Acceptance Date and prior to the Effective Date. In the event Parent wishes to exercise the Stock Option, Parent shall deliver to Eckerd a written notice (an "Exercise Notice") specifying the total number of shares of Eckerd Common Stock it wishes to purchase. Each closing of a purchase of shares of Eckerd Common Stock (a "Closing") shall occur at a place, on a date and at a time designated by Parent in an Exercise Notice delivered at least two business days prior to the date of the Closing. (a) The Stock Option shall terminate upon the earlier of: (i) the Effective Time; (ii) the termination of the Merger Agreement pursuant to Section 9.1 thereof, other than a termination as a result of the occurrence of a Trigger Event; or (ii) 120 days following any termination of the Merger Agreement as the result of the occurrence of a Trigger Event (or if, at the expiration of such 120 day period the Stock Option cannot be exercised by reason of any applicable judgment, decree, order, law or regulation, or because the applicable waiting period under the HSR Act has not expired or been terminated, 10 business days after such impediment to exercise shall have been removed or shall have become final and not subject to appeal, but in no event under this clause (ii) later than 210 days after the date of termination of the Merger Agreement). (b) Notwithstanding the foregoing, the Stock Option may not be exercised if Parent or, in the case of the Merger Agreement, Parent or Sub, is in material breach of any of their respective representations, warranties, covenants or agreements contained in this Agreement or in the Merger Agreement. 3. CONDITIONS TO CLOSING. The obligation of Eckerd to issue shares of Eckerd Common Stock to Parent hereunder is subject to the conditions (which, other than the conditions described in clauses (i) and (ii) below, may be waived by Eckerd in its sole discretion) that (i) all waiting periods, if any, under the HSR Act applicable to the issuance of shares of Eckerd Common Stock hereunder shall have expired or have been terminated, and all consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any federal administrative agency or commission or other federal governmental authority or instrumentality, if any, required in connection with the issuance of shares of Eckerd Common Stock hereunder shall have been obtained or made, as the case may be; (ii) no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such issuance shall be in effect; and (iii) such shares shall have been approved for listing on the NYSE upon official notice of issuance. 4. CLOSING. At any Closing, (a) Eckerd will deliver to Parent a single certificate in definitive form representing the number of shares of Eckerd Common Stock designated by Parent in its Exercise Notice, such certificate to be registered in the name of Parent, Sub or such other affiliate of Parent as Parent shall designate in the Exercise Notice and shall bear the legend set forth in Section 10, and (b) Parent will deliver to Eckerd the aggregate Exercise Price for the shares of Eckerd Common Stock so designated and being purchased at such Closing by wire transfer of immediately available funds. 5. REPRESENTATIONS AND WARRANTIES OF ECKERD. Eckerd represents and warrants to Parent that (a) Eckerd is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter 2 into this Agreement and to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by Eckerd and the consummation by Eckerd of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Eckerd and no other corporate proceedings on the part of Eckerd are necessary to authorize this Agreement or any of the transactions contemplated hereby, (c) this Agreement has been duly executed and delivered by Eckerd and constitutes a valid and binding obligation of Eckerd, and, assuming this Agreement constitutes a valid and binding obligation of Parent, is enforceable against Eckerd in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, (d) Eckerd has taken all necessary corporate action to authorize and reserve for issuance and to permit it to issue, upon exercise of the Stock Option, and at all times from the date hereof through the expiration of the Stock Option will have so reserved, 10,554,286 unissued shares of Eckerd Common Stock, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, (e) upon delivery of such shares of Eckerd Common Stock to Parent upon exercise of the Stock Option, Parent will acquire valid title to all of such shares, free and clear of any and all Liens of any nature whatsoever, (f) the execution and delivery of this Agreement by Eckerd does not, and the performance of this Agreement by Eckerd will not (1) violate the certificate of incorporation or by-laws of Eckerd, (2) conflict with or violate any statute, rule, regulation, order, judgment or decree applicable to Eckerd or by which it or any of its assets or properties is bound or affected, or (3) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the property or assets of Eckerd pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, or other instrument or obligation to which Eckerd or any of its Subsidiaries is a party or by which Eckerd or any of its assets or properties is bound or affected (except, in the case of clauses (2) or (3) above, for violations, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect on Eckerd), and (g) the execution and delivery of this Agreement by Eckerd does not, and the performance of this Agreement by Eckerd will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority except for pre-merger notification requirements of the HSR Act. 6. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and warrants to Eckerd that (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or any of the transactions contemplated hereby, (c) this Agreement has been 3 duly executed and delivered by Parent and constitutes a valid and binding obligation of Parent, and, assuming this Agreement constitutes a valid and binding obligation of Eckerd, is enforceable against Parent in accordance with its terms subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, (d) the execution and delivery of this Agreement by Parent does not, and the performance of this Agreement by Parent will not (1) violate the certificate of incorporation or by-laws of Parent, (2) conflict with or violate any statute, rule, regulation, order, judgment or decree applicable to Parent or by which it or any of its properties or assets is bound or affected or (3) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the property or assets of Parent pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, or other instrument or obligation to which Parent is a party or by which Parent or any of its properties or assets is bound or affected (except, in the case of clauses (2) and (3) above, for violations, breaches, or defaults which would not, individually or in the aggregate, have a Material Adverse Effect on Parent), (e) the execution and delivery of this Agreement by Parent does not, and the performance of this Agreement by Parent will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except for pre-merger notification requirements of the HSR Act and (f) any shares of Eckerd Common Stock acquired upon exercise of the Stock Option will be, and the Stock Option is being, acquired by Parent for its own account and not with a view to the public distribution or resale thereof in any manner which would be in violation of applicable United States securities laws. 7. CERTAIN REPURCHASES. (a) Parent Put. At the request of Parent at any time during which the Stock Option is exercisable pursuant to Section 2 (the "Repurchase Period"), Eckerd (or any successor entity thereof) shall repurchase from Parent the Stock Option, or any portion thereof, for a price equal to the amount by which the "Market/Tender Offer Price" for shares of Eckerd Common Stock as of the date Parent gives notice of its intent to exercise its rights under this Section 7 (defined as the higher of (A) the highest price per share paid as of such date pursuant to any tender or exchange offer or other Acquisition Proposal or (B) the average of the closing sale prices of shares of Eckerd Common Stock on the NYSE for the ten trading days immediately preceding such date) exceeds the Exercise Price, multiplied by the number of shares of Eckerd Common Stock purchasable pursuant to the Stock Option (or portion thereof with respect to which Parent is exercising its rights under this Section 7)). (b) Payment and Redelivery of Stock Option or Shares. In the event Parent exercises its rights under this Section 7, Eckerd shall, within 10 business days thereafter, pay the required amount to Parent in immediately available funds and Parent shall surrender to Eckerd the Stock Option, and Parent shall warrant that it owns the Stock Option free and clear of all Liens of any kind or nature whatsoever. 4 8. REGISTRATION RIGHTS. In the event that Parent shall desire to sell any of the shares of Eckert Common Stock purchased pursuant to the Stock Option within 3 years after such purchase, and such sale requires in the opinion of counsel to Parent, which opinion shall be reasonable satisfactory to Eckert and its counsel, registration of such shares under the Securities Act of 1933, Parent may, by written notice (the "Registration Notice") to Eckerd (the "Registrant"), request the Registrant to register under the Securities Act all or any part of the shares purchased pursuant to the Stock Option ("Restricted Shares") beneficially owned by Parent (the "Registrable Securities") pursuant to a bona fide firm commitment underwritten public offering in which the Parent and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use their best efforts to prevent any person (including any Group) and its affiliates from purchasing through such offering Restricted Shares representing more than 2% of the outstanding shares of common stock of the Registrant on a fully diluted basis (a "Permitted Offering"). The Registration Notice shall include a certificate executed by the Parent and its proposed managing underwriter, which underwriter shall be an investment banking firm of nationally recognized standing reasonably acceptable to Eckert (the "Manager"), stating that (i) they have a good faith intention to commence promptly a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market conditions, it will be able to sell the Registrable Securities at a per share price to be specified in such Registration Notice (the "Fair Market Value"). The Registrant (and/or any person designated by the Registrant) shall thereupon have the option exercisable by written notice delivered to the Parent within 10 business days after the receipt of the Registration Notice, irrevocably to agree to purchase all or any part of the Registrable Securities for cash at a price (the "Option Price") equal to the product of (i) the number of Registrable Securities and (ii) the Fair Market Value of such Registrable Securities. Any such purchase of Registrable Securities by the Registrant hereunder shall take place at a closing to be held at the principal executive offices of the Registrant or its counsel at any reasonable date and time designated by the Registrant and its designee in such notice within 20 business days after delivery of such notice. Any payment for the shares to be purchased shall be made by delivery at the time of such closing of the Option Price in immediately available funds. If the Registrant does not elect to exercise its option pursuant to this Section 8 with respect to all Registrable Securities designated in the Registration Notice, it shall use its best efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities; provided, however, that (i) Parent shall not be entitled to more than an aggregate of two effective registration statements hereunder and (ii) the Registrant will not be required to file any such registration statement during any period of time (not to exceed 90 days after such request in the case of clause (B) below or 120 days in the case of clauses (A) and (C) below) when (A) the Registrant is in possession of material non-public information which it reasonably believes would be detrimental to be disclosed at such time and, in the judgment of the Board of Directors of the Registrant, such information would have to be disclosed if a registration statement were filed at that time; (B) the Registrant is required under the Securities Act to include audited financial statements for any 5 period in such registration statement and such financial statements are not yet available for inclusion in such registration statement; or (C) the Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, acquisition or other material transaction involving the Registrant or any of its affiliates. If consummation of the sale of any Registrable Securities pursuant to a registration hereunder does not occur within 120 days after the filing with the SEC of the initial registration statement with respect thereto, the provisions of this Section 8 shall again be applicable to any proposed registration; provided, however, that Parent shall not be entitled to request more than two registrations pursuant to this Section 8 in any 12 month period. The Registrant shall use its best efforts to cause all Registrable Securities registered pursuant to this Section 8 to be qualified for sale under the securities or blue-sky laws of such jurisdictions as Parent may reasonably request and shall continue such registration or qualification in effect in such jurisdiction; provided, however, that the Registrant shall not be required to qualify to do business in, or consent to general service of process in, any jurisdiction by reason of this provision. The registration rights set forth in this Section 8 are subject to the condition that Parent shall provide the Registrant with such information with respect to Parent's Registrable Securities, the plans for the distribution thereof, and such other information with respect to Parent as, in the reasonable judgment of counsel for the Registrant, is necessary to enable the Registrant to include in such registration statement all material facts required to be disclosed with respect to a registration thereunder. A registration effected under this Section 8 shall be effected at the Registrant's expense, except for underwriting discounts and commissions and the fees and the expenses of counsel to Parent, and the Registrant shall provide to the underwriters such documentation (including certificates, opinions of counsel and "comfort" letters from auditors) as are customary in connection with underwritten public offerings as such underwriters may reasonably require. In connection with any such registration, the parties agree (i) to indemnify each other and the underwriters in the customary manner and (ii) to enter into an underwriting agreement in form and substance customary to transactions of this type with the Manager and the other underwriters participating in such offering. 9. PROFIT LIMITATION. (a) Notwithstanding any other provision of this Agreement, in no event shall Parent's Total Profit (as hereinafter defined) exceed $20 million and, if it otherwise would exceed such amount Parent, at its sole election, shall either (i) deliver to Eckerd for cancellation Shares previously purchased by Parent, (ii) pay cash or other consideration to Eckerd or (iii) undertake any combination thereof, so that Parent's Total Profit shall not exceed $20 million after taking into account the foregoing actions. (b) Notwithstanding any other provision of this Agreement, this Stock Option may not be exercised for a number of Shares as would, as of the date of the Exercise Notice, result in a Notional Total Profit (as defined below) of more than $20 million, and, if exercise 6 of the Stock Option otherwise would exceed such amount, Parent, at its discretion, may increase the Price for that number of Shares set forth in the Exercise Notice so that the Notional Total Profit shall not exceed $20 million; provided, that nothing in this sentence shall restrict any exercise of the Stock - -------- Option permitted hereby on any subsequent date at the Price set forth in Section 1 hereof. (c) As used herein, the term "Total Profit" shall mean the aggregate amount (before taxes) of the following: (i) the amount received by Parent pursuant to Eckerd's repurchase of the Stock Option pursuant to Section 7 hereof, and (ii) (x) the net cash amounts received by Parent pursuant to the sale of Restricted Shares (or any other securities into which such shares are converted or exchanged) to any unaffiliated party, less (y) Parent's purchase price for such Shares. (d) As used herein, the term "Notional Total Profit" with respect to any number of Restricted Shares as to which Parent may propose to exercise this Stock Option shall be the Total Profit determined as of the date of the Exercise Notice assuming that this Stock Option were exercised on such date for such number of Restricted Shares and assuming that such Restricted Shares, together with all other Restricted Shares held by Parent and its affiliates as of such date, were sold for cash at the closing market price for Eckert Common Stock as of the close of business on the preceding trading day (less customary brokerage commissions). 10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change in Eckerd Common Stock by reason of stock dividends, stock splits, mergers (other than the Merger), recapitalizations, combinations, exchange of shares or the like, the type and number of shares or securities subject to the Stock Option, and the Exercise Price per share, shall be adjusted appropriately. 11. RESTRICTIVE LEGENDS. Each certificate representing shares of Eckerd Common Stock issued to Parent hereunder shall initially be endorsed with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED NOVEMBER 2, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER HEREOF. 12. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, and permitted 7 assigns. Except as expressly provided in this Agreement, neither this Agreement nor the rights or the obligations of either party hereto are assignable, except by operation of law, or with the written consent of the other party. Nothing contained in this Agreement, express or implied, is intended to confer upon any person other than the parties hereto and their respective permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold by a party in compliance with the provisions of Section 8 shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement. In no event will any transferee of any Restricted Shares be entitled to the rights of Parent hereunder. Certificates representing shares sold in a registered public offering pursuant to Section 8 shall not be required to bear the legend set forth in Section 11. 13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to other remedies, the other party shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement. In the event that any action should be brought in equity to enforce the provisions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 14. ENTIRE AGREEMENT. This Agreement and the Merger Agreement (together with the other documents and instruments referred to in the Merger Agreement, and the exhibits and disclosure schedules thereto) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof. 15. FURTHER ASSURANCES. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby, unless the foregoing inconsistent action or the failure to take an action constitutes a material breach of this Agreement or makes the Agreement impossible to perform in which case this Agreement shall terminate. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant 8 to an order or judgment of a court or other competent authority, such party shall incur no liability or obligation unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment. 17. NOTICES. Any notice or communication required or permitted hereunder shall be in writing and either delivered personally, telegraphed or telecopied or sent by certified or registered mail, postage prepaid, and shall be deemed to be given, dated and received when so delivered personally, telegraphed or telecopied (answerback received) or, if mailed, five business days after the date of mailing, to the following address or telecopy number, or to such other address or addresses as such person may subsequently designate by notice given hereunder: (a) if to Parent, to: J.C. Penney Company, Inc. 6501 Legacy Drive Plano, Texas 75024 Attention: General Counsel Telecopy: (972) 431-1133 with a copy (which shall not constitute notice) to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telecopy: (212) 310-8007 Attention: Dennis J. Block, Esq. (b) if to Eckerd, to: Eckerd Corporation 8333 Bryan Dairy Road Largo, Florida 34647 Attention: President and Chief Executive Officer Telecopy: (813) 399-7287 9 with a copy (which shall not constitute notice) to: Shearman & Sterling 599 Lexington Avenue New York, New York Telecopy: (212) 848-7179 Attention: John A. Marzulli, Jr. Clare O'Brien 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state. 19. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 20. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument. 21. EXPENSES. Except as otherwise expressly provided herein or in the Merger Agreement, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. 22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. ECKERD CORPORATION By: /s/ Frank Newman ------------------------------------------- Name: Frank Newman Title: President and Chief Executive Officer J.C. PENNEY COMPANY, INC. By: /s/ James E. Oesterreicher -------------------------------------------- Name: James E. Oesterreicher Title: Vice Chairman and Chief Executive Officer 11 EX-99.C.3 13 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT EXHIBIT (c)(3) AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AMENDMENT NO. 1, dated as of November 2, 1996, to the Employment Agreement, made as of February 4, 1996 (the "Employment Agreement"), by and between Eckerd Corporation, a Delaware corporation (the "Company"), and Francis A. Newman, an individual residing at 820 South Bayside Drive, Tampa, Florida 33609 (the "Employee"). W I T N E S S E T H: WHEREAS, the Company, J.C. Penney Company, Inc., a Delaware corporation ("Parent"), and Omega Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Parent ("Sub"), are parties to an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which the Company shall merge with Sub and the surviving corporation will become a wholly owned subsidiary of Parent (the "Merger"); and WHEREAS, the transactions contemplated by the Merger Agreement will result in a Change of Control of the Company for purposes of the Employment Agreement; and WHEREAS, the Employee, the Company and Parent desire to amend the Employment Agreement to extend the Employee's term of employment thereunder and to make certain other changes; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Employee, the Company and Parent hereby agree as follows, effective as of the Effective Date (as hereinafter defined): 1. Section 2 of the Employment Agreement is hereby amended by (a) replacing the words "of twelve (12) months" with "until the third anniversary of the closing of the Merger (as hereinafter defined)", and (b) inserting the following sentence at the end of such Section: "As used herein, "Merger" means the merger of the Company with Omega Acquisition Corporation, a wholly owned subsidiary of J.C. Penney Company, Inc. ("Parent"), pursuant to an Agreement and Plan of Merger dated as of November 2, 1996 (the "Merger Agreement")." 2. Section 3(a) of the Employment Agreement is hereby amended by inserting the words ", and a member of the Management Committee of Parent," after the words "Chief Executive Officer, President and Chief Operating Officer" in such Section. 3. Section 8(a)(i) of the Employment Agreement is hereby amended by replacing the words "one year after the date hereof" with the words "three years after the closing of the Merger". 4. Section 11(c) of the Employment Agreement is hereby amended and restated in its entirety as follows: (c) Definition of Good Reason. (i) The Employee shall be entitled to terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without the Employee's express written consent, the occurrence of one of the following at least one year after a Change of Control: (a) the demotion of the Employee from his position as Chief Executive Officer, President and Chief Operating Officer of the Company, his removal as a member of Parent's management committee or his ceasing to report directly to the Chief Executive Officer of Parent; (b) a reduction by the Company in the Employee's annual Base Salary as in effect on the date hereof or a material reduction in the Employee's bonus opportunity through incentive compensation awards; (c) any other material breach by the Company of the provisions of Section 4, 5 or 6 of this Agreement; or (d) any relocation of the Employee's principal place of business from the Tampa Bay, Florida area or from the Company's headquarters. (ii) The Employee's right to terminate his employment pursuant to this Subsection 11(c) shall not be affected by the Employee's incapacity due to physical or mental illness, provided that such incapacity has not resulted in a disability continuing for six consecutive calendar months as described in Subsection 7(a). 5. The Employment Agreement is hereby further amended by adding a new Section 22 thereto as follows: 22. Parent Guarantee. Parent hereby guarantees the performance of the Company's obligations under this Agreement. 6. This Amendment shall be effective upon the closing of the Merger (the "Effective Date"), and shall be of no further force or effect if the Merger Agreement is terminated. 7. Except as expressly amended hereby, the Employment Agreement, and all rights and obligations of the Employee and the Company thereunder, shall remain in full force and effect. This Amendment shall not, except as expressly provided herein, be deemed to be a consent to any waiver or modification of any terms or provisions of the Employment Agreement. 8. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned to them in the Employment Agreement. 9. This Amendment shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. 10. This Amendment may be executed in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. Employee /s/ Francis A. Newman _____________________________________ Francis A. Newman Eckerd Corporation /s/ James M. Santo By: _________________________________ Name: James M. Santo Title: Executive Vice President J.C. Penney Company, Inc. /s/ James E. Oesterreicher By: _________________________________ Name: James E. Oesterreicher Title: Vice Chairman and Chief Executive Officer EX-99.G.1 14 ZIFF LITIGATION Exhibit (g)(1) IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY _______________________________________________x JOSEPH ZIFF Plaintiff, v. STEWART TURLEY, FRANCIS A. NEWMAN, C.A. No. 532 NC ALBERT J. FITZGIBBONS, III, LEWIS W. LEHR, ------------- JOHN W. BOYLE, JAMES T. DOLVISIO, RUPINDER S. SIDHU, DONALD F. DUNN, MARGARET H. JORDAN, ALEXIS P. MICHAS, ECKERD CORP. and JCPENNEY COMPANY, INC., Defendants. _______________________________________________x CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, Rosenthal, Monhait, Gross & Goddess, P.A. for his complaint against defendants, alleges upon information and belief, except for paragraph 2 hereof, which is alleged upon knowledge as follows: 1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the Court of Chancery on his behalf and as a class action on behalf of all persons, other than defendants and those in privity with them, who own the common stock of Eckerd Corp. ("Eckerd" or the "Company"). 2. Plaintiff has been the owner of the common stock of the Company since prior to the transaction herein complained of and continuously to date. 3. Defendant Eckerd is a corporation duly organized and existing under the laws of the State of Delaware. The Company operates a retail drug store chain that focuses on selling prescription and over-the-counter drugs, and provides photo finishing services. 4. Defendant JCPenney Company, Inc. ("JCPenney") is a corporation duly organized and existing under the laws of the State of Delaware. JCPenney is America's largest department store, operating approximately 1,250 stores in all 50 states, Puerto Rico, Mexico and Chile. 5. Defendant Stewart Turley is a Director and Chairman of the Board of Eckerd. 6. Defendant Francis A. Newman is a Director, President and Chief Executive Officer of Eckerd. 7. Defendant Albert J. Fitzgibbons, III is a Director of Eckerd. 8. Defendant Lewis W. Lehr is a Director of Eckerd. 9. Defendant John W. Boyle is a Director of Eckerd. 10. Defendant James T. Dolvisio is a Director of Eckerd. 11. Defendant Rupinder S. Sidhu is a Director of Eckerd. 12. Defendant Donald F. Dunn is a Director of Eckerd. 13. Defendant Margaret H. Jordan is a Director of Eckerd. 14. Defendant Alexis P. Michas is a Director of Eckerd. 15. The Individual Defendants named in paragraphs 5 through 14 are in a fiduciary relationship with Plaintiff and the other public stockholders of Eckerd and owe them the highest obligations of good faith and fair dealing. -2- CLASS ACTION ALLEGATIONS ------------------------ 16. Plaintiff brings this action on his own behalf and as a class action pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all common stock holders of the Company (except the defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants) and their successors in interest, who are or will be threatened with injury arising from defendants' actions as more fully described herein. 17. This action is properly maintainable as a class action. 18. The class is so numerous that joinder of all members is impracticable. As of June 1, 1996, there were approximately 70,071,072 million shares of Eckerd common stock outstanding, owned by shareholders located throughout the country. 19. There are questions of law and fact which are common to the class including, inter alia, the following: (a) whether defendants have breached their ----- ---- fiduciary and other common law duties owed by them to plaintiff and the members of the class; (b) whether defendants are pursuing a scheme and course of business designed to unjustly enrich themselves at the expense of and to the detriment of the public stockholders of Eckerd; (c) whether the proposed transaction, hereinafter described, constitutes a breach of the duty of fair dealing with respect to the plaintiff and the other members of the class; and (d) whether the class is entitled to injunctive relief or damages as a result of the wrongful conduct committed by defendants. -3- 20. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of the plaintiff are typical of the claims of other members of the class and plaintiff has the same interests as other members of the class. Plaintiff will fairly and adequately represent the class. 21. Defendants have acted in a manner which affects plaintiff and all members of the class, thereby making appropriate injunctive relief and/or corresponding declaratory relief with respect to the class as a whole. 22. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the interests of other members or substantially impair or impede their ability to protect their interests. SUBSTANTIVE ALLEGATIONS ----------------------- 23. Eckerd is a Fortune 500 company and is one of America's largest retail drug store chains with sales of over $5 billion in 1995. The Company operates 1,724 drug stores in 13 states and 542 Eckerd Express Photo labs in 11 states. 24. On November 4, 1996, Eckerd and JCPenney announced an agreement for the combination of JCPenney and Eckerd. JCPenney will pay $35.00 in cash for approximately 37.1 million shares, or 50.1 percent, of Eckerd stock, to be followed by a second step merger in which Eckerd shareholders will receive 0.6604 of -4- a share of JCPenney stock for each remaining Eckerd share not purchased in the cash tender offer. The stock portion of the consideration to be received by Eckerd's shareholders is valued at $35.00 per share based on the price of JCPenney stock as of the close of trading on November 1, 1996. The total value of the transaction, inclusive of $750 million of Eckerd long term debt, is approximately $3.3 billion. However, under the transaction, as structured, there is inadequate protection to Eckerd stockholders against a severe decline in the price of JCPenney's stock, thereby exposing Eckerd stockholders to the risk of receiving far lower consideration. 25. Substantially all of Eckerd's executive and directors have agreed to vote in favor of the merger. This was done by the Individual Defendants and Eckerd's officers primarily to protect their compensation and positions with the Company, for, as reported by the New York Times on November 4, 1996, "In -------------- pursuing Eckerd, Penney was not alone. People familiar with the deal said that Eckerd, which had sales last year of more than $5 billion, was also courted by the Melville Corporation's CVS chain. But, they said, Eckerd favored the Penney ------------------------- offer because it allowed Eckerd's chief executive to retain that title in the - ----------------------------------------------------------------------------- combined chain and because it keeps the Eckerd name, terms not offered by CVS." - ------------------------------------------------------------------------------ (Emphasis added). 26. The consideration to be paid to Class members in the proposed acquisition is unfair and inadequate because, among other things: a. The intrinsic value of Eckerd's common stock is materially in excess of the amount offered for those securities in the acquisition giving due -5- consideration to the anticipated operating results, net asset value, cash flow, and profitability of the Company; b. the consideration to be paid to Class members is not the result of an appropriate consideration of the value of Eckerd because the Eckerd Board approved the proposed merger without undertaking steps to accurately ascertain Eckerd's value through open bidding or at least a "market check" mechanism; and c. the Individual Defendants have agreed to this transaction to protect and enhance their compensation and positions with the Company, particularly that of Francis Newman, the Company's Chief Executive. 27. The Individual Defendants did not appoint or retain any truly independent person or entity to negotiate for or on behalf of Eckerd's public shareholders to promote their best interests in the merger transaction. 28. The Individual Defendants are engaged in unfair dealing to the detriment of the Class to whom they owe the highest fiduciary duties. The terms of the proposed acquisition, and in particular, the unfair and inadequate consideration to be paid to Eckerd's public shareholders, are not the product of true arm's length negotiations, but rather the design and plan of defendants who have substantial conflicts of interest with the Class. 29. JCPenney knowingly aided and abetted the breaches of fiduciary duty committed by the Individual Defendants by, among other things, offering to reward them by maintaining and enhancing their lucrative positions in the combined entity. -6- Indeed, the proposed merger could not take place without the knowing participation of JCPenney. 30. The terms of the proposed acquisition are grossly unfair to the Class, and the unfairness is compounded by the gross disparity between the knowledge and information possessed by defendants by virtue of their positions of control of Eckerd and that possessed by Eckerd's public shareholders. Defendants' scheme and intent is to take advantage of this disparity and to induce the Class to exchange their shares in the merger acquisition at an unfair price and at an unfair ratio on the basis of incomplete or inadequate information. 31. Plaintiff has no adequate remedy at law. WHEREFORE, plaintiff demands judgment as follows: A. declaring this to be a proper class action; B. enjoining, preliminarily and permanently, the proposed acquisition under the terms presently proposed, requiring the Individual Defendants to place the Company up for auction and/or to conduct a market-check and requiring defendants to make full and fair disclosure of all material facts to the Class, including the CVS proposal, before the completion of any such acquisition; C. to the extent, if any, that the transaction complained of is consummated prior to the entry of this Court's final judgment, rescinding the same or awarding rescissory damages to the Class; -7- D. directing that defendants account to plaintiff and the Class for all damages caused to them and account for all profits and any benefits obtained by defendants as a result of their unlawful conduct; E. awarding to plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of plaintiff's attorneys and experts; and F. granting such other and further relief as the Court deems appropriate. Dated: November 4, 1996 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: [SIGNATURE ILLEGIBLE] --------------------------------------------- Suite 1401, Mellon Bank Center P.O. Box 1070 Wilmington, DE 19899-1070 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: BERNSTEIN LIEBHARD & LIFSHITZ 274 Madison Avenue New York, New York 10016 (212) 779-1414 -8- EX-99.G.2 15 MORSE LITIGATION Exhibit (g)(2) IN THE COURT CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ---------------------------------------X SIDNEY MORSE, ) ) Plaintiff, ) ) ) C.A. No. 15304-NC - against - ) ) CLASS ACTION ) COMPLAINT FRANCIS A. NEWMAN, STEWART TURLEY, ) --------------- J. T. DOLUISIO, D. F. DUNN, A. J. ) FITZGIBBONS, III, L. W. LEHR ) A. P. MICHAS, J. W. BOYLE, R. S. ) SIDHU, MARGARET H. JORDAN, ) ECKERD CORPORATION and J. C. ) PENNEY COMPANY, INC., ) ) Defendants. ) ) - ---------------------------------------X Plaintiff, by his attorneys, alleges upon personal knowledge as to his own acts and upon information and belief as to all other matters, as follows: NATURE OF THE ACTION -------------------- 1. Plaintiff brings this action individually and as a class action on behalf of all persons, other than defendants, who own the securities of Eckerd Corporation ("Eckerd" or the "Company") and who are similarly situated, for injunctive relief and other appropriate relief. Plaintiff seeks injunctive relief, inter alia, to enjoin consummation of a proposed transaction (the ----- ---- "Proposed Transaction") announced by the Company and J. C. Penney Company, Inc. ("Penney") on November 4, 1996, pursuant to which Penney will render $35.00 cash per share for 50.1% of Eckerd's common stock and 0.6604 of a share in Penney's stock for each remaining share of Eckerd not purchased in the tender offer. The Proposed Transaction and the acts of the individual defendants, who constitute Eckerd's Board of Directors, as more particularly alleged herein, constitute a breach of their fiduciary duties to plaintiff and the class and a violation of applicable legal standards governing their decisions. 2. The Proposed Transaction represents a classic front-end loaded, two-tier coercive takeover designed to stampede Eckerd's shareholders into tendering their shares to Penney, thereby inhibiting competing bids for Eckerd which would maximize value for Eckerd's shareholders. 3. The director defendants' approval of the Proposed Transaction has been given in breach of their fiduciary duties owed to Eckerd's stockholders to take all necessary steps to ensure that the stockholders will receive the maximum value realizable for their shares in any acquisition of the Company, including the implementation of a bidding mechanism to foster a fair auction of the Company to the highest bidder or the exploration of strategic alternatives which will return greater or equivalent value to plaintiff and the class. PARTIES ------- 4. Plaintiff is and has been the owner of shares of Eckerd common stock at all times material hereto. 5. Defendant Eckerd is a corporation duly organized and existing under the laws of the State of Delaware, with its 2 principal offices located at 8333 Bryan Dairy Road, Largo, Florida 34647. As of June 1, 1996, the Company had approximately 70 million shares of common stock outstanding. Eckerd's principal business is the operation of a chain of 1,704 retail drug stores in 13 states. 6. Defendant Francis A. Newman ("Newman"), at all times material hereto, has been the Chief Executive Officer, President, and a director of Eckerd. 7. Defendant Stewart Turley ("Turley") at all times material hereto, has been the Chairman of the Board of Eckerd. 8. Defendants J. T. Doluisio, D. F. Dunn, A. J. Fitzgibbons, III, L. W. Lehr, A. P. Michas, J. W. Boyle, R. S. Sidhu and Margaret H. Jordan are directors of Eckerd. 9. The defendants named in paragraphs 6 through 8 above are hereinafter referred to as the "Individual Defendants". 10. The Individual Defendants, by reason of their corporate directorships and/or executive positions, are fiduciaries to and for the Company's shareholders and owe them the highest obligations of loyalty, care and candor. CLASS ACTION ALLEGATIONS ------------------------ 11. Plaintiff brings this action individually and as a class action, on behalf of all stockholders of the Company (except the defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants) and their successors in interest, who are or will be threatened 3 with injury arising from defendants' actions as more fully described herein (the "Class"). 12. This action is properly maintainable as a class action because: (a) The Class is so numerous that joinder of all members is impracticable. There are hundreds of shareholders who hold the approximately 70 million shares of Eckerd common stock outstanding. (b) There are questions of law and fact common to the Class including, inter alia, the following: ----- ---- (1) whether the Proposed Transaction is grossly unfair to the public stockholders of Eckerd; (2) whether the Individual Defendants have wrongfully failed to maximize shareholder value through an adequate auction or market check process; (3) whether the Individual Defendants wrongfully failed to maximize shareholder value by failing to consider fully and carefully other third-party offers; and (4) whether plaintiff and the other members of the Class would be irreparably damaged were the Proposed Transaction consummated. (c) Plaintiff is a member of the Class and is committed to prosecuting this action. Plaintiff has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of other members of the Class, and plaintiff has the same interests as the other 4 members of the Class. Plaintiff does not have interests antagonistic to or in conflict with those he seeks to represent. Plaintiff is an adequate representative of the Class. SUBSTANTIVE ALLEGATIONS ----------------------- 13. On November 4, 1996, The New York Times reported that Eckerd and ------------------ Penney had signed a definitive agreement whereby Penney would acquire all the outstanding shares of Eckerd. 14. Pursuant to the Proposed Transaction, stockholders of Eckerd will receive $35.00 per share in cash for approximately 37.1 million shares of Eckerd or 50.1 percent of the outstanding stock. Eckerd shareholders will receive 0.6604 of a share of Penney's stock for each remaining share of Eckerd stock not purchased in the tender offer. Eckerd also will repurchase up to 15 million of its shares prior to the stock swap. 15. Prior to signing the definitive agreement with Penney, Eckerd had been courted by Melville Corporation's CVS drug store chain ("CVS") for a possible business combination. The Individual Defendants failed to even negotiate with CVS because such a transaction would not permit Eckerd's management to remain in place and operate as a separate division. 16. The Individual Defendants, in their haste to protect their positions, have wrongfully, and in violation of their fiduciary obligations to maximize stockholder value, failed to ascertain Eckerd's true value through an open bidding process or at least a "market check" mechanism. The Individual Defendants have not adequately considered other potential purchasers of Eckerd, 5 including CVS, in a manner designed to obtain the highest possible price for Eckerd's public stockholders. 17. The consideration to be paid to Eckerd's shareholders in the Proposed Transaction is grossly unfair, inadequate, and substantially below the fair or inherent value of the Company. The intrinsic value of the equity of Eckerd is materially greater than the merger consideration, taking into account Eckerd's asset value, its expected growth, and the strength of its business, combined with the Company's exceptional marketing clout in the domestic drug store market. Moreover, the Individual Defendants have agreed to a transaction which is inherently coercive and unfair in structure, with no mechanisms to protect Eckerd's public shareholders from declines in the price of Penney's stock which they will receive in the "back-end" merger. 18. The Proposed Transaction will deny Class members their right to share proportionately in the true value of Eckerd's valuable assets, profitable business, and future growth in profits and earnings. 19. Penney has knowingly aided and abetted the breaches of fiduciary duty committed by the Individual Defendants by, among other things, offering to reward certain of them by maintaining and enhancing their lucrative positions in the combined entity. Indeed, the Proposed Transaction could not take place without the knowing participation of Penney. 20. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to 6 plaintiff and the Class, aided and abetted by Penney, thereby denying the Class of its fair proportionate share of Eckerd's valuable assets and businesses and subjecting the Class to a coercive takeover of the Company, all to the irreparable harm of the Class. 21. Plaintiff and the Class have no adequate remedy of law. WHEREFORE, plaintiff prays for judgment and relief as follows: (a) declaring that this lawsuit is properly maintainable as a class action and certifying plaintiff as proper representative of the Class; (b) preliminarily and permanently enjoining defendants and their counsel, agents, employees, and all persons acting under, in concert with, or for them, from proceeding with or consummating the Proposed Transaction; (c) requiring the Individual Defendants to take all necessary steps to maximize value for Eckerd's shareholders; (d) in the event the Proposed Transaction is consummated before judgment, rescinding it and setting it aside or awarding the Class rescissory damages; (e) awarding compensatory damages to the Class; (f) awarding plaintiff and the Class their costs and disbursements and reasonable allowances for plaintiff's counsel and experts' fees and expenses; and 7 (g) granting such other and further relief as may be just and proper. ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: [SIGNATURE ILLEGIBLE] ----------------------------- Suite 1401, Mellon Bank Center 919 Market Street Wilmington, Delaware 19899-1070 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: WECHSLER HARWOOD HALEBIAN & FEFFER LLP 805 Third Avenue New York, New York 10022 (212) 935-7400 8 EX-99.G.3 16 LUBIN LITIGATION Exhibit (g)(3) THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ----------------------------------------------- BARBARA LUBIN, on behalf of herself and all others similarly situated. Plaintiff, -against- ECKERD CORP., STEWART TURLEY, FRANCIS A. NEWMAN, JOHN W. BOYLE, DONALD F. DUNN, LEWIS W. LEHR, RUPINDER S. SIDHU, JAMES T. DOLUISIO, ALBERT J. FITZGIBBONS, III, ALEXIS P. MICHAS and J.C. PENNEY COMPANY, INC. Defendants. - ----------------------------------------------- CLASS ACTION COMPLAINT ---------------------- Plaintiff, by her attorneys, for her complaint against defendants, alleges upon information and belief, except for paragraph 1 hereof, which is alleged upon knowledge as follows: 1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the Court of Chancery on her own behalf and as a class action on behalf of all persons, other than defendants and those in privity with them, who own the common stock of Eckerd Corporation ("Eckerd" or the "Company"). THE PARTIES ----------- 2. Plaintiff has been the owner of the common stock of the Company since prior to the transaction herein complained of and continuously to date. 3. Defendant Eckerd is a corporation duly organized and existing under the laws of the State of Delaware. Eckerd, which is based in Clearwater, Florida, operates retail drug stores focusing on prescription and over-the-counter drugs, Eckerd's common stock is traded on the New York Stock Exchange. 4. Defendant J.C. Penney Company, Inc. ("Penney") is a corporation duly organized and existing under the laws of the State of Delaware. Penney promotes itself as America's largest department store operating stores in all 50 states. Penney has been in the drug store business for over twenty-seven years. In its most recent fiscal years, Penney's Thrifty Drug unit contributed 8.6% of Penney's $21.42 billion in sales. 5. Defendant Stewart Turley is Chairman of the Board of the Company. 6. Defendant Francis A. Newman is President, Chief Executive Officer and a Director of the Company. 7. Defendants John W. Boyle, Donald F. Dunn, Lewis W. Lehr, Rupinder S. Sidhu, James T. Doluisio, Albert J. Fitzgibbons, III and Alexis P. Michas were at all relevant times directors of Eckerd. 8. The defendants named in paragraphs 5-7 (the "Individual Defendants") are in a fiduciary relationship with plaintiff and the other public stockholders of Eckerd and owe them the highest obligation of good faith and fair dealing. 9. Defendant Penney is named herein as an aider and abettor of the breach of fiduciary duties by the Company Defendants. 2 CLASS ACTION ALLEGATIONS ------------------------ 10. Plaintiff brings this action on its own behalf and as a class action pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all Eckerd stockholders (except defendants herein and any person, firm, trust, corporation or other entity related to or affiliated with any of the defendants) and their successors in interest, who are or will be threatened with injury arising from defendant's actions as more fully described herein. 11. This action is properly maintainable as a class action. 12. The class of stockholders for whose benefit this action is brought is so numerous that joinder of all class members is impracticable. There are approximately 70 million shares of Eckerd common stock outstanding. 13. There are questions of law and fact which are common to the class including, inter alia, the following: ----- ---- (a) whether the Individual Defendants have breached their fiduciary and other common law duties owed by them to plaintiff and the members of the class; (b) whether the transaction, hereinafter described, constitutes a breach of the Individual Defendants' duty to deal fairly with plaintiff and the other members of the Class; (c) whether the defendants have breached their fiduciary duties owed by them to plaintiff and members of the class and/or have aided and abetted in 3 such breach, by virtue of their participation and/or acquiescence and by their other conduct complained of herein; (d) whether the individual Defendants have wrongfully failed and refused to seek to protect the interests of all of Eckerd's stockholders and to adequately explore all alternatives to maximizing the value of Eckerd stock; (e) whether plaintiff and the other members of the class will be irreparably damaged by defendants' failure to conduct an active auction of Eckerd and failure to proceed with the appraisal process described below. 14. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of the other members of the class and plaintiff has the same interests as the other members of the class. Accordingly, plaintiff will fairly and adequately represent the class. 15. The prosecution of separate actions by individual members of the class would create a risk of inconsistent or varying adjudications with respect to individual members of the class and establish incompatible standards of conduct for the party opposing the class. 16 Defendants have acted and are about to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief with respect to the class as a whole. 4 SUBSTANTIVE ALLEGATIONS ----------------------- 17. On November 4, 1996, Penney and Eckerd announced that they had signed a definitive agreement through which Penney would acquire Eckerd in a transaction valued at $3.3 billion. The form of transaction agreed to by the Defendants is a cash tender offer at $35 per share for approximately 37.1 million shares or 50.1% of Eckerd stock, to be followed by a second step merger in which Eckerd shareholders will receive .6604 of a share of Penney stock for each remaining Eckerd share not purchased in the cash tender offer. There has been no announcement of any provision to "collar" the value of the Penney stock which Eckerd stockholders will receive in the back end of the merger. As part of the transaction, Eckerd's President and Chief Executive Officer will be named as the Chief Executive Officer of Penney's drug unit into which Eckerd's business will be integrated. Defendant Newman will report directly to Penney's Chairman James E. Oesterricher. 18. Eckerd is a valuable company whose recent positive developments have yet to be reflected in the price of its stock. Eckerd's latest quarterly results for the quarter ended August 3, 1996 were $.23 per share which was approximately 25% higher than analysts consensus estimates of $.18 per share. In addition, Eckerd has recently received a three year contract from the State of Florida Employees Group Health Plan to administer pharmacy services. As part of the contract, Eckerd will provide pharmacy services to 220,000 state employees and the dependents. Since the program will not be fully implemented until January 1, 1997, the value of the contract has yet to be reflected in Eckerd's financial results. 5 19. By contrast, Penney's core department store business has been eroding and it has been turning its attention to drugstore operations. In recent months, Penney has purchased Fay's drugstore chain for $285 million, Kerr Drug Stores for $75 million and is in the process of acquiring 200 Rite-Aid stores. Penney's stock price has failed to respond in any positive way to its foray into the drugstore business. 20. The approval of the transaction by the Company Defendants constitutes a breach of fiduciary duties by the Company Defendants because they have accepted an inadequate offer which is unfairly structured. Penney's cash offer constitutes only a 25% premium over Eckerd's stock price before the amount of the transaction. The Company Defendants also allowed Penney to dictate the timing of the offer and transaction to the detriment of Eckerd's shareholders. Eckerd stock has not had the opportunity to reflect its potential profitability. Defendants have also breached their fiduciary duties by approving a coercive two-tier offer. According to the proposed transaction, only 50.1% of Eckerd stock will be purchased for cash, the remainder will be exchanged in the second step of the transaction for .6604 shares of Penney's stock. This was designed to stampede Eckerd holders to tender their shares to avoid the back end of the deal. The value of the consideration to be received in the back end of the transaction is uncertain and subject to fluctuation. It has already declined below the equivalent of $35 of Penney stock for each Eckerd share as a result of the 4% decline in Penney stock on the day of the announcement of the transaction. 6 21. The Company Defendants have also breached their duties of candor by failing to disclose the result of Eckerd's recently revealed efforts to seek suitors. Penney's offer cannot be adequately evaluated without such information. 22. The Individual Defendants have committed further breaches of fiduciary duty by failing to eliminate conflicts of interest. By allowing defendant Newman to control the sale of Eckerd, the Company Defendants have allowed Newman the opportunity to profit at the expense of Eckerd's public stockholders. According to the announced transaction, Newman will become CEO of Penney's drug business. The fact the Newman was offered this job even though Penney has been in the drug business for 27 years and has a long established and capable management team for its drug business and the fact that Penney has been allowed to offer an unfair, coercive two-tier offer compels the conclusion that Newman has engaged in self-dealing at the expense of Eckerd's public stockholders. 23. The Individual Defendants did not appoint or retain any truly independent person or entity to negotiate for or on behalf of Eckerd's public stockholders to promote their best interest in the merger transaction. 24. The Individual Defendants and Penney are engaged in unfair dealing to the detriment of the class to whom the Individual Defendants owe the highest fiduciary duties. The terms of the transaction, in particular, its two-tiered nature and the unfair and inadequate consideration to be paid to Eckerd's public shareholders, are not the product of true arm's-length negotiations, but rather the design and plan of defendants who have substantial conflicts of interest with the class. 7 25. The defendants have breached their duty of loyalty to Eckerd stockholders by using their offices to approve a coercive transaction that will force plaintiff and the class to sell their equity interest in Eckerd at an unfair price, and deprive Eckerd's public stockholders of maximum value to which they are entitled. The Individual Defendants have also breached the duties of loyalty and due care by not taking adequate measures to ensure that the interest of Eckerd's public stockholders are properly protected from overreaching. Penney has aided and abetted the breach of fiduciary duties alleged herein. 26. The terms of the transaction are grossly unfair to the class, and the unfairness is compounded by the gross disparity between the knowledge and information possessed by defendants versus the public stockholders of Eckerd. In addition, the terms of the transaction approved by the Company Defendants are coercive. Defendant's scheme and intent is to take advantage of this disparity and to induce the class to relinquish their shares in the acquisition at an unfair price on the basis of incomplete or inadequate information. 27. Plaintiff has no adequate remedy at law. WHEREFORE, plaintiff demands judgment as follows: --------- A. Declaring this to be a proper class action; B. Enjoying, preliminarily and permanently, the acquisition under the terms presently proposed and requiring defendants to fulfill their fiduciary and contractual obligations to plaintiff and the class; 8 C. To the extent, if any, that the transaction complained of is consummated prior to the entry of this Court's final judgment, rescinding the same or awarding rescissory damages to the class; D. Directing that defendants account to plaintiff and the class for all damages caused to them and account for all profits and any special benefits obtained by defendants as a result of their unlawful conduct; E. Awarding to plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of plaintiff's attorneys and experts; and F. Granting such other and further relief as the Court deems appropriate. Dated: November 4, 1996 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: [SIGNATURE ILLEGIBLE] ------------------------------------------- Suite 1401, Mellon Bank Center P.O. Box 1070 Wilmington, DE 19899-1070 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: ABBEY & ELLIS Lee Squitieri 212 East 39th Street New York, New York 10016 (212) 889-3700 9 -----END PRIVACY-ENHANCED MESSAGE-----