-----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, LcpHs/pPt3R2MENmns/EOshuv3zkYxlRTutpNds96D/SEjjEFl1z+iSZfEymICMB yzcjpRaV5bTTYMrqrcIBJw== 0000950172-96-000867.txt : 19961223 0000950172-96-000867.hdr.sgml : 19961223 ACCESSION NUMBER: 0000950172-96-000867 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19961220 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0304 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-10478 FILM NUMBER: 96684061 BUSINESS ADDRESS: STREET 1: 30 HUNTER LANE CITY: CAMP HILL OWN STATE: PA ZIP: 17011 BUSINESS PHONE: 7177612633 MAIL ADDRESS: STREET 1: PO BOX 3165 CITY: HARRISBURG STATE: PA ZIP: 17105 FORMER COMPANY: FORMER CONFORMED NAME: LEHRMAN LOUIS & CO DATE OF NAME CHANGE: 19680510 FORMER COMPANY: FORMER CONFORMED NAME: RACK RITE DISTRIBUTORS DATE OF NAME CHANGE: 19680510 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KMART CORP CENTRAL INDEX KEY: 0000056824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 380729500 STATE OF INCORPORATION: MI FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 3100 W BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 8106431000 MAIL ADDRESS: STREET 1: 3100 W BIG BEAVER ROAD CITY: TROY STATE: MI ZIP: 48084 FORMER COMPANY: FORMER CONFORMED NAME: KRESGE S S CO DATE OF NAME CHANGE: 19770921 SC 13D 1 SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 RITE AID CORPORATION (Name of issuer) COMMON STOCK, $1.00 PAR VALUE (Title of class of securities) 767754104 (CUSIP number) Anthony N. Palizzi, Esq. Executive Vice President Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 (810) 643-1000 (Name, address and telephone number of person authorized to receive notices and communications) with copies to: David J. Friedman, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 (212) 735-3000 DECEMBER 12, 1996 (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box ( ). SCHEDULE 13D CUSIP NO. 133255-10-9 (1) NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Kmart Corporation 38-0729500 (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions) (a) ( ) (b) (X) (3) SEC USE ONLY (4) SOURCE OF FUNDS N/A (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) ( ) (6) CITIZENSHIP OR PLACE OF ORGANIZATION Michigan (7) SOLE VOTING POWER 6,904,764 (8) SHARED VOTING POWER NUMBER OF SHARES BENEFICIALLY None OWNED BY EACH REPORTING PERSON (9) SOLE DISPOSITIVE POWER WITH 6,904,764 (10) SHARED DISPOSITIVE POWER None (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,904,764 Shares (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (see instructions) ( ) (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.63% (14) TYPE OF REPORTING PERSON (see instructions) CO Item 1. Security and Issuer. The class of equity securities to which this Schedule 13D relates is the common stock of Rite Aid Corporation, a Delaware corporation ("Rite Aid"), par value $1.00 per share (the "Rite Aid Common Stock"). The principal executive offices of Rite Aid are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. Item 2. Identity and Background. This statement is being filed by Kmart Corporation, a Michigan corporation ("Kmart"). Kmart is principally engaged in general merchandise retailing through the operation of a chain of discount stores located throughout the United States and abroad. Kmart's principal place of business is located at 3100 West Big Beaver Road, Troy, Michigan 48084. Neither Kmart nor (to Kmart's knowledge) any executive officer, director or controlling person of Kmart (a) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), during the last five years or (b) has been a party, during the last five years, to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of same proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Kmart may be deemed to beneficially own 6,904,764 shares, or 5.63% of the outstanding Rite Aid Common Stock. Such stock was acquired by Kmart pursuant to an Agreement and Plan of Merger, dated as of October 13, 1996 (the "Merger Agreement"), by and between Rite Aid and Thrifty Payless Holdings, Inc., a Delaware corporation ("Thrifty"). Pursuant to the Merger Agreement, on December 12, 1996, Thrifty merged with and into Rite Aid (the "Merger") and each of the outstanding shares of common stock of Thrifty (the "Thrifty Common Stock") was converted into the right to receive 0.65 shares of Rite Aid Common Stock. Schedule I attached hereto and incorporated herein by reference sets forth, with respect to each executive officer and director of Kmart, the following information: (a) name; (b) residence or business address; and (c) present principal occupation or employment and the name of any corporation or other organization in which such employment is conducted. Each person listed on Schedule I, unless otherwise indicated, is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration. Kmart acquired the Rite Aid Common Stock pursuant to the Merger as described more fully in Item 2 above. Item 4. Purpose of Transaction. Kmart acquired the Rite Aid Common Stock in connection with the Merger as described in Item 2 above. Kmart holds the Rite Aid Common Stock as an investment. Depending on market and other conditions, Kmart intends to consider disposing from time to time, in the open market or in privately negotiated transactions, of some or all of the Rite Aid Common Stock acquired in the Merger. In anticipation of a possible disposition of the Rite Aid Common Stock, Kmart has requested that Rite Aid register with the SEC all of the Rite Aid Common Stock owned by it. Such request is discussed more fully in Item 6 below. Kmart's ability to acquire additional shares of Rite Aid Common Stock is restricted, as more fully described in Item 6 below. Other than as described above, Kmart has no present plans or proposals which relate to or would result in any transaction, change or event specified in clauses (a) through (j) of Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer. The aggregate amount of Rite Aid Common Stock beneficially owned by Kmart to which this Schedule 13D relates is 6,904,764 shares, representing in the aggregate 5.63% of the 122,604,120 shares of Rite Aid Common Stock estimated by Kmart to be outstanding following the Merger. The number estimated to be outstanding was derived from the 83,928,120 shares of Rite Aid Common Stock reported in the Joint Proxy Statement of Rite Aid and Thrifty, dated November 12, 1996, to be outstanding as of November 12, 1996 and the approximately 38,676,000 shares of Rite Aid Common Stock issued in the Merger as reported in the Joint Proxy Statement. Kmart has the sole power to vote and dispose of the Rite Aid Common Stock owned by it, subject to certain limitations contained in the Stockholder Agreement and the Pledge Agreement (as defined in Item 6) and discussed more fully in Item 6 below. Other than Kmart's receipt of shares in the Merger, as discussed above, no other transactions relating to the Rite Aid Common Stock have been effected by Kmart during the sixty days preceding this filing. To the knowledge of Kmart, none of its respective officers and directors beneficially owns any Rite Aid Common Stock, except for certain shares which may be held in discretionary accounts and over which such officers and directors do not have investment power. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Under the terms of the Stockholder Agreement, Kmart has agreed to certain limitations on its right to vote and dispose of the Rite Aid Common Stock owned or held by it and on its right to acquire additional Rite Aid Common Stock. Pursuant to Subsection 4(a) of the Stockholder Agreement, Kmart has agreed to vote or consent (or cause to be voted or consented), for a period of four years following the consummation of the Merger, all Rite Aid Common Stock (howsoever acquired) then held of record or beneficially owned by it, in accordance with the recommendation of Rite Aid's Board of Directors. Such obligation is to be exercised subject to certain rights granted to other parties under the Trust Agreement, dated as of June 17, 1996, among Kmart, its Subsidiaries party thereto (collectively, the "Obligers"), and First Trust of New York, N.A. and Ward A. Spooner (together, the "Trustees") and certain related documents, including the Securities Pledge Agreement, dated as of June 17, 1996, among certain of the Obligors, including Kmart (the "Pledgors") and the Trustees (such Trust Agreement, such Securities Pledge Agreement and such related documents together, the "Pledge Agreement"). Under the Pledge Agreement, the Pledgors pledged to the Trustees a security interest in a number of securities (the "Pledged Securities"), including the Rite Aid Common Stock, in order to secure the payment to the Trustees of certain obligations. The Pledge Agreement generally provides that, as long as no acceleration provisions have been activated, the Pledgors have the right to receive distributions in respect of the Pledged Securities and to vote such securities, except that no vote can be cast, nor any consent, waiver or ratification given or action taken which would materially impair the value of such Pledged Securities or be otherwise inconsistent with, or violative of, the provisions of the Pledge Agreement. Pursuant to Subsection 4(c) of the Stockholder Agreement and unless otherwise requested by Rite Aid, Kmart has agreed, for a period of four years beginning October 13, 1996, to refrain from, and to cause its affiliates to refrain from, (i) entering into any business combination, acquisition or other such transaction relating to Rite Aid or its subsidiaries, (ii) entering into any restructuring, recapitalization or similar transaction with respect to Rite Aid or any of its subsidiaries, or (iii) making any demand, request or proposal to amend, waive or terminate the Stockholder Agreement; and during such period Kmart has further agreed not to, and to cause its affiliates not to, (1) acquire in excess of 1% of the outstanding Rite Aid Common Stock or other voting securities of Rite Aid, aside from stock acquired pursuant to the Merger, (2) participate in a proxy solicitation with respect to any Rite Aid voting securities or participate in, or otherwise seek to influence, any election contest with respect to Rite Aid, (3) join any group which seeks to acquire beneficial ownership of voting securities of Rite Aid, affect control of Rite Aid, or circumvent any provision of the Stockholder Agreement, (4) otherwise act to influence the Board, management, or policies of Rite Aid, or (5) make any communication designed to compel Rite Aid to make a public announcement with respect to any of the foregoing provisions of Subsection 4(c). Appendix A to the Stockholder Agreement governs registration rights relating to the Rite Aid Common Stock acquired by Kmart pursuant to the Merger. Section 4 of Appendix A governs demand registration rights of the Rite Aid Common Stock, pursuant to which Kmart has requested, in a letter dated December 16, 1996 (the "Registration Request"), that Rite Aid register with the SEC all of the 6,904,764 shares of Rite Aid Common Stock acquired by Kmart pursuant to the Merger. In accordance with the requirements contained in Section 4, the Registration Request further specified that the registration be in the form of a Shelf Registration using a Registration Statement on Form S-3. Rite Aid's obligations under Section 4 are subject to certain enumerated limitations not applicable to the Registration Request. In addition to the demand rights, Kmart was also granted piggyback rights, as more fully described in Appendix A. The foregoing summaries of the Stockholder Agreement and Appendix A thereto, the Pledge Agreement and the Registration Request do not purport to be complete descriptions of those documents, and are qualified by reference to the actual documents which are filed as exhibits hereto. Except as described above or otherwise disclosed herein, Kmart is not a party to any contract, arrangement, understanding or relationship (legal or otherwise) with respect to the Rite Aid Common Stock or other securities of Rite Aid. Item 7. Material to be Filed as Exhibits. 1. Stockholder Agreement, dated as of October 13, 1996, by and between Rite Aid, Kmart and joined in by certain Individual Stockholders (incorporated by reference to Exhibit 2.3 to Rite-Aid's Form S-4 filed October 24, 1996 (File No. 33-314759)). 2. Trust Agreement, dated as of June 17, 1996, among Kmart, the Subsidiaries of Kmart parties thereto and the Trustees (incorporated by reference to Exhibit F to the Credit Agreement filed as an exhibit to Kmart's Current Report on Form 8-K filed July 18, 1996 (File No. 001-00327)). 3. Securities Pledge Agreement, dated as of June 17, 1996, among Kmart, certain of the Subsidiaries of Kmart parties thereto and the Trustees. 4. Letter to Rite Aid from Kmart, dated December 16, 1996, requesting that Rite Aid register with the SEC on Form S-3 all shares of Rite Aid Common Stock acquired by Kmart pursuant to the Merger. SIGNATURE After reasonable 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: December 20, 1996 KMART CORPORATION By: /s/ Michael J. Viola ____________________ NAME: Michael J. Viola TITLE: Vice President and Treasurer SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF KMART CORPORATION Unless otherwise indicated, the business address of directors and executive officers is 3100 West Big Beaver Road, Troy, New York 48084 and all directors and executive officers are citizens of the United States of America. An asterisk indicates that a person is a director. Name and Principal Occupation Address Or Employment James B. Adamson* Chairman and Chief Flagstar Companies, Inc. Executive Officer, 203 East Main Street Flagstar Companies, Inc. Spartanburg, SC 29319 Lilyan H. Affinito* Director, Caterpillar, 870 United Nations Plaza Inc., Chrysler Corp., Apt. #16-B Jostens Inc., Lillian New York, NY 10017 Vernon Corp., New England Telephone Company and New York Telephone Company (subsidiaries of NYNEX Corp.) and Tambrands, Inc. Stephen F. Bollenbach* President and Chief Hilton Hotels Corporation Executive Officer, Hilton 9336 Civic Center Drive Hotels Corp. Beverly Hills, CA 90210 Lawrence E. Carlson Vice President, Real Estate Market Strategy Joseph A. Califano, Jr.* Chairman and President, National Center on Addiction National Center on and Substance Abuse at Addiction and Substance Columbia University Abuse at Columbia 152 West 57th St. University 12th Floor New York, NY 10019 Dennis V. Carter Vice President, Food, Super Kmart Centers James P. Churilla Vice President, Real Estate Finance William N. Anderson Senior Vice President and General Merchandise Manager-Hardlines Richard G. Cline* Chairman, Hawthorn Hawthorn Investors, Inc. Investors, Inc. 201 Naperville Road Wheaton, IL 60187 Joseph J. Collins Senior Vice President, Logistics and Vendor Administration Warren Cooper Executive Vice President, Human Resources and Administration Larry C. Davis Vice President, Advertising Willie D. Davis* President, All Pro All Pro Broadcasting Broadcasting, Inc. 161 North LaBrea Avenue Inglewood, CA 90301 Enrique C. Falla* Vice President, The Dow 600 Grape Tree Drive Chemical Company Apt. #4BS Key Biscayne, FL 33149 Joseph P. Flannery* Chairman of the Board, Uniroyal Holding, Inc. President and Chief 70 Great Hill Road Executive Officer, Naugatuck, CT 06770 Uniroyal Holding, Inc. Warren Flick* President and Chief Operating Officer, U.S. Kmart Stores Ronald J. Floto Executive Vice President and President, Super Kmart Centers Andrew A. Giancamilli Senior Vice President, General Merchandise Manager-Consumables and Commodities G. William Gryson, Jr. Vice President, Special Projects David R. Fielding Vice President and Merchandise Controller Larry J. Foster Vice President, Field Human Resources Floyd Hall* Chairman of the Board, President and Chief Executive Officer Paul J. Hueber Senior Vice President, Store Operations Shawn M. Kahle Vice President, Corporate Affairs Cecil B. Kearse Vice President, Merchandise Presentation and Communication Donald W. Keeble Executive Vice President, Store Operations Robert D. Kennedy* Retired Chairman of the Union Carbide Corporation Board and Chief Executive Section E-4 Officer, Union Carbide 39 Old Ridgebury Road Corp. Danbury, CT 06817 Nancie W. LaDuke Vice President and Secretary Michael T. Macik Vice President, Headquarters and Distribution Center Human Resources David R. Marsico Vice President, Super Kmart Centers Harold Meeth III Vice President, Design and Construction Douglas M. Meissmer Vice President, Central Region J. Richard Munro* Chairman of the Executive Time Warner Inc. Committee of Time Warner 300 First Stamford Place Inc. Stamford, CT 06902 Donald E. Norman Senior Vice President, Chief Information Officer Ernest L. Heether Senior Vice President, Merchandise Planning and Replenishment Lorrence T. Kellar Vice President, Real Estate Jerry J. Kuske Vice President and General Merchandise Manager-Health and Beauty Care/Pharmacy William C. Najdecki Vice President, Controller Robin B. Smith* President and Chief Publishers Clearing House Executive Officer, 382 Channel Drive Publishers Clearing House Port Washington, NY 11050 Anthony N. Palizzi Executive Vice President, General Counsel Peter J. Palmer Vice President, Labor Relations and Assistant General Counsel Marvin P. Rich Executive Vice President, Strategic Planning, Finance and Administration William D. Underwood Senior Vice President, Global Sourcing John S. Valenti Vice President, Southern Region Michael J. Viola Vice President and Treasurer Thomas W. Watkins Senior Vice President, International and Off- Shore Retailing William P. Weber* Vice Chairman, Texas Texas Instruments Instruments Incorp- Corporation orated 13510 North Central Expressway, MS236 Dallas, TX 75243 James O. Welch, Jr.* Director, TECO Energy, 200 Deforest Avenue Inc. and Vanguard Group East Hanover, NJ 07936 of Investment Companies Martin E. Welch III Senior Vice President and Chief Financial Officer Stephen M. Ross Senior Vice President, General Merchandise Manager-Softunes E. Anthony Vaal Vice President, Far East Operations EX-99 2 EXHIBIT B - SECURITIES PLEDGE AGREEMENT EXECUTION COPY SECURITIES PLEDGE AGREEMENT SECURITIES PLEDGE AGREEMENT, dated as of June 17, 1996, made by each of the undersigned corporations (each, a "Pledgor" and, collectively, the "Pledgors"), in favor of First Trust of New York, National Association, a National Banking Association, and Ward A. Spooner, not individually but solely as Trustees under the Trust Agreement, dated as of June 17, 1996, as amended (the "Trust Agreement"), among the Pledgors and the Trustees. 1. Defined Terms. (a) The capitalized terms used herein which are defined in, or by reference in, the Trust Agreement referred to above shall have the meanings specified therein. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Securities Pledge Agreement shall refer to this Securities Pledge Agreement as a whole and not to any particular provision of this Securities Pledge Agreement. 2. Pledge. (a) To secure the due and punctual payment of all Senior Secured Obligations, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, in accordance with the terms thereof and to secure the due and punctual performance of all of the obligations of each of the Obligors contained in the Security Documents, the Senior Secured Instruments and the Trust Agreement, each Pledgor hereby pledges to the Trustees, and hereby grants to the Trustees a security interest in, all of such Pledgor's right, title and interest in and to the following: (i) the shares of capital stock set forth on Schedule A hereto and other shares of capital stock pledged hereunder from time to time hereafter pursuant to Section 3(d) hereof (all such shares being herein collectively called the "Pledged Stock"); (ii) all Investment Securities; (iii) all Cash Equivalents (including, without limitation, any Permitted Book-Entry Securities) and funds held or on deposit from time to time in the Securities Accounts; and (iv) all Proceeds, except as provided for in Section 4 hereof, of any and all of the foregoing items described in clauses (i) through (iii) above. The items described in clauses (i) through (iv) above are herein collectively called the "Pledged Securities". (b) Each Pledgor hereby delivers to the Corporate Trustee the stock certificates representing the Pledged Stock pledged by it as set forth on Schedule A hereto, together with related undated stock powers duly executed in blank. Each Pledgor agrees to deliver to the Corporate Trustee related undated stock powers or bond powers, as appropriate, duly executed in blank for the Pledged Securities pledged by it hereunder from time to time hereafter. 3. After-Acquired Pledged Securities. (a) If, after the date hereof, any Pledgor shall become entitled to receive or shall receive any Investment Securities, such Pledgor agrees to accept the same as the Trustees' agent and to hold the same in trust on behalf of and for the benefit of the Trustees and to deliver the same (except for Instruments which such Pledgor is not required to deliver under subsection 7.10 of the Kmart Credit Agreement and Investment Securities not required to be delivered pursuant to subsection 7.11(d) of the Kmart Credit Agreement) forthwith to the Corporate Trustee in the exact form received, with the appropriate undated powers as provided in Section 2(b) hereof, to be held by the Corporate Trustee as Pledged Securities, subject to the terms of this Securities Pledge Agreement, as additional collateral security for the Senior Secured Obligations. (b) If, while this Securities Pledge Agreement is in effect, any Pledgor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital, or issued in connection with any reorganization), or any instrument, certificate or other writing representing or constituting an option or right to acquire securities, whether as an addition to, in substitution of, or in exchange for, any shares of any Pledged Stock, or otherwise (other than shares of stock or instruments or other property of third parties delivered to such Pledgor as collateral for the obligations of such third parties), such Pledgor agrees to accept the same as the Trustees' agent and to hold the same in trust on behalf of and for the benefit of the Trustees and to deliver the same forthwith to the Corporate Trustee in the exact form received, with appropriate undated powers as provided in Section 2(b) hereof, to be held by the Corporate Trustee as Pledged Securities, subject to the terms of this Securities Pledge Agreement, as additional collateral security for the Senior Secured Obligations, and the same shall constitute "Pledged Stock" for all purposes of this Securities Pledge Agreement. (c) If, while this Securities Pledge Agreement is in effect, any Pledgor shall become entitled to receive any note, bond, debenture, instrument, stock certificate or any instrument, certificate or other writing representing or constituting an option or right to acquire securities (other than any of the foregoing constituting property of third parties which is delivered to such Pledgor as collateral for the obligations of such third parties), whether as an addition to, in substitution of, or in exchange for any Investment Securities, or in payment of the principal of any Investment Securities, such Pledgor agrees to accept the same on behalf of and for the benefit of the Trustees and to deliver the same (except for Instruments which such Pledgor is not required to deliver under subsection 7.10 of the Kmart Credit Agreement and Investment Securities not required to be delivered pursuant to subsection 7.11(d) of the Kmart Credit Agreement) forthwith to the Corporate Trustee in the exact form received, with appropriate undated powers as provided in Section 2(b) hereof, to be held by the Corporate Trustee as Pledged Securities, subject to the terms of this Securities Pledge Agreement, as additional collateral security for the Senior Secured Obligations, and the same shall constitute "Investment Securities" for all purposes of this Securities Pledge Agreement. (d) If, after the Effective Date, any Pledgor shall desire to pledge the shares of a Subsidiary which have not previously been pledged hereunder, such Pledgor shall pledge such shares to the Trustees and shall deliver to the Corporate Trustee stock certificates representing all of such shares of capital stock of such Subsidiary, together with appropriate undated powers as provided in Section 2(b) hereof, to be held by the Corporate Trustee as Pledged Securities, subject to the terms of this Securities Pledge Agreement, as additional collateral security for the Senior Secured Obligations. (e) Notwithstanding anything to the contrary herein, no Pledgor shall be required to pledge Temporary Cash Equivalent Investments or stock or other equity securities issued by any Person if the stock of such Person does not constitute Pledged Stock on the Effective Date (except to the extent required by the Kmart Credit Agreement) or if, in respect of a Foreign Subsidiary or Foreign Holding Company (as such terms are defined in the Kmart Credit Agreement), the aggregate portion of stock of such Person that is Pledged Stock would exceed 65% of the outstanding Capital Stock of such Person. 4. Cash Dividends; Exercise of Rights. (a) Unless a Notice of Acceleration is in effect, each Pledgor shall be entitled, except as provided in Section 6 hereof and in Section 9 hereof, to receive all distributions (including, without limitation, dividends and interest payments), in respect of the Pledged Securities and to vote the Pledged Securities and to exercise any and all rights and options included in the Pledged Securities and to give consents, waivers and ratifications in respect of the Pledged Securities; provided, however, that no vote shall be cast or consent, waiver or ratification given or action taken which would materially impair the value of the Pledged Securities or be inconsistent with or violate any provision of this Securities Pledge Agreement or the Trust Agreement. (b) In order to permit each Pledgor to exercise the powers of voting and/or consent retained by such Pledgor under Section 4(a) hereof and to receive such payments as such Pledgor is entitled to receive and retain under said Section, the Trustees shall, if necessary, upon the written request of such Pledgor, from time to time execute and deliver to such Pledgor appropriate proxies and dividend or payment orders. The Trustees shall have no responsibilities for the manner in which any such proxy is exercised or any duty to see to the application of any such payments. In order to permit the Trustees to receive all distributions to which they are entitled under Section 3 hereof and Section 6 hereof, each Pledgor shall, if necessary, from time to time execute and deliver to the Corporate Trustee, upon its request, appropriate dividend or payment orders. If any Pledgor shall not have executed and delivered any such dividend or payment order within three Business Days after it receives a written request from the Corporate Trustee to do so, the Corporate Trustee may execute the same on behalf of such Pledgor. Each Pledgor hereby appoints the Corporate Trustee as its agent and attorney to act for it as provided in the next preceding sentence. 5. Rights of the Trustee and the Senior Creditors. While a Notice of Acceleration is in effect, without notice to any Pledgor, the Trustees may transfer or register or have registered in the name of the Corporate Trustee or the Corporate Trustees' nominee any and all of the Pledged Securities which are in registerable form. If a Notice of Acceleration is in effect, the Corporate Trustee or its nominee may thereafter, after delivery of notice to the relevant Pledgor, exercise all voting and corporate rights at any meeting of any corporation or other entity issuing any of the Pledged Securities and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Pledged Securities as if it were the absolute owner thereof, including, without limitation, the rights to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation or other entity issuing any of such shares or upon the exercise by any such issuer or the Corporate Trustee or any right, privilege or option pertaining to any of the Pledged Securities, and in connection therewith, to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but the Trustees shall have no duty to exercise and neither the Administrative Agent nor any Senior Creditor shall have any duty to request the exercise of any of the aforesaid rights, privileges or options, and neither the Trustees nor the Administrative Agent nor any Senior Creditor shall be responsible for any failure to do so or delay in so doing. 6. Remedies, Rights Upon Acceleration of Senior Secured Obligations. (a) If a Notice of Acceleration is in effect: (i) The Trustees may at any time, without further notice to any Pledgor, notify Persons whose obligations to any Pledgor have been assigned hereunder that such obligations have been assigned to the Trustees and that payments thereunder or in respect thereof shall be made directly to the Corporate Trustee. If requested by the Trustees, the relevant Pledgor will (at such Pledgor's own expense) so notify such Persons. The Trustees may in their own names or in the name of others communicate with such Persons. (ii) All payments received by any Pledgor under or in connection with any of the Pledged Securities shall be held by such Pledgor in trust for the Trustees, shall be segregated from other funds of such Pledgor and shall, forthwith upon receipt by such Pledgor, be turned over to the Corporate Trustee, in the same form as received by such Pledgor (duly indorsed to the Trustees, if required) for deposit in the Collateral Account. (iii) Any and all such payments so received by the Trustees (whether from any Pledgor or otherwise) shall be deposited by the Trustees in the Collateral Account and shall be held by the Trustees as part of the Trust Estate. Any Proceeds which are Pledged Securities, when collected, whether consisting of checks, notes, drafts, bills of exchange, money orders, or commercial paper of any kind whatsoever shall be held or deposited in the Collateral Account and held as part of the Trust Estate subject to withdrawal and distribution by the Corporate Trustee as provided in the Trust Agreement. (b) If a Notice of Acceleration is in effect, the Trustees may exercise, in addition to all other rights and remedies granted to them in this Securities Pledge Agreement, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, each Pledgor expressly agrees that in any such event the Trustees, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon any Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Pledged Securities, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Pledged Securities (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Corporate Trustee's offices or elsewhere at such prices as they may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Trustees or any Senior Creditor shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Pledged Securities so sold, free of any right or equity of redemption in any Pledgor, which right or equity is hereby expressly waived and released. The Trustees shall deposit the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale in the Collateral Account pursuant to subsection 3.1 of the Trust Agreement. To the extent permitted by applicable law, each Pledgor waives all claims, damages and demands against the Trustees, the Administrative Agent or any Senior Creditor arising out of the repossession, retention or sale of the Pledged Securities. Each Pledgor agrees that the Trustees need not give any notice of any sale on a recognized public market or give more than 10 Business Days' notice (which notification shall be deemed given when mailed, postage prepaid, addressed to such Pledgor at its address determined pursuant to Section 10 hereof) of the time and place of any other public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. 7. Registration Rights. (a) If the Trustees shall determine to exercise their right to sell any or all of the Pledged Securities pursuant to Section 6 hereof, and if in the opinion of counsel for the Corporate Trustee it is necessary, or if in the reasonable opinion of the Corporate Trustee under applicable law it is advisable, to have the Pledged Securities or that portion thereof to be sold, registered under the provisions of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act"), each relevant Pledgor will use its best efforts to cause the issuers of the Pledged Securities contemplated to be sold, to execute and deliver, and cause the directors and officers of each thereof to execute and deliver, all at such Pledgor's expense, all such instruments and documents, and to do or cause to be done all such other acts and things as may be necessary or, in the opinion of the Corporate Trustee, advisable to register the Pledged Securities or that portion thereof to be sold, under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for such period as the Corporate Trustee may deem appropriate to facilitate the sale or other disposition of such Pledged Securities from the date of the first public offering of the Pledged Securities or that portion thereof to be sold, and to make all amendments thereto and/or to the related prospectus which, in the opinion of the Corporate Trustee, are necessary or advisable, all in conformity with the requirements of the Securities Act. Each relevant Pledgor agrees to use its best efforts to cause each such issuer to comply with the provisions of the securities or "Blue Sky" laws of any jurisdiction which the Corporate Trustee shall designate and to cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Pledgor recognizes that the Trustees may be unable to effect a public sale of any or all the Pledged Securities by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not for such reason alone be deemed to have been made in a commercially unreasonable manner. Neither the Trustees nor the Senior Creditors shall be under any obligation to delay a sale of any of the Pledged Securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the issuer would agree to do so. (c) Each Pledgor further agrees to use its best efforts to do or cause to be done all such other acts and things as may be necessary to make such sale or resales of any portion or all of the Pledged Securities valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or resales, all at such Pledgor's expense. (d) If the Trustees determine to exercise their right to sell all or any of the Pledged Securities, upon written request, each Pledgor shall from time to time furnish to the Corporate Trustee all such information as the Corporate Trustee may request in order to determine the Pledged Securities which may be sold by such Pledgor as exempt transactions under the Securities Act. (e) At the request of the Corporate Trustee, each Pledgor agrees to indemnify and hold harmless, and each relevant Pledgor agrees to use its best efforts to cause the issuer or issuers whose stock or securities are to be sold pursuant to Section 6 hereof to agree to indemnify and hold harmless, the Trustees, the Administrative Agent and each Senior Creditor (and any Person controlling any thereof) from and against any loss, liability, claim, damage and reasonable expense (and reasonable counsel fees incurred in connection therewith) under the Securities Act or otherwise insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement, prospectus or offering memorandum or in any preliminary prospectus or preliminary offering memorandum or any amendment or supplement to any thereof, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of the Trustees, the Administrative Agent or any Senior Creditor (or any Person controlling any thereof); provided that such Pledgor and any such issuer shall not be liable in any case to the extent that any such loss, liability, claim, damage or expense arises out of or is based on an untrue statement or alleged untrue statement or an omission or an alleged omission made by, or in reliance upon and in conformity with written information furnished by, the Trustees, the Administrative Agent, any Senior Creditor or any other Person not under the control of such Pledgor. 8. Possession of Pledged Securities. Subject to the specific requirements of subsection 3(a) and (c) hereof with respect to Instruments, Section 9 hereof with respect to Cash Equivalents and Section 5 of the Trust Agreement, the Corporate Trustee shall hold in its possession all Pledged Securities pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral, except for any documents or instruments which from time to time are certified by the relevant Pledgor to be required for recordation or for the purpose of enforcing or realizing upon any right or value thereby represented or for the purpose of substituting new Pledged Securities evidencing Pledged Securities then in possession of the Corporate Trustee or as may be required in the administration of a Pledgor's business in the ordinary course (subject to such requirements as the Trustees or any custodian shall reasonably request) and except as otherwise permitted by the Kmart Credit Agreement or the Trust Agreement. The Corporate Trustee may, from time to time, in its sole discretion, appoint one or more agents or nominees (which in no case shall be a Pledgor or an affiliate, employee or agent of a Pledgor) to hold physical custody, for the account of the Corporate Trustee, of any or all Pledged Securities. 9. Cash Equivalents. (a) On or before the Effective Date and at any time thereafter, the Corporate Trustee shall establish, in the Trustees' name, one or more accounts (individually, a "Securities Account") which may be maintained with the Corporate Trustee or any agent thereof in accordance with Section 9(e) hereof. So long as no Notice of Acceleration is in effect and except as otherwise permitted by the Kmart Credit Agreement or the Trust Agreement, all Pledged Securities which are Cash Equivalents shall be held by the Corporate Trustee or a custodian or other agent of the Corporate Trustee in a Securities Account subject to release upon request by the relevant Pledgor strictly in accordance with Section 9(c) hereof. Upon receipt of a Notice of Acceleration and thereafter so long as such Notice of Acceleration is in effect, the Corporate Trustee shall, at the direction of the Administrative Agent, transfer or cause to be transferred for deposit in the Collateral Account all Cash Equivalents and all funds in the Securities Accounts. (b) Unless a Notice of Acceleration is in effect, the purchase, sale or presentation for payment of Cash Equivalents in the Securities Accounts, the receipt by any Pledgor of the proceeds of the sale or collection thereof and any interest paid thereon and the release upon request by any Pledgor of funds or Cash Equivalents on deposit therein shall all occur as provided below in this Section 9(b) and Section 9(c) hereof. To initiate the purchase of Cash Equivalents with funds from time to time on deposit in the Securities Accounts under the control of the Corporate Trustee or a custodian or other agent of the Corporate Trustee, the relevant Pledgor will instruct the Corporate Trustee or such custodian or agent, as the case may be, as to the particulars of such purchase. The Corporate Trustee or such custodian or agent will make arrangements (either directly or through one or more agents) for the purchase of such Cash Equivalents, including the payment of the purchase price thereof in accordance with such instructions. Except as otherwise permitted by the Kmart Credit Agreement, all Cash Equivalents (other than Permitted Book-Entry Securities) purchased by the Corporate Trustee or such custodian or agent, as the case may be, as aforesaid (and all securities (other than Permitted Book-Entry Securities) subject to, together with all confirmations relating to, repurchase agreements) will be delivered to (or, in the case of eurodollar deposits, made in the name of) the Corporate Trustee or such custodian or agent and, subject to the following sentence, held in the Securities Accounts. To initiate the sale or presentation for payment of Cash Equivalents, the relevant Pledgor will instruct the Corporate Trustee or such custodian or agent as to the particulars of such sale or presentation, whereupon the Corporate Trustee or such custodian or agent will make arrangements (either directly or through the appropriate agents) for the sale or presentation of such Cash Equivalents in accordance with such instructions. Funds received by the Corporate Trustee or such custodian or agent on the sale or collection of Cash Equivalents (including interest payable in respect thereof) which are not released pursuant to a request by a Pledgor in accordance with Section 9(c) hereof shall be reinvested by the Corporate Trustee or such custodian or agent in Cash Equivalents in accordance with the instructions of the relevant Pledgor. While a Notice of Acceleration is in effect, no Pledgor shall have the right to give instructions to the Corporate Trustee or such custodian or agent pursuant to this Section 9(b). Instructions to the Corporate Trustee or such custodian or agent pursuant to this Section 9(b) may be given in writing, by facsimile, by computer transmission or orally (confirmed in writing). (c) So long as no Notice of Acceleration is in effect, each Pledgor may obtain the release to it or its order of funds in any Securities Account on the following terms and conditions: (i) Each request by such Pledgor for a release of such funds shall be made to the Corporate Trustee or applicable custodian or agent and the Corporate Trustee or such custodian or agent shall immediately cause such funds to be delivered to the Pledgor. (ii) Such Pledgor covenants and agrees that it will not use any funds as to which it requests release for any purpose prohibited under the terms of the Kmart Credit Agreement. (iii) The Trustees shall have no duty to monitor or investigate the use of proceeds released to such Pledgor pursuant to this Section 9(c). (d) Any written or oral request or instructions by any Pledgor pursuant to clause (i) of this Section 9(c) or pursuant to Section 9(b) hereof shall be full authority for and direction to the Corporate Trustee or applicable custodian or agent of the Corporate Trustee to make the requested release or investment, as the case may be, and the Corporate Trustee or applicable custodian or agent of the Corporate Trustee shall promptly do so. The Trustees and their custodians and agents in so doing shall have no liability to any Person. (e) The Corporate Trustee shall from time to time appoint, as its agent or agents, one or more Persons (which in no case shall be a Pledgor or an affiliate, employee or agent of a Pledgor) designated by a Pledgor and reasonably acceptable to the Corporate Trustee, located in New York (or such other jurisdictions within the United States as may be designated by a Pledgor) with whom a Securities Account shall be established and maintained. Prior to establishing such a Securities Account, the Person so appointed shall deliver to the Corporate Trustee a writing acknowledging that (i) in opening such Securities Accounts and holding Cash Equivalents therein, such Person is acting as agent of the Corporate Trustee and will conduct transactions in Cash Equivalents in such account in the name of the Corporate Trustee (with any confirmations of such transactions sent by such Person to reflect that fact), and (ii) such Person shall in no event deliver any Cash Equivalents held in such Securities Account to any Pledgor or any affiliate, employee or agent of any Pledgor. The provisions of clause (ii) of this Section 9(e) shall also apply to any Securities Account maintained with the Corporate Trustee. (f) Upon the sale or disposition of any Cash Equivalents pursuant to this Section 9, the Trustees' security interest therein (but not in the Proceeds arising from such sale or disposition) shall, without any further action on the part of the Trustees, be released. 10. Notices. All notices or other communications hereunder shall be given in the manner and to the addresses determined under subsection 7.1 of the Trust Agreement. Where customary and appropriate, communications hereunder relating to the Securities Account may be made by computer transmission. 11. Severability. Any provision of this Securities Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. No Waiver; Cumulative Remedies. Neither the Trustees nor the Senior Creditors shall by any act, delay, omission or otherwise be deemed to have waived any of its or their rights or remedies hereunder and no waiver shall be valid unless in writing, signed by the Trustees, and then only to the extent therein set forth. A waiver by the Trustees of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Trustees or the Senior Creditors would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of the Trustees, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. 13. Waivers; Amendments; Conflicts. None of the terms and provisions of this Securities Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing executed by the parties hereto in accordance with subsection 7.3 of the Trust Agreement. In case of any conflict between the terms of this Securities Pledge Agreement and the Trust Agreement, the terms of the Trust Agreement shall control. 14. Limitation by Law; Limitation by Contract. (a) All rights, remedies and powers provided by this Securities Pledge Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Securities Pledge Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and (subject to Section 11 hereof) to be limited to the extent necessary so that they will not render this Securities Pledge Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered, or filed under the provisions of any applicable law. In addition, and without limiting the generality of the foregoing, (x) if any applicable law restricts the pledging or granting of a security interest in any property or asset of a Pledgor unless one or more consents have been obtained or one or more conditions have been satisfied, then such property or asset shall not be subject to a security interest hereunder and shall not constitute Pledged Securities unless such consents have been obtained and such conditions have been satisfied, and (y) if any applicable law restricts the sale, assignment or other transfer of any interest of a Pledgor in any Pledged Securities unless one or more consents have been obtained or one or more conditions have been satisfied, then no such sale, assignment or other transfer of such interest shall be made hereunder or in connection herewith unless such consents have been obtained and such conditions have been satisfied. (b) The security interest granted hereunder shall not extend to any property or asset of any Pledgor to the extent, and only for so long as, such property is subject to another lien or security interest which restricts the granting of additional liens or security interests on such property and such property shall not constitute Pledged Securities; provided that (i) such lien or security interest is permitted pursuant to subsection 8.4(f), (g), (i), (j) or (l) of the Kmart Credit Agreement and (ii) the restriction on the granting of additional liens or security interests extends only to the property subject to such lien or security interest and the proceeds thereof. (c) If any contract expressly prohibits the granting of a security interest in such contract without consent, then unless such consent has been obtained, such contract shall not be subject to a security interest hereunder and shall not constitute Pledged Securities. 15. Successors and Assigns. This Securities Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and shall inure to the benefit of the Senior Creditors and their respective successors and assigns and nothing herein or in the Trust Agreement or any other Security Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Securities Pledge Agreement, the Trust Agreement, any other Security Document or any Collateral. 16. Termination of Securities Pledge Agreement. This Securities Pledge Agreement, and all of the obligations of each Pledgor hereunder, shall terminate simultaneously with the reversion of the Trust Estate to the Obligors in accordance with subsection 7.10(a) of the Trust Agreement. 17. Right to Sell. It is agreed that, to the extent permitted by subsections 5.1 and 7.10 of the Trust Agreement with respect to Pledged Securities generally or Section 9 hereof with regard to Cash Equivalents, each Pledgor shall have the right to sell or otherwise dispose of, free and clear of the security interest created hereby, any of the Pledged Securities. 18. Applicable Law. This Securities Pledge Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York, except as required by mandatory provisions of law. 19. VTA. VTA, Inc., a Delaware corporation, shall be party to this Securities Pledge Agreement solely for the purpose of pledging the items referred to in subsection 7.10(d) of the Kmart Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Securities Pledge Agreement to be executed and delivered (by their duly authorized officers in the case of corporate parties) as of the date first set forth above. KMART CORPORATION By: ____________________________ Name: Title: BUILDERS SQUARE, INC. By: ____________________________ Name: Calvin B. Massmann Title: Senior Vice President and Chief Financial Officer KMART APPAREL SERVICE OF ATLANTA CORP. By: ____________________________ Name: Title: KMART APPAREL SERVICE OF DES PLAINES CORP. By: ____________________________ Name: Title: K-MART APPAREL OF PUERTO RICO CORP. By: ____________________________ Name: Title: KMART HOLDINGS, INC. By: ____________________________ Name: Title: KMART PROPERTIES, INC. By: ____________________________ Name: Gerald T. Tschura Title: Vice President PMB, INC. By: ____________________________ Name: Title: SOURCING AND TECHNICAL SERVICES, INC. By: ____________________________ Name: Title: KMART OVERSEAS CORPORATION By: ____________________________ Name: Title: JAF, INC. By: ____________________________ Name: Title: VTA, INC. By: ____________________________ Name: Title: FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as Corporate Trustee By: ___________________________ Name: Title: ___________________________________ WARD A. SPOONER, as Individual Trustee Schedule A To Securities Pledge Agreement Pledged Shares EX-99 3 EXHIBIT 4 Kmart Corporation December 16, 1996 Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attn: Martin L. Grass Chief Executive Officer Dear Mr. Grass: Reference is hereby made to the Agreement, dated as of October 13, 1996, by and between Rite Aid Corporation, a Delaware corporation ("Parent"), Kmart Corporation, a Michigan corporation ("Kmart"), and joined in by the Individual Stockholders for the purpose set forth in Section 11 therein (the "Stockholder Agreement"). All capitalized terms used herein shall have the meanings assigned to such terms in the Stockholder Agreement, unless otherwise defined herein. In accordance with Section 4 of Appendix A to the Stockholder Agreement, Kmart hereby requests that Parent effect the registration with the SEC under and in accordance with the Securities Act of all Registrable Securities to be received by Kmart pursuant to the Merger in exchange for the 10,622,714 shares of Company Common Stock owned by Kmart. (Based upon the Exchange Ratio as defined in the Merger Agreement, such shares of Company Common Stock owned by Kmart would be converted into 6,904,764 shares of Parent Common Stock.) In furtherance thereof, Kmart hereby requests that the registration be in the form of a Shelf Registration using a Registration Statement on Form S-3, that such Registration Statement be effective as of the Effective Time or as soon thereafter as practicable and that such Registration Statement be kept effective until the earlier of (i) 360 days (or longer period in the event of a Registration Hold Period, as contemplated by the Stockholder Agreement) and (ii) such time as all Registrable Securities covered by such Registration Statement have ceased to be Registrable Securities. The plan of distribution set forth in the Registration Statement shall be as provided in Exhibit A hereto. If Parent requires any additional information from Kmart for inclusion in the Registration Statement, please notify our attorneys at the address set forth in Section 10(e) of the Stockholder Agreement. Sincerely, Martin E. Welch III Senior Vice President and Chief Financial Officer cc: Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, NY 10022 Attn: Robert A. Profusak EXHIBIT A PLAN OF DISTRIBUTION The Selling Stockholder [Kmart] or its pledgees, donees, transferees or other successors in interest may offer the Shares [Registrable Securities] from time to time depending on market conditions and other factors, in one or more transactions on the New York Stock Exchange or other national securities exchanges on which the Shares are traded, in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at negotiated prices or at fixed prices. The Shares may be offered in any manner permitted by law, including through underwriters, brokers, dealers or agents, and directly to one or more purchasers. Sales of the Shares may involve (a) sales to underwriters who will acquire Shares for their own account and resell them in one or more transactions at fixed prices or at varying prices determined at time of sale, (b) a block transaction in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction, (c) purchases by a broker or dealer as principal and resale by such broker or dealer for its account, (d) an exchange distribution in accordance with the rules of any such exchange, and (e) ordinary brokerage transactions and transactions in which a broker solicits purchasers. Brokers and dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Stockholder and/or purchasers of Shares for whom they may act as agent (which compensation may be in excess of customary commissions). The Selling Stockholder and any broker or dealer that participates in the distribution of Shares may be deemed to be underwriters and any commissions received by them and any profit on the resale of Shares positioned by a broker or dealer may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended (the "Securities Act"). In the event the Selling Stockholder engages an underwriter in connection with the sale of the Shares, to the extent required, a Prospectus Supplement will be distributed, which will set forth the number of Shares being offered and the terms of the offering, including the names of the underwriters, any discounts, commissions and other items constituting compensation to underwriters, dealers or agents, the public offering price and any discounts, commissions or concessions allowed or reallowed or paid by underwriters to dealers. In addition, the Selling Stockholder may from time to time sell Shares in transactions under Rule 144 promulgated under the Securities Act. Pursuant to the Stockholder Agreement, dated as of October 13, 1996 (the "Stockholder Agreement"), by and between the Company [Parent] and the Selling Stockholder, the Company will pay all registration expenses in connection with all registrations of the Shares upon the written request of the Selling Stockholder, and the Selling Stockholder will pay (a) any fees or disbursements of counsel to the Selling Stockholder and (b) all underwriting discounts and commissions and transfer taxes, if any, and other fees, costs and expenses of the Selling Stockholder relating to the sale or disposition of the Selling Stockholder's Shares pursuant to the registration statement. The Selling Stockholder and the Company have agreed to indemnify each other against certain civil liabilities, including certain liabilities under the Securities Act. -----END PRIVACY-ENHANCED MESSAGE-----