-----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, VkgGyRD7LVuvFDlzbLcOeK6uFsonVmDfRehcTRBmzjoNU/JDkqfl4HYGqIQzaHd6 8SlT/Veu6ut1WLcORw1GWw== 0000889812-95-000721.txt : 19951205 0000889812-95-000721.hdr.sgml : 19951205 ACCESSION NUMBER: 0000889812-95-000721 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19951204 SROS: NYSE GROUP MEMBERS: OCEAN ACQUISITION CORPORATION GROUP MEMBERS: RITE AID CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: REVCO D S INC CENTRAL INDEX KEY: 0000083496 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341527876 STATE OF INCORPORATION: DE FISCAL YEAR END: 0602 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-35287 FILM NUMBER: 95599016 BUSINESS ADDRESS: STREET 1: 1925 ENTERPRISE PKWY CITY: TWINSBURG STATE: OH ZIP: 44087 BUSINESS PHONE: 2164259811 MAIL ADDRESS: STREET 1: 1925 ENTERPRISE PKWY CITY: TWINSBURG STATE: OH ZIP: 44087 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: REVCO D S INC CENTRAL INDEX KEY: 0000083496 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341527876 STATE OF INCORPORATION: DE FISCAL YEAR END: 0602 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-35287 FILM NUMBER: 95599017 BUSINESS ADDRESS: STREET 1: 1925 ENTERPRISE PKWY CITY: TWINSBURG STATE: OH ZIP: 44087 BUSINESS PHONE: 2164259811 MAIL ADDRESS: STREET 1: 1925 ENTERPRISE PKWY CITY: TWINSBURG STATE: OH ZIP: 44087 FILED BY: 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 14D1 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: 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 14D1 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 SC 14D1 1 TENDER OFFER STATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 ------------------------ REVCO D.S., INC. (NAME OF SUBJECT COMPANY) ------------------------ RITE AID CORPORATION OCEAN ACQUISITION CORPORATION (BIDDERS) ------------------------ COMMON STOCK, PAR VALUE, $.01 PER SHARE (TITLE OF CLASS OF SECURITIES) ------------------------ 761339 10 0 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ FRANKLIN C. BROWN, ESQ. EXECUTIVE VICE PRESIDENT AND CHIEF LEGAL COUNSEL RITE AID CORPORATION 30 HUNTER LANE CAMP HILL, PENNSYLVANIA 17011 TELEPHONE: (717) 761-2633 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) With a copy to: NANCY A. LIEBERMAN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM 919 THIRD AVENUE NEW YORK, NEW YORK 10022 TELEPHONE: (212) 735-3000 ------------------------ CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE** $966,482,907 $193,296.58
* For purposes of calculating of the amount of the filing fee only. This amount assumes the purchase of 35,144,833 shares of common stock, par value $.01 per share, of Revco D.S., Inc. at $27.50 net per share in cash. **The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate value of cash offered by Ocean Acquisition Corporation for such number of shares. / / Check box if any part of the fee is offset as provided 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
PAGE 1 OF [ ] PAGES EXHIBIT INDEX IS LOCATED ON PAGE [ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP NO. 761339 10 0 14D-1 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS RITE AID CORPORATION (I.R.S. Identification Number 23-1614034) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS BK, WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS 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 See Section 11 of the Offer to Purchase - -------------------------------------------------------------------------------- 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) N/A - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- 2 CUSIP NO. 761339 10 0 14D-1 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS OCEAN ACQUISITION CORPORATION (IRS Identification Number to be applied for) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS BK, AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS 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 See Section 11 of the Offer to Purchase - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) N/A - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- 3 This Tender Offer Statement on Schedule 14D-1 relates to the offer by Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to purchase 35,144,833 shares of common stock, par value $.01 per share (the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the expiration of the Offer (as defined below) at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the 'Offer Price'), upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'). This Schedule 14D-1 also constitutes the Statement on Schedule 13D of the Purchaser and Parent with respect to certain Shares which they may be deemed to beneficially own as a result of the Stock Option Agreement and Stockholder Agreement, which are described in the Offer to Purchase and are filed as Exhibits (c)(3) and (c)(2) hereto, respectively. 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 Revco D.S., Inc., a Delaware corporation. The address of the Company's principal executive offices is 1925 Enterprise Parkway, Twinsburg, Ohio 44087. (b) The information set forth in the 'INTRODUCTION' of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ('THE TENDER OFFER--Price Range of Shares; Dividends') of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d); (g) This Statement is being filed by the Purchaser and Parent. The information set forth in the 'INTRODUCTION', in Section 8 ('THE TENDER OFFER--Certain Information Concerning the Purchaser and Parent') and in Schedule I ('Information Concerning the Directors and Executive Officers of Parent and the Purchaser') of the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five years, neither the Purchaser, Parent nor any persons controlling the Purchaser, nor, to the best knowledge of the Purchaser or Parent, any of the persons listed on Schedule I ('Information Concerning the Directors and Executive Officers of Parent and the Purchaser') of the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person 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. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in the 'INTRODUCTION,' Section 8 ('THE TENDER OFFER--Certain Information Concerning the Purchaser and Parent'), Section 10 ('THE TENDER OFFER--Background of the Offer; Contacts with the Company') and Section 11 ('Purpose of the Offer; Plans for the Company; Merger Agreement; Stockholder Agreement; Stock Option Agreement; Confidentiality Agreement') 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 the 'INTRODUCTION' and Section 9 ('THE TENDER OFFER--Source and Amount of Funds') 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 the 'INTRODUCTION,' Section 10 ('THE TENDER OFFER--Background of the Offer; Contacts with the Company'), and Section 11 ('THE TENDER OFFER--Purpose of the Offer; Plans for the Company; Merger Agreement; Stockholder Agreement; Stock Option Agreement; Confidentiality Agreement') of the Offer to Purchase is incorporated herein by reference. 4 (f)-(g) The information set forth in the 'INTRODUCTION,' and Section 13 ('THE TENDER OFFER--Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration') of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in Section 8 ('THE TENDER OFFER--Certain Information Concerning the Purchaser and Parent') of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in Section 8 ('THE TENDER OFFER--Certain Information Concerning the Purchaser and Parent') 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 in the 'INTRODUCTION,' Section 10 ('THE TENDER OFFER--Background of the Offer; Contacts with the Company'), and Section 11 ('THE TENDER OFFER--Purpose of the Offer; Plans for the Company; Merger Agreement; Stockholder Agreement; Stock Option Agreement; Confidentiality Agreement') of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the 'INTRODUCTION' and Section 16 ('THE TENDER OFFER--Fees and Expenses') of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ('THE TENDER OFFER--Certain Information Concerning the Purchaser and Parent') of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in the 'INTRODUCTION', Section 10 ('Background of the Offer; Contacts with the Company') and Section 11 ('THE TENDER OFFER--Purpose of the Offer and the Merger; Plans for the Company; Merger Agreement; Stockholder Agreement; Stock Option Agreement; Confidentiality Agreement') of the Offer to Purchase is incorporated herein by reference. (b)-(c) The information set forth in the 'INTRODUCTION' and Section 15 ('THE TENDER OFFER--Certain Legal Matters and Regulatory Approvals') of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 13 ('THE TENDER OFFER--Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration') of the Offer to Purchase is incorporated herein by reference. (e) The information set forth in Section 15 ('THE TENDER OFFER--Certain Legal Matters and Regulatory Approvals') 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 December 4, 1995. (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) Text of Press Release issued by Parent and the Company on November 30, 1995. (a)(8) Form of Summary Advertisement dated December 4, 1995. 5 (b)(1) Letter from J.P. Morgan Securities Inc. to Rite Aid Corporation, dated November 16, 1995. (b)(2) Letter from Morgan Guaranty Trust Company of New York and J.P. Morgan Securities Inc. to Rite Aid Corporation, dated November 24, 1995. (c)(1) Agreement and Plan of Merger, dated as of November 29, 1995, by and among Parent, the Purchaser and the Company. (c)(2) Stockholder Agreement, dated as of November 29, 1995, by and among Parent, the Purchaser and Zell/Chilmark Fund, L.P. (c)(3) Stock Option Agreement, dated as of November 29, 1995, by and among Parent, the Purchaser and the Company. (c)(4) Confidentiality Agreement, dated as of August 17, 1995, by and between Parent and the Company. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Complaint entitled Silvert v. Revco D.S., Inc. et al., filed in the Chancery Court of the State of Delaware, New Castle County. 6 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: December 4, 1995 RITE AID CORPORATION By: /s/ MARTIN L. GRASS Name: Martin L. Grass Title: Chairman of the Board and Chief Executive Officer OCEAN ACQUISITION CORPORATION By: /s/ MARTIN L. GRASS_______________ Name: Martin L. Grass Title: President 7 EXHIBIT INDEX EXHIBIT PAGE NUMBER NUMBER - ---------- ------ (a)(1) -- Offer to Purchase dated December 4, 1995. (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) -- Text of Press Release issued by Parent and the Company on November 30, 1995. (a)(8) -- Form of Summary Advertisement dated December 4, 1995. (b)(1) -- Letter from J.P. Morgan Securities Inc. to Rite Aid Corporation, dated November 16, 1995. (b)(2) -- Letter from Morgan Guaranty Trust Company of New York and J.P. Morgan Securities Inc. to Rite Aid Corporation, dated November 24, 1995. (c)(1) -- Agreement and Plan of Merger, dated as of November 29, 1995, by and among Parent, the Purchaser and the Company. (c)(2) -- Stockholder Agreement, dated as of November 29, 1995, by and among Parent, the Purchaser and Zell/Chilmark Fund, L.P. (c)(3) -- Stock Option Agreement, dated as of November 29, 1995, by and among Parent, the Purchaser and the Company. (c)(4) -- Confidentiality Agreement, dated as of August 17, 1995, by and between Parent and the Company. (d) -- Not applicable. (e) -- Not applicable. (f) -- Not applicable. (g) -- Complaint entitled Silvert v. Revco D.S., Inc. et al., filed in the Chancery Court of the State of Delaware, New Castle County. EX-99.(A)(1) 2 OFFER TO PURCHASE Offer to Purchase for Cash 35,144,833 Shares of Common Stock of REVCO D.S., INC. at $27.50 NET PER SHARE IN CASH by OCEAN ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, 35,144,833 SHARES, OR SUCH OTHER NUMBER OF SHARES AS EQUALS 50.1% OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS AS OF THE EXPIRATION OF THE OFFER, BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 14. RITE AID CORPORATION ('PARENT') AND OCEAN ACQUISITION CORPORATION (THE 'PURCHASER') HAVE ENTERED INTO (I) A STOCKHOLDER AGREEMENT WITH ZELL/CHILMARK FUND, L.P., PURSUANT TO WHICH, AMONG OTHER THINGS, SUCH STOCKHOLDER HAS AGREED TO (X) TENDER IN THE OFFER AND (Y) VOTE IN FAVOR OF THE MERGER (AS DEFINED HEREIN), UPON THE TERMS AND SUBJECT TO THE CONDITIONS THEREOF, ALL SHARES OF REVCO D.S., INC. (THE 'COMPANY') OWNED BY SUCH STOCKHOLDER, REPRESENTING APPROXIMATELY 19.7% OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY, AND (II) A STOCK OPTION AGREEMENT WITH THE COMPANY PURSUANT TO WHICH, AMONG OTHER THINGS, THE COMPANY HAS GRANTED PARENT AN OPTION TO PURCHASE (THE 'STOCK OPTION') UP TO 13,251,010 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 19.9% OF THE COMPANY'S ISSUED AND OUTSTANDING COMMON STOCK AT THE TIME OF THE EXERCISE OF THE STOCK OPTION. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY (WITH ONE DIRECTOR ABSENT AND TWO DIRECTORS ABSTAINING) HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY (WITH ONE DIRECTOR ABSENT AND TWO DIRECTORS ABSTAINING) RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of the Company should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with the certificate(s) evidencing tendered Shares, and any other required documents, to the Depositary or tender such Shares pursuant to the procedures for book-entry transfer set forth in Section 3 or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedures for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Additional copies of the Offer to Purchase, the Letter of Transmittal or other related tender offer materials may also be obtained from the Information Agent or from brokers, dealers, commercial banks, or trust companies. ------------------------ The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION December 4, 1995 TABLE OF CONTENTS PAGE ----- INTRODUCTION.............................................................. 1 THE TENDER OFFER.......................................................... 4 1. Terms of the Offer; Number of Shares and Proration; Expiration Date... 4 2. Acceptance for Payment and Payment for Shares......................... 6 3. Procedures for Tendering Shares....................................... 7 4. Withdrawal Rights..................................................... 9 5. Certain Federal Income Tax Consequences............................... 10 6. Price Range of Shares; Dividends...................................... 11 7. Certain Information Concerning the Company............................ 11 8. Certain Information Concerning the Purchaser and Parent............... 14 9. Source and Amount of Funds............................................ 16 10. Background of the Offer; Contacts with the Company.................... 17 11. Purpose of the Offer; Plans for the Company; Merger Agreement; Stockholder Agreement; Stock Option Agreement; Confidentiality Agreement........................................................... 21 12. Dividends and Distributions........................................... 38 13. Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration........................................... 38 14. Conditions of the Offer............................................... 39 15. Certain Legal Matters and Regulatory Approvals........................ 41 16. Fees and Expenses..................................................... 43 17. Miscellaneous......................................................... 43 Schedule I--Information Concerning the Directors and Executive Officers of Parent and the Purchaser................................................ I-1 Schedule II--Information Statement Pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 Thereunder............... II-1 i To the Holders of Common Stock of Revco D.S., Inc.: INTRODUCTION Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), hereby offers to purchase 35,144,833 shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the Expiration Date (as defined below), at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the 'Offer Price'), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by the Purchaser pursuant to the Offer. The Purchaser will pay all charges and expenses of Donaldson, Lufkin & Jenrette Securities Corporation (the 'Dealer Manager' or 'DLJ') as Dealer Manager, Harris Trust Company of New York, as Depositary (the 'Depositary'), and MacKenzie Partners, Inc., as Information Agent (the 'Information Agent'), incurred in connection with the Offer. See Section 16. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, 35,144,833 SHARES, OR SUCH OTHER NUMBER OF SHARES AS EQUALS 50.1% OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS AS OF THE EXPIRATION DATE (SUCH NUMBER OF SHARES BEING THE 'MINIMUM NUMBER'), BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER (THE 'MINIMUM CONDITION'). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 14. THE BOARD OF DIRECTORS OF THE COMPANY (THE 'COMPANY BOARD') UNANIMOUSLY (WITH ONE DIRECTOR ABSENT AND TWO DIRECTORS ABSTAINING) HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW) IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY (WITH ONE DIRECTOR ABSENT AND TWO DIRECTORS ABSTAINING) RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. MORGAN STANLEY & CO. INCORPORATED ('MORGAN STANLEY') HAS DELIVERED TO THE COMPANY BOARD ITS WRITTEN OPINION THAT THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY PURSUANT TO THE OFFER AND THE MERGER, TAKEN TOGETHER, IS FAIR FROM A FINANCIAL POINT OF VIEW TO SUCH HOLDERS. THE OPINION OF MORGAN STANLEY, IS DESCRIBED IN AND IS ATTACHED TO THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE 'SCHEDULE 14D-9'), WHICH IS BEING MAILED TO STOCKHOLDERS HEREWITH. STOCKHOLDERS ARE URGED TO READ THE FULL TEXT OF THAT OPINION. The purpose of the Offer is for Parent, through the Purchaser, to acquire a majority equity interest in the Company as the first step in the acquisition of the entire equity interest in the Company. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of November 29, 1995 (the 'Merger Agreement'), by and among Parent, the Purchaser and the Company. The Merger Agreement provides that, following the consummation of the Offer and the satisfaction or the waiver of certain conditions, at the Effective Time (as defined below), the Purchaser will be merged with and into the Company (the 'Merger') in accordance with the relevant provisions of the General Corporation Law of the State of Delaware (the 'DGCL'). Following consummation of the Merger, the Company will continue as the surviving corporation (the 'Surviving Corporation') and will be a wholly owned subsidiary of Parent. At the effective time of the Merger (the 'Effective Time'), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Company as treasury stock and any Shares owned by Parent, the Purchaser or any other direct or indirect wholly owned Subsidiary (as defined below) of Parent and other than Dissenting Shares (as defined in Section 11 hereof)), shall by virtue of the Merger and without any action on the part of the holder thereof be converted into either (i) the right to receive a number of duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $1.00 per share, of Parent (the 'Parent Common Stock'), determined as set forth below; provided that Parent shall not issue more 1 than 1.125 nor less than .91666 shares of Parent Common Stock per Share (the 'Exchange Ratio') or (ii) if the Alternative Consideration (as defined below) is applicable, then the right to receive the Alternative Consideration, plus, in each of clause (i) and (ii) above, any Additional Consideration (as defined below). The per share value of the Parent Common Stock which stockholders of the Company would receive in the Merger will be determined during a randomly selected fifteen-day pricing period (the 'Pricing Period') during the forty trading days ending five days before the meeting of the stockholders of the Company to consider the Merger. Stockholders of the Company would receive one share of Parent Common Stock if the average market value per share of Parent Common Stock during the Pricing Period is $27.50. If the average per share value of Parent Common Stock determined during the Pricing Period is greater than $27.50, stockholders of the Company will receive, for each Share, that amount of Parent Common Stock having a value so determined of $27.50 plus 50% of such increase in market value of Parent Common Stock over $27.50, provided that in no event would Parent issue less than .91666 shares of Parent Common Stock for each Share in the Merger. Similarly, if the average per share value of Parent Common Stock determined during the Pricing Period is less than $27.50, stockholders of the Company will receive, for each Share, that amount of Parent Common Stock having a value so determined of $27.50 less 50% of such decrease in market value of Parent Common Stock below $27.50, provided that in no event would Parent issue more than 1.125 shares of Parent Common Stock for each Share in the Merger. Alternatively, if the average per share value of the Parent Common Stock determined during the Pricing Period is less than $27.50, Parent would have the option of delivering, for each Share, one share of Parent Common Stock plus cash in an amount equal to 50% of such decrease in market value of Parent Common Stock below $27.50, provided that in no event would more than $2.75 per Share be paid in cash. In the event that the stockholders of Parent do not approve the issuance of Parent Common Stock pursuant to the Merger at the Parent Special Meeting (as defined below), but all conditions to the Merger are otherwise satisfied or waived (if permissible), the Company, Parent and the Purchaser will nonetheless consummate the Merger and each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in treasury and Shares owned by Parent and its Subsidiaries and other than Dissenting Shares) will, at the Effective Time, be converted into the right to receive a combination of (x) shares of Parent Common Stock which will represent in the aggregate 19.9% of the then outstanding shares of Parent Common Stock (which will be determined in a manner consistent with the determination of the Exchange Ratio) and (y) cash based on a pro rata portion of $27.50 (the 'Alternative Consideration'). See Section 11. In the event the Merger is not consummated prior to April 29, 1996, and the Company has not materially breached the Merger Agreement (other than by acts caused or permitted by Parent), then the stockholders of the Company will be entitled to receive interest on the amount of the consideration that they receive pursuant to the immediately preceding two paragraphs (such consideration and interest thereon being referred to herein as the 'Merger Consideration'), from April 29, 1996 until the earlier of the Effective Time or June 30, 1996, calculated at an annual rate equal to the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York). In the event Parent and/or the Purchaser, in violation of their obligations under the Merger Agreement, fail or refuse to consummate the Merger on or prior to June 30, 1996 and the Company has not materially breached the Merger Agreement (other than by acts caused or permitted by Parent), then, in addition to any rights or remedies that the Company and its stockholders otherwise have in law or at equity as a result thereof, the stockholders of the Company will be entitled to receive interest from June 30, 1996 on the amount of the Merger Consideration not paid until such Merger Consideration is paid, calculated at the annual rate of the higher of (i) the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York) plus 300 basis points or (ii) the amount otherwise permitted by law. Any additional consideration paid or payable pursuant to this paragraph or the immediately preceding paragraph is referred to herein as 'Additional Consideration'. THE MARKET VALUE OF THE PARENT COMMON STOCK DURING THE PRICING PERIOD AND AFTER THE EFFECTIVE TIME WILL, AMONG OTHER THINGS, DEPEND UPON, AND IS EXPECTED TO FLUCTUATE WITH, THE PERFORMANCE OF PARENT, CONDITIONS (ECONOMIC OR OTHERWISE) AFFECTING THE RETAIL DRUGSTORE INDUSTRY, AND MARKET CONDITIONS AND OTHER FACTORS THAT GENERALLY INFLUENCE PRICES OF SECURITIES. ACCORDINGLY, IT IS LIKELY THAT AT OR AFTER THE 2 EFFECTIVE TIME THE MARKET VALUE OF THE MERGER CONSIDERATION WILL BE LESS THAN OR GREATER THAN THE OFFER PRICE. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including, the approval and adoption of the Merger Agreement by the requisite vote of the stockholders of the Company. See Section 11. Under the DGCL, the approval of the Company 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 Company Board has unanimously (with one director absent and two directors abstaining) approved and adopted the Merger Agreement and the transactions contemplated thereby. ACCORDINGLY, IF THE MINIMUM CONDITION IS SATISFIED, THE PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY WITHOUT THE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. Pursuant to the Merger Agreement, the Company has agreed to convene a meeting of its stockholders (the 'Company Special Meeting') following the consummation of the Offer and as soon as practicable after the registration statement to be filed by Parent in connection with the registration of the Parent Common Stock to be issued by Parent in the Merger (the 'Registration Statement') is declared effective for the purpose of considering and taking action on the Merger Agreement. Parent has agreed that it will vote, or cause to be voted, all of the Shares then owned by it, the Purchaser or any of its other Subsidiaries in favor of the approval of the Merger and adoption of the Merger Agreement at the Company Special Meeting and accordingly approval of the Merger Agreement will be assured. Immediately after the execution of the Merger Agreement, Zell/Chilmark Fund, L.P. (the 'Stockholder'), entered into a Stockholder Agreement, dated as of November 29, 1995, with Parent and the Purchaser (the 'Stockholder Agreement') pursuant to which the Stockholder, who has represented to Parent that it owns 13,102,288 Shares, representing approximately 19.7% of all outstanding Shares, has agreed, among other things, to (i) tender in the Offer and (ii) vote in favor of the Merger, upon the terms and conditions thereof, all Shares owned by the Stockholder. Accordingly, only an additional 22,042,545 Shares (or approximately 33.1% of the outstanding Shares) will be required to be tendered to satisfy the Minimum Condition. See Section 11 for a more complete description of the Stockholder Agreement. Immediately after the execution of the Merger Agreement, the Company entered into a Stock Option Agreement, dated as of November 29, 1995, with Parent and the Purchaser (the 'Stock Option Agreement') pursuant to which the Company has granted to Parent an unconditional, irrevocable option (the 'Stock Option') to purchase up to 13,251,010 fully paid and nonassessable Shares at a purchase price of $27.50 per Share, or such other number of Shares as equals 19.9% of the Company's issued and outstanding Shares at the time of exercise of the Stock Option, exercisable upon the occurrence of certain events. See Section 11 for a more complete description of the Stock Option Agreement. The Purchaser expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time and from time to time, to increase the number of Shares sought in the Offer, up to and including all of the issued and outstanding Shares. If, prior to the Expiration Date, the Purchaser should decide to change the number of Shares being sought, or to change the form of consideration paid pursuant to the Offer, such change in the number of Shares being sought or such change in the form of consideration being offered will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such change in the number of Shares being sought or such change in the form of consideration being offered is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended at least until the expiration of such ten business day period. As used in this Offer to Purchase, 'business day' has the meaning set forth in Rule 14d-1 under the Exchange Act. The Merger Agreement provides that promptly upon the acceptance for payment of any Shares by Parent pursuant to the Offer, Parent will be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by the Purchaser, Parent and any of their affiliates bears to the 3 total number of Shares then outstanding. The Merger Agreement further provides that the Company, upon request of Parent, will use its best efforts promptly either to increase the size of the Company Board or, at the Company's election, secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Company Board, and will cause Parent's designees to be so elected. The Company has informed the Purchaser that, as of November 29, 1995, there were 66,587,990 Shares issued and outstanding, 700,000 Shares held in the Company's treasury, 2,002,220 Shares reserved for issuance under the Company's 1993 Employee Stock Purchase Plan, 1,096,101 Shares reserved for issuance under the Company's 401(K) Savings Plan, and 3,561,377 Shares reserved for issuance upon exercise of the outstanding options granted under the Company's option plans or rights granted under the 1992 Long-Term Incentive Compensation Plan, as amended, and 1992 Non-Employee Directors' Stock Option Plan, as amended. As a result, as of such date, the Minimum Condition would be satisfied if the Purchaser acquired 35,144,833 Shares. 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 HAVE TO 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. THE TENDER OFFER 1. TERMS OF THE OFFER; NUMBER OF SHARES AND PRORATION; EXPIRATION DATE. 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 extension or amendment), the Purchaser will accept for payment and pay for the Minimum Number of Shares validly tendered prior to the Expiration Date (as defined below) and not withdrawn in accordance with Section 4. The term 'Expiration Date' means 12:00 Midnight, New York City time, on Tuesday, January 2, 1996, unless and until the Purchaser, in its sole discretion (but subject to the terms of the Merger Agreement), shall have extended the period of time during 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 the Purchaser, shall expire. If more than 35,144,833 Shares are validly tendered and not withdrawn prior to the Expiration Date, the Purchaser will, upon the terms and subject to the conditions of the Offer, accept such Shares for payment on a pro rata basis, with adjustments to avoid purchases of fractional Shares. Because of the difficulty of determining the precise number of Shares validly tendered and not withdrawn, if proration is required, the Purchaser would not expect to announce the final proration factor until approximately six 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. Holders of Shares may obtain such preliminary information from the Information Agent and may also be able to obtain such preliminary information from their brokers. The Purchaser will not pay for any Shares accepted for payment pursuant to the Offer until the final proration factor is known. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition. If the Minimum Condition is not satisfied or any or all of the other events set forth in Section 14 shall have occurred or shall be determined by the Purchaser to have occurred prior to the Expiration Date, the Purchaser reserves the right (but shall not be obligated) to (i) decline to purchase any of the Shares tendered in the Offer and terminate the Offer, and return all tendered Shares to the tendering stockholders, (ii) except for the Minimum Condition, waive or amend any or all conditions to the Offer, to the extent permitted by applicable law and the provisions of the Merger Agreement, and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the 'Commission'), purchase all Shares validly tendered, or (iii) extend the Offer and, subject to the right of stockholders of the Company to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended. 4 The Purchaser expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the conditions specified in Section 14, by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw his Shares. See Section 4. Subject to the applicable regulations of the Commission, the Purchaser also expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time and from time to time, (i) to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, payment for, any Shares pending receipt of any regulatory approval specified in Section 15 or in order to comply in whole or in part with any other applicable law, (ii) to terminate the Offer and not accept for payment any Shares if any of the conditions referred to in Section 14 has not been satisfied or upon the occurrence of any of the events specified in Section 14 and (iii) to waive any condition or otherwise amend the Offer in any respect, by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof. The Merger Agreement provides that, without the written consent of the Company, the Purchaser will not (i) amend or waive the Minimum Condition, (ii) decrease the Offer Price, (iii) change the number of Shares sought to an amount less than 50.1% of the outstanding Shares on a fully-diluted basis, (iv) change the form of consideration to be paid pursuant to the Offer, (v) impose conditions to the Offer in addition to those set forth in Section 14 or (vi) amend any other term or condition of the Offer in any manner which is adverse to the holders of Shares, except that if on the initial scheduled Expiration Date (as it may be extended in accordance with the terms of the Merger Agreement), all conditions to the Offer shall not have been satisfied or waived, the Offer may be extended from time to time without the consent of the Company for such period of time as is reasonably expected to be necessary to satisfy the unsatisfied conditions. In addition, the Merger Agreement provides that without the consent of the Company, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such an increase. The Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires the Purchaser to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer, and (ii) the Purchaser may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the second preceding paragraph), any Shares upon the occurrence of any of the conditions specified in Section 14 without extending the period of time during which the Offer is open. Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, with such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the 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, including the relative materiality of the terms or information. With respect to a change in price or a change in percentage of securities sought (other than an increase in the number of Shares sought not in excess of 2% of the outstanding Shares), a minimum ten business day period is required to allow for adequate dissemination to stockholders and investor response. The Purchaser expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time and from time to time, to increase the number of Shares sought in the Offer, up to and including all of the issued and outstanding Shares. If, prior to the Expiration Date, the Purchaser should decide to 5 change the number of Shares being sought, or to change the form of consideration paid pursuant to the Offer, such change in the number of Shares being sought or such change in the form of consideration being offered will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such change in the number of Shares being sought or such change in the form of consideration being offered is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended at least until the expiration of such ten business day period. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, 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. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. 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), the Purchaser will purchase, by accepting for payment, and will pay for the Minimum Number of Shares validly tendered prior to the Expiration Date (and not properly withdrawn in accordance with Section 4) 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. Subject to applicable rules of the Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its discretion, to delay acceptance for payment of, or payment for, Shares pending receipt of any regulatory approvals specified in Section 15. Notwithstanding the fact that the Purchaser has stated that it has reserved the right to assert the occurrence of a condition following acceptance for payment of Shares but prior to payment for Shares in order to delay payment or cancel its obligation to pay for properly tendered Shares, the Purchaser understands that all conditions of the Offer, other than receipt of necessary governmental approvals, must be satisfied or waived prior to the acceptance of Shares for payment. In addition, if, following acceptance of payment for Shares, the Purchaser asserts such a governmental approval as a condition and does not promptly pay for Shares tendered, the Purchaser will promptly return such Shares. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the 'Share Certificates') or timely confirmation of a book-entry transfer (a 'Book-Entry Confirmation') of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company, the Midwest Securities 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 Section 3, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined below), and (iii) any other documents required under the Letter of Transmittal. The term 'Agent's Message' means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgement from the participant in such Book-Entry Transfer Facility tendering the Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment pursuant to 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 payments from the Purchaser and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares in the Offer be paid by the Purchaser, regardless of any delay in making such payment. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering stockholders, the Purchaser's obligation to make such payment 6 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. The Purchaser will pay any stock transfer taxes incident to the transfer to it of validly tendered Shares, except as otherwise provided in Instruction 6 of the Letter of Transmittal, as well as charges and expenses of the Depositary and the Information Agent. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer (including proration due to tenders of Shares in excess of the Minimum Number of Shares), or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. If, prior to the Expiration Date, the Purchaser increases the consideration to be paid per Share pursuant to the Offer, the Purchaser will pay such increased consideration for all such Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. The Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURES FOR TENDERING SHARES. Valid Tender of Shares. In order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering stockholder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND 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. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at each Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase, and 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 transfer. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares, 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. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantees. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Security Transfer Agent's Medallion Program or the New York Stock Exchange Medallion Signature Guarantee 7 Program (each, an 'Eligible Institution'), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled 'Special Delivery Instructions' or the box entitled 'Special Payment Instructions' on the Letter of Transmittal, or (ii) for the account of an Eligible Institution. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution. 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 Share Certificates are not immediately available or such stockholder cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the 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 the Purchaser herewith, is received by the Depositary as provided below prior to the Expiration Date; and (iii) the Share Certificates for all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation, in each case together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees and any other documents required by such Letter of Transmittal, are received by the Depositary within three NYSE trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery provided by the Purchaser herewith. Notwithstanding any other provision hereof, payment for Shares purchased pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), (or in the case of a book-entry transfer, an Agent's Message) and (iii) any other documents required by the Letter of Transmittal. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Shares will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding on all parties. The Purchaser reserves the absolute right to reject any and all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of, or payment for, such Shares may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right, in its sole discretion, to waive any condition of the Offer (subject to the Merger Agreement) or 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. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. None of Parent, the 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 tenders or will incur any liability for failure to give any such notification. Appointment as Proxy. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of the Purchaser as such stockholder's proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all non-cash dividends, distributions, rights, other Shares or other securities issued or issuable and rights declared, paid or distributed in respect of such 8 Shares on or after November 29, 1995). All such proxies shall be considered coupled with an interest in the tendered Shares. This appointment will be effective if, when, and only to the extent that, the Purchaser accepts such Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will, without further action, be revoked, and no subsequent proxies may be given nor any subsequent written consent executed by such stockholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of the Purchaser will, with respect to the Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the stockholders of the Company or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise, and the Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares. The Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after Thursday, February 1, 1996, or at such later time as may apply if the Offer is extended. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law. 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. Any such 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 of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of Parent, the 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 failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed to not have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 9 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash pursuant to the Offer and the receipt of Parent Common Stock, cash, or a combination thereof pursuant to the Merger will be taxable transactions for federal income tax purposes and may be taxable for state, local, and foreign income and other tax purposes as well. This will be the case whether a stockholder of the Company sells Shares pursuant to the Offer, the Merger, or both. A tendering stockholder whose Shares are accepted for sale pursuant to the Offer generally will recognize gain or loss on the date the Offer is consummated equal to the difference between the tax basis for the Shares accepted for purchase and the amount of cash received in exchange therefor. A stockholder who receives Parent Common Stock, cash, or a combination thereof in exchange for Shares pursuant to the Merger will recognize gain or loss at the Effective Time in an amount equal to the difference between (i) the sum of the amount of cash (including any Additional Consideration) and the fair market value of the Parent Common Stock, if any, received by the stockholder and (ii) such stockholders' tax basis in the Shares surrendered. The fair market value of the Parent Common Stock likely will equal the trading value per share of Parent Common Stock on the date on which the Effective Time occurs. Gain or loss will be calculated separately for each block of Shares (i.e., Shares purchased at the same time and price) surrendered by a stockholder. Such gain or loss will be capital gain or loss if the Shares were capital assets in the hands of the stockholder, and will be long-term capital gain or loss if, at the time of the exchange, the Shares were held by the stockholder for more than twelve months. Under present law, long-term capital gains are generally taxable at a maximum rate of 28% for individuals and 35% for corporations. Legislation is currently pending before Congress (the 'Pending Legislation') which would, if enacted as proposed by a conference committee made up of members of the House of Representatives and the Senate, generally reduce the capital gains effective tax rates to approximately 20% for individuals and 28% for corporations. Under the Pending Legislation, the new rates would apply retroactively to sales of capital assets occurring on or after January 1, 1995. There can be no assurance that the Pending Legislation will be enacted or, if enacted, that it will be enacted in its present form or with the above effective date. Real Estate Transfer Taxes. Some states and localities, including the State of New York, impose taxes on certain transfers of controlling interests (including transfers pursuant to transactions such as the Offer and the Merger) in entities that own real property (including leasehold interests) located in such states and localities ('Real Property Transfer Taxes'). Any tax returns in respect of Real Property Transfer Taxes required to be filed in connection with the Offer or the Merger will be filed by Parent or the Company on behalf of the stockholders, and any Real Property Transfer Taxes required to be paid will be paid by the Company or the Purchaser. Any such Real Property Transfer Taxes paid generally are expected to be treated as a deemed distribution paid by the Company to the stockholders that is taxable as a dividend. Any income taxes owed on account of such deemed distribution will be the responsibility of the Company's stockholders. Although there is no authority directly on point, any such Real Property Transfer Taxes paid on behalf of a stockholder should result in a corresponding increase of equal amount in the tax basis of each stockholder's Shares and, accordingly, a decrease in the amount of gain recognized in connection with the Offer or the Merger. Exercise of Appraisal Rights. A stockholder who perfects such stockholder's appraisal rights probably will recognize gain or loss at the Effective Time (even if the fair value of the Shares has not yet been judicially determined at such time), in an amount equal to the difference between (i) the 'amount realized' and (ii) the tax basis of such Shares. For this purpose, although there is no authority directly on point, the amount realized generally should equal the trading value per Share at the Effective Time. Ordinary interest income (or capital loss, assuming the Shares were held as capital assets) should be recognized by such stockholder at the time of actual receipt of payment, to the extent that such payment exceeds (or is less than) the amount realized at the Effective Time. THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED ON EXISTING TAX LAWS AT THE DATE OF THIS OFFER, WHICH MAY DIFFER ON THE DATE OF CONSUMMATION OF THE OFFER OR THE EFFECTIVE TIME. FURTHER, THE DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS OF THE COMPANY, INCLUDING STOCKHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN CORPORATIONS, OR ENTITIES THAT ARE OTHERWISE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE INTERNAL REVENUE CODE OF 1986, AS 10 AMENDED (SUCH AS INSURANCE COMPANIES, TAX-EXEMPT ENTITIES AND REGULATED INVESTMENT COMPANIES). STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION TO THEM AND POSSIBLE EFFECT UPON THEM OF ANY PENDING LEGISLATION, THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally traded on the NYSE and quoted under the symbol RXR. The following table sets forth, for the quarters indicated, the high and low sales prices per Share on the NYSE as reported by the Dow Jones News Service.
QUARTER ENDED HIGH LOW - -------------------------------------------------- ---- ---- FISCAL YEAR ENDED MAY 28, 1994: Quarter Ended August 21...................... $12 5/8 $10 Quarter Ended November 11.................... 16 1/2 11 1/8 Quarter Ended February 5..................... 17 1/8 13 5/8 Quarter Ended May 28......................... 18 5/8 13 7/8 FISCAL YEAR ENDED JUNE 3, 1995: Quarter Ended August 20...................... $19 $14 1/2 Quarter Ended November 12.................... 23 1/4 16 5/8 Quarter Ended February 4..................... 24 1/2 20 Quarter Ended June 3......................... 24 17 1/2 FISCAL YEAR ENDING JUNE 1, 1996: Quarter Ended August 26...................... $25 3/8 $19 1/4 Quarter Ended November 18.................... 25 7/8 19 5/8 Third Quarter (through December 1, 1995)..... 28 24 5/8
On November 29, 1995, the last full trading day prior to the public announcement of the execution of the Merger Agreement, the reported closing sales price of the Shares on the NYSE Composite Tape was $25 1/2 per Share and the reported closing sales price of the shares of Parent Common Stock on the NYSE Composite Tape was $28 5/8. On December 1, 1995, the last full trading day prior to the date of this Offer to Purchase, the reported closing sales price of the Shares on the NYSE Composite Tape was $27 3/4 per Share and the reported closing sales price of the shares of Parent Common Stock on the NYSE Composite Tape was $32 5/8. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES AND THE SHARES OF PARENT COMMON STOCK. The Company has not declared any cash dividends on the Shares since fiscal year 1986. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Neither Parent nor the Purchaser assumes any responsibility for the accuracy or completeness of the information concerning the Company furnished by the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent or the Purchaser. General. The Company is a Delaware corporation and its principal executive offices are located at 1925 Enterprise Parkway, Twinsburg, Ohio 44087. The telephone number of the Company at such offices is (216) 425-9811. The Company is one of the largest retail drugstore chains in the United States. As of June 3, 1995, the Company operated 2,118 stores, averaging approximately 8,864 square feet per store in size, in fourteen contiguous midwestern, eastern and southeastern states, and employed over 32,000 employees. The Company's stores are high-quality, health-oriented neighborhood pharmacies offering pharmaceutical and related merchandise. The Company competes primarily on the basis of convenient store locations, competitive pricing, and an orientation toward its pharmacy operations designed to provide a high level of customer service and product information. The stores typically feature prescription and over-the-counter drugs, health and beauty aids, toiletries, vitamins, cosmetics and sundries, and a broad line of consumer products. 11 Financial Information. Set forth below is certain selected consolidated financial information relating to the Company and its subsidiaries which has been excerpted or derived from the financial statements contained in (i) the Company's Annual Reports on Form 10-K for the fiscal years ended June 3, 1995, as amended, and May 28, 1994 (the 'Company Forms 10-K') and (ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended August 26, 1995 and August 20, 1994 (the 'Company Forms 10-Q'). More comprehensive financial information is included in the Company Forms 10-K, the Company Forms 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 Forms 10-K, the Company Forms 10-Q and such other documents filed by the Company with the Commission, including the financial statements and related notes contained therein. The Company Forms 10-K, the Company Forms 10-Q and such other documents filed by the Company with the Commission may be examined and copies may be obtained from the offices of the Commission in the manner set forth below. REVCO D.S., INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
TWELVE WEEKS ENDED FISCAL YEAR ENDED ------------------------ -------------------------------- AUGUST 26, AUGUST 20, JUNE 3, MAY 28, MAY 29, 1995 1994 1995 1994 1993 ---------- ---------- -------- -------- -------- (UNAUDITED) OPERATING STATEMENT DATA: Net Sales............................... $1,076.7 $694.4 $4,431.9 $2,504.0 $2,242.1 Cost of Sales........................... 755.9 487.5 3,100.1 1,742.0 1,568.3 Operating Profit........................ 31.0 18.8 175.7 100.5 76.0 Income Before Income Taxes and Extraordinary Items................... 16.2 11.4 120.5 77.2 35.0 Net Income Before Extraordinary Item.... 8.4 5.8 61.1 38.7 14.2 Extraordinary Item, Loss Related to Early Retirement of Debt, Net of Income Tax Benefit of $2.4 million.... -- (2.8) (2.8) -- -- Net Income.............................. 8.4 3.0 58.3 38.7 14.2 PER SHARE INFORMATION: Net Income Per Share Before Extraordinary Item.................... .13 .10 .95 .77 .35 Extraordinary Item...................... -- (.05) (.04) -- -- Net Income per Share.................... .13 .05 .91 .77 .35
AT AT AT AT AUGUST 26, JUNE 3, MAY 28, MAY 29, 1995 1995 1994 1993 ---------- ---------- -------- -------- (UNAUDITED) BALANCE SHEET DATA: Current Assets.......................... $1,157.1 $1,089.0 $584.5 $551.5 Property, Equipment and Leasehold Improvements, Net..................... 294.3 278.8 115.6 109.9 Total Assets............................ 2,221.1 2,149.8 1,060.8 1,045.2 Current Liabilities..................... 625.4 689.5 340.6 329.5 Long-Term Debt.......................... 763.3 639.6 200.0 253.3 Long-Term Liabilities................... 47.9 47.6 -- -- Stockholders' Equity.................... 784.5 773.1 499.7 453.7
12 The Company is subject to the information and reporting requirements of the Exchange Act and is required to file reports 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 disclosed 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 located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, New York, New York, 13th Floor, 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy statements and other information concerning the Company should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Certain Projected Financial Information. In the course of its discussions with Parent's financial advisor, DLJ, the Company, in November 1995, provided DLJ with certain business and financial information which DLJ and the Company believe was not publicly available. Such information included, among other things, certain financial projections for fiscal 1996 through fiscal 1998 prepared by management of the Company as a long-range plan (the 'Projections'). The Projections do not take into account any of the potential effects of the transactions contemplated by the Offer and the Merger. Set forth below is a selected summary of the Projections.
FISCAL 1996 FISCAL 1997 FISCAL 1998 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Total Sales................... $ 5,221,616 $ 5,922,191 $ 6,792,000 Operating Profit.............. 206,802 230,887 252,212 Interest Expense, Net......... 62,853 58,500 54,500 Pretax Income................. 143,949 172,387 197,712 Income Tax Provision.......... 69,446 80,992 91,273 Net Income.................... 74,503 91,395 106,438 Net Income Per Share.......... 1.12 1.35 1.55
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER FISCAL 1996 FISCAL 1996 FISCAL 1996 FISCAL 1996 ----------- ----------- ----------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Total Current Assets............... $ 1,124,827 $ 1,253,414 $ 1,216,046 $ 1,187,602 Total Assets....................... 2,213,516 2,354,737 2,310,128 2,266,093 Total Current Liabilities.......... 722,459 793,636 766,105 693,891 Long-Term Debt..................... 659,248 719,548 677,848 666,148 Long Term Liabilities.............. 47,590 47,590 47,590 47,590 Total Common Stockholders' Equity........................... 784,219 793,963 818,585 858,464
13
FISCAL 1996 -------------- (IN THOUSANDS) CASH FLOW STATEMENT DATA: Opening Cash Balance......................... $ 3,360 EBITDA....................................... 322,242 Sub-Total Non Working Capital Items.......... (250,481) Cash Flow Available for Working Capital...... 71,761 Sub-Total Net Inventory Change............... (30,034) Sub-Total Other Working Capital Changes...... (40,715) Total Working Capital Changes................ (70,749) Cash Flow From Operations.................... 1,012 Cash Flow From Financing Activity............ (4,275) Increase (Decrease) in Cash.................. (3,263) Closing Cash Balance......................... 97
THE 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 DLJ. NONE OF PARENT, THE PURCHASER, DLJ 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 BUSINESS OF THE COMPANY WHICH, THOUGH DLJ HAS BEEN ADVISED WERE CONSIDERED REASONABLE BY THE COMPANY AT THE TIME THEY WERE FURNISHED TO DLJ, 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, THE PURCHASER, DLJ OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. 8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT. The Purchaser. The Purchaser, a newly incorporated Delaware corporation, has not conducted any business other than in connection with the Offer, the Merger Agreement, the Stock Option Agreement and the Stockholder Agreement. All of the issued and outstanding shares of capital stock of the Purchaser are beneficially owned by Parent. The principal executive offices of the Purchaser are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. The telephone number of the Purchaser at such offices is (717) 761-2633. Parent. Parent is a Delaware corporation organized in 1968. The principal executive offices of Parent are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. The telephone number of Parent at such offices is (717) 761-2633. Parent is one of the largest drugstore chains in the United States. Parent operates over 2700 drugstores in 21 eastern states and the District of Columbia. Pharmacy service forms the core of Parent's business, with prescriptions accounting for 53.1% of drugstore sales in the year ended March 4, 1995. Parent's drugstores cater to convenience, offering a full selection of health and personal care products, seasonal merchandise and a large private label product line. Express mail with complementary services and one-hour photo departments have recently been added in select locations. Parent also operates Eagle Managed Care Corporation, a wholly owned subsidiary, which markets prescription plans and sells other managed health care services to large employers and government-sponsored employee benefit programs. 14 Financial Information. Set forth below are certain selected consolidated financial data with respect to Parent and its subsidiaries for Parent's last three fiscal years, excerpted or derived from audited financial statements presented in Parent's 1995 Annual Report on Form 10-K for the fiscal year ended March 4, 1995 (the 'Parent Form 10-K') and from the unaudited financial statements contained in Parent's Quarterly Reports on Form 10-Q for the fiscal quarters ended September 2, 1995 and August 27, 1994 (the 'Parent Forms 10-Q'), in each case filed by Parent with the Commission. More comprehensive financial information is included in the Parent Form 10-K and the Parent Forms 10-Q and such other documents filed by Parent with the Commission. The financial information summary set forth below is qualified in its entirety by reference to the Parent Form 10-K, the Parent Forms 10-Q and such other documents which have been filed with the Commission and all the financial information and related notes contained therein. The Parent Form 10-K, the Parent Forms 10-Q and such other documents filed by Parent with the Commission may be examined and copied from the offices of the Commission in the manner set forth below. RITE AID CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED -------------------------- ------------------------------------------ SEPTEMBER 2, AUGUST 27, MARCH 4, FEBRUARY 26, FEBRUARY 27, 1995 1994 1995 1994 1993 ------------ ---------- ---------- ------------ ------------ (UNAUDITED) INCOME STATEMENT DATA: Net Sales............................... $2,683,240 $2,086,274 $4,533,851 $4,058,711 $3,833,591 Income from Continuing Operations Before Taxes................................. 113,410 100,170 231,464 45,670 200,569 Income (Loss) from Discontinued Operations............................ -- -- -- (16,920) 8,646 Net Income.............................. 69,293 61,104 141,286 9,288 132,396 PER SHARE INFORMATION: Continuing Operations................... .83 .72 1.67 .30 1.41 Discontinued Operations................. -- -- -- (.19) .10 Net Income per Share.................... .83 .72 1.67 .11 1.51
AT AT AT SEPTEMBER 2, MARCH 4, FEBRUARY 26, 1995 1995 1994 ------------ ---------- ------------ (UNAUDITED) BALANCE SHEET DATA: Current Assets.......................... $1,373,826 $1,373,220 $1,125,425 Property, Plant and Equipment, Net...... 841,146 778,479 638,694 Net Non-Current Assets of Discontinued Operations............................ -- 40,743 77,784 Total Assets............................ 2,566,868 2,472,607 1,989,070 Current Liabilities..................... 475,531 577,225 362,209 Long-Term Debt, Less Current Maturities............................ 967,808 805,984 613,418 Stockholders' Equity.................... 1,046,114 1,011,812 954,714
Parent is subject to the information and reporting requirements of the Exchange Act and is required to file reports 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 disclosed in proxy statements distributed to Parent's stockholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection and copies may be obtained in the same manner as set forth for the Company in Section 7. The Parent's Common Stock is listed on the NYSE and the Pacific Stock Exchange (the 'PSE') and reports, proxy statements and other information concerning Parent should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005; and the PSE, 301 Pine Street, San Francisco, California 94104. The name, citizenship, business address, principal occupation or employment and five-year employment history for each of the directors and executive officers of the Purchaser and Parent are set forth in Schedule I hereto. 15 Except as described in this Offer to Purchase, (i) none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of the Purchaser, Parent or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days. Except as provided in the Merger Agreement, the Stockholder Agreement, the Stock Option Agreement and as otherwise described in this Offer to Purchase, none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship 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 voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of profits or losses or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, since May 30, 1992, none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the Commission applicable to the Offer. Except as set forth in this Offer to Purchase, since May 30, 1992, there have been no contacts, negotiations or transactions between any of the Purchaser, Parent, or any of their respective subsidiaries, or, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. 9. SOURCE AND AMOUNT OF FUNDS. The Purchaser estimates that the total amount of funds required to acquire the outstanding Shares pursuant to the Offer, to refinance the Company's indebtedness and to pay related fees and expenses will be approximately $2.5 billion. See Section 16. Parent intends to obtain a portion of the funds through unsecured borrowings from a syndicate of financial institutions (the 'Proposed Financing') led by Morgan Guaranty Trust Company of New York ('Morgan Guaranty'). In connection with the Proposed Financing, Morgan Guaranty and J.P. Morgan Securities Inc. ('J.P. Morgan'), in a letter dated November 24, 1995 (the 'Commitment Letter'), have proposed a five year revolving credit facility of up to $2.5 billion whereby Morgan Guaranty has individually committed to provide up to $500 million of the Proposed Financing. The Commitment Letter provides that a syndicate of lenders acceptable to Parent and Morgan Guaranty (the 'Banks') will from time to time, prior to December 2000, make loans ('Loans') to Parent in an aggregate amount not exceeding $2.5 billion (the 'Commitment'): (i) to finance the acquisition of the Company, (ii) to refinance certain existing Company bank debt, (iii) to refinance existing Parent bank debt, (iv) to consummate the Debt Offers (as defined below), (v) to refinance Parent's convertible debentures, and (vi) for general corporate purposes. Loans will bear interest during any particular interest period at the election of Parent, at (i) the Adjusted LIBOR, (ii) the Adjusted CD Rate or (iii) the Base Rate, plus margins which vary from time to time depending on Parent's then applicable long-term senior 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 of which fee will vary from time to time depending on Parent's then applicable long-term senior debt rating. Accrued facility fees will be payable quarterly in arrears. The Commitment Letter requires the aggregate Commitments to be reduced to $1.5 billion two years after the consummation of the Offer. The Commitment Letter further provides for a mandatory Commitment reduction of all net proceeds from debt issues with a maturity greater than one year and all net proceeds from any equity issues until such time as the aggregate Commitments have been reduced to $1.5 billion. 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 16 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 7 above. In the event that stockholders of Parent do not approve the issuance of Parent Common Stock pursuant to the Merger at the Parent Special Meeting, Parent estimates that up to $3 billion (or an additional $500 million in excess of the amount necessary if such stockholder approval is obtained in the Merger) will be required to consummate such refinancing and to pay for the remaining Shares. In this connection Parent has received a letter dated November 16, 1995 from J.P. Morgan (the 'J.P. Morgan Letter') which states that, subject to the conditions described therein, J.P. Morgan is 'highly confident' that in the event that the stockholders of Parent do not approve the proposed issuance of Parent Common Stock, an aggregate amount of up to $3 billion can be raised by Parent in the syndicated bank market. This description of the J.P. Morgan 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 Schedule 14D-1. The J.P. Morgan Letter may be examined, and copies may be obtained, as set forth in Section 7 above. No final decisions have been made concerning the method Parent will employ to repay such indebtedness. 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. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. In the ordinary course of Parent's long-term strategic review process, Parent routinely analyzes potential acquisitions of various retail drugstore chains. On August 17, 1995, Mr. Martin Grass, Chairman and Chief Executive Officer of Parent, spoke by telephone with Mr. David Schulte, a general partner of the general partner of the Stockholder and a member of the Company Board. In the conversation, Mr. Grass told Mr. Schulte that Parent was possibly interested in purchasing the Company in a merger transaction involving a combination of cash and stock. Mr. Schulte told Mr. Grass that he would contact Mr. Dwayne Hoven, President and the Chief Executive Officer of the Company, to ask him to send Mr. Grass a Confidentiality Agreement. After execution of the Confidentiality Agreement, the Company provided certain due diligence information requested by Parent. On August 28, 1995, Mr. Grass, Mr. Franklin Brown, Executive Vice President and Chief Legal Counsel of Parent, and Mr. Frank Bergonzi, Executive Vice President and Chief Financial Officer of Parent, met in Chicago with Mr. Schulte, Ms. Sheli Rosenberg, a member of the Company Board, Mr. Joel Friedland, a general partner of Chilmark Partners, L.P., an affiliate of the Stockholder, Mr. Hoven, and Mr. James Hagan, Executive Vice President and Chief Financial Officer of the Company. A dinner meeting took place and issues such as the possible price and synergies that would be created from a merger were discussed. The parties ended the meeting without any definitive conclusions about a future meeting. On September 21, 1995, Mr. Grass and Mr. Brown were in Cleveland, Ohio, for a meeting on another business matter with Mr. Hoven. After the meeting, Mr. Grass met with Mr. Hoven for a brief period to discuss the possible acquisition of the Company by Parent. At the meeting, Mr. Grass advised Mr. Hoven that if an acceptable price could be negotiated, Mr. Grass believed that the transaction would create the opportunity to build a more successful company than if either company continued on a stand-alone basis. On September 28, 1995, Mr. Grass spoke by telephone with Mr. Sam Zell, the Co-Chairman of the Company, and discussed the terms and price range Mr. Grass would offer for the Company. On October 6, 1995, Mr. Hoven spoke with Mr. Grass by telephone and discussed questions that Mr. Grass had about the due diligence review Parent was conducting with respect to the Company. During the week of October 9, 1995, Mr. Rod Dammeyer, a member of the Company Board, called Mr. Grass and a meeting was arranged for October 31, 1995 in Chicago. At the October 31, 1995 meeting, Mr. Grass and Mr. Brown met with Mr. Dammeyer and Ms. Rosenberg and established a preliminary basis for continuing discussions to seek to reach an agreement concerning a transaction, subject to mutual due diligence, receipt of fairness opinions and Board approvals. Such officers of Parent and representatives of the Company and the Stockholder determined to continue discussions on the basis of tentative terms as follows: Parent would acquire a majority of the outstanding Shares at $27.50 per Share and the remaining Shares would be acquired for shares of Parent Common Stock based on a target price of $27.50 for Parent Common Stock subject to negotiating the terms of a 'collar' mechanism. In addition, the Stockholder would enter into a Stockholder Agreement with Parent in which it would agree to support 17 the transaction. On November 1, 1995, Mr. Grass and Mr. Brown held a telephone call with Mr. Dammeyer, Ms. Rosenberg, Mr. Schulte and Mr. Friedland to discuss the collar. At the end of the conversation, the parties had tentatively agreed upon the terms of a 20% 'collar' mechanism which would provide that stockholders of the Company participate in 50% of any increase or decrease in the market value of Parent Common Stock above or below $27.50 during an agreed upon pricing period. On November 3, 1995, counsel for Parent distributed a draft Merger Agreement and Stockholder Agreement to the Company and its legal and financial advisors. On November 7, 1995, representatives of Parent and its legal advisors met with representatives of the Company and its legal advisors to commence negotiations with respect to the terms of the proposed Merger Agreement and Stockholder Agreement. Such negotiations continued throughout such week. On November 9, 1995, the Board of Directors of Parent held a meeting. At such meeting, members of Parent's senior management, Parent's outside legal advisors and DLJ made presentations to the Board regarding the proposed acquisition of the Company. The Board of Directors analyzed and discussed the proposed Merger Agreement, Offer, Merger and Stockholder Agreement and it was the consensus of Parent's Board that senior management of Parent should continue with the negotiations relating to the proposed transaction and report back to the Board once such negotiations were completed. During the week of November 13, 1995, members of senior management of Parent and its legal advisors continued to negotiate the terms of the Merger Agreement and Stockholder Agreement with representatives of the Company and the Stockholder, including Mr. Dammeyer and Ms. Rosenberg, and their legal advisors. During such negotiations, representatives of the Stockholder advised Parent that the Stockholder would be willing to agree to tender its Shares in the Offer and vote for the Merger but would not be willing to grant Parent an option to purchase the Stockholder's Shares. Parent then insisted upon, and negotiated with the Company to obtain, an option to purchase 19.9% of the Company's outstanding Shares at a price of $27.50 per Share. Representatives of the Company advised Parent that they would be willing to recommend entering into such a Stock Option Agreement subject to negotiation of satisfactory terms. The parties continued to negotiate various modifications to the Merger Agreement, Stock Option Agreement and Stockholder Agreement. Such negotiations continued through November 29, 1995. On November 28, 1995, the Board of Directors of Parent held a special meeting to review, with the advice and assistance of the Board's financial and legal advisors, the proposed Merger Agreement, the Stock Option Agreement, the Stockholder Agreement and the transactions contemplated thereby, including the Offer and Merger. At such meeting, Parent's management and legal advisors made presentations to the Board concerning the transaction and Parent's financial advisor, DLJ, provided its opinion to the effect that the consideration to be paid by Parent pursuant to the Merger Agreement, taken as a whole, is fair to the stockholders of the Parent from a financial point of view. Following the Board's review of the transaction, the Board, subject to the resolution of remaining open issues, unanimously authorized and approved the proposed Merger Agreement, Stock Option Agreement, Stockholder Agreement and the transactions contemplated thereby, and authorized the execution and delivery of such Agreements. Also on November 28, 1995, the Company Board held a special meeting to review, with the advice and assistance of the Company Board's financial and legal advisors, the proposed Merger Agreement, Stock Option Agreement, Stockholder Agreement and the transactions contemplated thereby, including the Offer and Merger. At such meeting, the Company's management and financial and legal advisors discussed the transaction with the Company Board and the Company's financial advisor, Morgan Stanley, provided its written opinion to the effect that the consideration to be received by the holders of Shares pursuant to the Offer and the Merger, taken together, is fair from a financial point of view to such holders. The opinion of Morgan Stanley is described in and is attached to the Company's Schedule 14D-9. Stockholders are urged to read the full text of that opinion. Following the Company Board's review of the transaction, the Company Board, subject to the resolution of remaining open issues, unanimously (with one director absent and two directors abstaining) approved the proposed Merger Agreement, Stock Option Agreement and the transactions contemplated thereby, authorized the execution and delivery of such Agreements, determined that the Offer and the Merger are fair to and in the best interests of the holders of Shares, recommended that stockholders of the Company who desire to receive cash for their Shares accept the Offer and tender their Shares pursuant to the Offer, and recommended that stockholders of 18 the Company approve and adopt the Merger Agreement. The Board's approval of the Merger Agreement, the Stock Option Agreement, the Stockholder Agreement and the transactions contemplated thereby constituted approval for purposes of Section 203 of the DGCL such that the provisions of the statute are not applicable to such Agreements or the transactions contemplated thereby. Negotiations between members of senior management of Parent and its legal advisors and representatives of the Company and their legal advisors to finalize the remaining issues in the Merger Agreement continued through November 29, 1995. On the evening of November 29, 1995, following the resolution of such open issues, Parent, the Purchaser and the Company executed and delivered the Merger Agreement and the Stock Option Agreement; and Parent, the Purchaser and the Stockholder executed and delivered the Stockholder Agreement. On November 30, 1995, Parent and the Company issued the following joint press release announcing the execution of the Merger Agreement, Stockholder Agreement and Stock Option Agreement: FOR IMMEDIATE RELEASE RITE AID CORPORATION AND REVCO COMBINE TO CREATE NATION'S LARGEST DRUGSTORE CHAIN MERGER CREATES COMPANY WITH OVER $11 BILLION IN REVENUES CASH TENDER SCHEDULED TO COMMENCE EARLY NEXT WEEK ------------------------ CAMP HILL, PA (November 30, 1995)--Rite Aid Corporation (RAD: NYSE, PSE) and Revco D.S., Inc. (RXR: NYSE) today announced that they have entered into a definitive merger agreement in which Rite Aid would acquire Revco. The merger creates the nation's largest drugstore chain with expected annualized revenues of over $11 billion and more than 4,500 stores in 22 states and the District of Columbia. The transaction is expected to be accretive to Rite Aid's earnings per share by the end of the first year of operations following the merger. Under the agreement, Rite Aid would purchase, in a first-step tender offer, at least 50.1% of the outstanding shares of Revco on a fully-diluted basis for $27.50 per share in cash and the remainder of the outstanding shares would be converted into Rite Aid stock in a second-step merger. As described below, the value of Rite Aid shares to be received for each Revco share in the second-step merger will increase to the extent the average value of Rite Aid stock is greater that $27.50 per share during a pricing period and will decrease if the average value of Rite Aid stock is less than $27.50 per share during such pricing period, but in no event will more than 1.125 shares or less than .91666 shares of Rite Aid stock be issued for each Revco share in the merger. The tender offer is not conditioned on obtaining financing. The total value of the merger is approximately $1.8 billion. The merger, which was approved by each company's Board of Directors, is expected to be completed in the first quarter of 1996. The tender offer is scheduled to commence early next week. Martin Grass, Chairman of the Board of Directors and Chief Executive Officer of Rite Aid, said, 'The combination of these two great companies will create the preeminent retail drugstore chain in the United States. This transaction will nearly double our revenues and number of stores. Our significant investment in technology and infrastructure coupled with our innovative management changes have prepared us to seize the competitive advantage this merger represents. We anticipate a quick and smooth integration of the two companies. 'The merger will increase Rite Aid's competitive advantage in our prescription benefits management subsidiary, Eagle Managed Care,' Mr. Grass continued. 'The addition of Revco's mail order capacity, as well as the increased number of outlets available in the combined entity, complements and broadens Rite Aid's managed healthcare delivery system. This expanded capacity is important leverage in attracting new contracts to the company. 19 'We will be the best-positioned retail drugstore chain in the country to compete with the three large vertically integrated pharmacy benefit managers owned by the major pharmaceutical manufacturers. This combination should allow Rite Aid to offer customers the most competitive pharmacy prescription prices and services.' D. Dwayne Hoven, President and Chief Executive Officer of Revco, said, 'In an environment of consolidation, Revco's Board of Directors felt that this offer was fair and reasonable and in the best interest of our stockholders. This offer is the culmination of one of the most remarkable turnarounds in corporate history. We built a company with productive real estate, clean inventories and great people. Revco people should not lose sight of what they have accomplished.' Rite Aid expects to achieve synergies of $156 million through elimination of overlapping positions, streamlining distribution, reducing redundant advertising, and enhanced purchasing power. As in past Rite Aid mergers, Rite Aid will provide excellent severance packages, including out-placement counseling, to all affected personnel. Following completion of the merger, the Revco stores will operate under the Rite Aid banner. The headquarters of Rite Aid will remain in Camp Hill, Pennsylvania. Rite Aid indicated that it plans to take a pre-tax charge to earnings of $163 million to cover the cost of integrating the two companies. Rite Aid anticipates that only a small percentage of the combined company's stores will be closed. A decision on which drugstores will be closed will occur after the merger is completed. The merger agreement provides for Ocean Acquisition Corporation, a subsidiary of Rite Aid, to make a cash tender offer for at least 50.1% of the outstanding shares of common stock of Revco on a fully diluted basis at a price of $27.50 per share. The tender offer will be followed by a second-step merger in which each share of Revco not acquired in the tender offer will be converted into the right to receive Rite Aid common stock and/or, under certain circumstances, cash. The per share value of Rite Aid common stock which stockholders of Revco would receive in the second-step merger will be determined during a randomly selected fifteen-day pricing period during the forty trading days ending five days before the meeting of stockholders of Revco to consider the merger. Stockholders of Revco would receive one share of Rite Aid common stock if the average market value of Rite Aid common stock during the pricing period is $27.50. If the average value of Rite Aid common stock is greater than $27.50 during the selected fifteen-day pricing period, stockholders of Revco will receive, for each Revco share, Rite Aid common stock having a value of $27.50 plus 50% of the increase in market value of Rite Aid common stock over $27.50, provided that in no event would Rite Aid issue less than .91666 shares of Rite Aid common stock for each Revco share in the merger. Similarly, if the average value of Rite Aid common stock during the pricing period is less than $27.50, stockholders of Revco will receive, for each Revco share, Rite Aid common stock having a value of $27.50 less 50% of the decrease in market value of Rite Aid common stock below $27.50, provided that in no event would Rite Aid issue more than 1.125 shares of Rite Aid common stock. If the average value of Rite Aid common stock during the pricing period is less than $27.50, Rite Aid would have the option of delivering, for each Revco share, one share of Rite Aid common stock plus cash in an amount equal to 50% of the decrease in market value of Rite Aid common stock below $27.50, provided that in no event would more than $2.75 per Revco share be paid in cash. In the event that the stockholders of Rite Aid do not approve the issuance of Rite Aid common stock pursuant to the merger, but all conditions to the merger are otherwise satisfied or waived, each Revco share would be converted into the right to receive a combination of cash and shares of Rite Aid common stock (determined based on the formulas described above) representing in the aggregate 19.9% of Rite Aid's outstanding shares. Rite Aid also stated that it has entered into a stockholder agreement with Zell/Chilmark Fund L.P., the major stockholder of Revco, pursuant to which Zell/Chilmark has agreed to tender its Revco shares (representing approximately 19.7 % of Revco's outstanding shares) into Rite Aid's tender offer and to vote in favor of the merger. Revco has granted Rite Aid an option to purchase 19.9% of Revco's shares under certain circumstances at $27.50 per share. 20 The tender offer is conditioned on, among other things, the valid tender of 50.1% of the outstanding Revco shares on a fully diluted basis and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Donaldson, Lufkin & Jenrette Securities Corporation provided a fairness opinion for Rite Aid. Morgan Stanley & Co. Incorporated provided a fairness opinion for Revco. Revco D.S., Inc., based in Twinsburg, Ohio, operates over 2,100 stores in 14 Midwestern, Southeastern and Eastern states and has annual sales of approximately $4.4 billion. Rite Aid Corporation, based in Camp Hill, Pennsylvania, is the nation's largest drugstore chain, with over 2,700 stores in 21 states and the District of Columbia. General information about Rite Aid including corporate background and press releases is available, free of charge, through the company's News-On-Demand fax service at 800-916-7788. The Purchaser commenced the Offer on December 4, 1995. 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; MERGER AGREEMENT; STOCKHOLDER AGREEMENT; STOCK OPTION AGREEMENT; CONFIDENTIALITY AGREEMENT. Purpose of the Offer. The purpose of the Offer is for Parent to acquire a significant equity interest in the Company and acquire control of the Company 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. 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. Upon consummation of the Merger, Parent intends to review the business of the Company and identify synergies and cost savings. Parent regards the resulting consolidation of the Company and the Purchaser as an opportunity to achieve certain cost savings and synergies. Based on a preliminary review of the Company's business and operations, Parent currently estimates that the Merger will result in approximately $156 million of quantifiable annual cost savings including the improvement in gross margins through enhanced purchasing power, closure of the Company's corporate headquarters and overlapping distribution facilities, elimination of duplicative overhead, elimination of redundant advertising expenditures, the consolidation of data centers and improved communications systems and a working capital benefit from the consolidation of warehouse inventories. THE FOREGOING ESTIMATES OF COST SAVINGS AND SYNERGIES ARE INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF PARENT. THERE CAN BE NO ASSURANCE THAT THEY WILL BE ACHIEVED AND ACTUAL SAVINGS AND SYNERGIES MAY VARY MATERIALLY FROM THOSE ESTIMATED. THE INCLUSION OF SUCH ESTIMATES HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, THE PURCHASER OR ANY OTHER PARTY CONSIDERS SUCH ESTIMATES AN ACCURATE PREDICTION OF FUTURE EVENTS. Under the DGCL, the approval of the Company 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 Company Board has unanimously (with one director absent and with two directors abstaining) 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, THE 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 OF THE COMPANY. In the Merger Agreement, the Company has agreed to convene a meeting of its stockholders as promptly as practicable following the consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby. The Purchaser has agreed that all Shares owned by it and its Subsidiaries will be voted in favor of the Merger Agreement and the transactions contemplated thereby. As used in this Offer to Purchase, the word 'Subsidiary' means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is 21 a general partner (excluding such partnerships where such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. Plans for the Company. It is expected that, initially following the Merger, the business and operations of the Company will, except as set forth in this Offer to Purchase, be integrated into the operations of Parent as rapidly as practicable following the Merger. Parent intends to close the Company's corporate headquarters at 1925 Enterprise Parkway, Twinsburg, Ohio (the 'Headquarters') within twelve months following consummation of the Merger and to integrate the Company's corporate headquarters operations into Parent's operations. Parent also expects to take a pre-tax charge to earnings of $163 million to cover the cost of integrating the two companies. Parent anticipates that only a small percentage of the combined stores of Parent and the Company will be closed. A decision on which stores will be closed is not expected to be made until after the consummation of the Merger. In addition, Parent will continue to evaluate the business and operations of the Company during the pendency of the Offer and after the consummation of the Offer and the Merger, and subject to the terms of the Merger Agreement, will take such further actions as it deems appropriate under the circumstances then existing. MERGER AGREEMENT The following is a summary of the material terms of the Merger Agreement. This summary 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 a copy of which has been filed as an exhibit to the Schedule 14D-1. The Merger Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. Capitalized terms not otherwise defined herein or in the following summary shall have the meanings set forth in the Merger Agreement. The Offer. The Merger Agreement provides that the Purchaser will commence the Offer and that, upon the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, the Purchaser will purchase for cash not less than 35,144,833 Shares and up to all of the issued and outstanding Shares at a price of $27.50 per Share, net to the seller in cash, the exact number of Shares within such range to be determined by Parent in its sole discretion. The Merger Agreement provides that Parent may change the amount of Shares sought to be purchased in the Offer within such range at any time prior to consummation of the Offer, provided that Parent complies with the requirements of Rule 14e-1 of the Exchange Act. The Offer is subject to the Minimum Condition and the other conditions set forth in Section 14. The Purchaser shall, on the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, accept for payment and pay for Shares tendered as soon as practicable after the later of the satisfaction of the conditions set forth in Section 14 and the expiration of the Offer; provided, however, that no such payment shall be made until after any calculation of proration as required by applicable law. The obligations of the Purchaser to commence the Offer and to accept for payment and to pay for any Shares validly tendered on or prior to the expiration of the Offer and not withdrawn is subject only to the conditions set forth in Section 14. The Merger Agreement provides that without the written consent of the Company, the Purchaser shall not amend or waive the Minimum Condition, decrease the Offer Price, change the number of Shares sought to an amount less than 50.1% of the Shares outstanding on a fully-diluted basis, change the form of consideration to be paid pursuant to the Offer or impose conditions to the Offer in addition to those set forth in Section 14, or amend any other term or condition of the Offer in any manner which is adverse to the holders of Shares; provided, however, that if on the initial scheduled expiration date of the Offer (as it may be extended in accordance with the terms thereof), all conditions to the Offer shall not have been satisfied or waived, the Offer may be extended from time to time without the consent of the Company for such period of time as is reasonably expected to be necessary to satisfy the unsatisfied conditions. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such increase in each case without the consent of the Company. The Merger. The Merger Agreement provides that, subject to the terms and conditions thereof, and in accordance with the DGCL, at the Effective Time, the Company and the Purchaser shall consummate the Merger pursuant to which (i) the Purchaser shall be merged with and into the Company and the separate corporate existence of the Purchaser shall thereupon cease, and (ii) the Company shall be the Surviving Corporation and shall continue to be 22 governed by the laws of the State of Delaware. Pursuant to the Merger, (x) the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation, and (y) the By-laws of the Company, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-laws. The Merger shall have the effects set forth in the DGCL. Conversion of Shares. The Merger Agreement provides that each share of Common Stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time without any other action by Parent, the Purchaser or the Company, shall, at the Effective Time, be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. Each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Company as treasury stock and any Shares owned by Parent, the Purchaser or any other direct or indirect wholly owned subsidiary of Parent and other than Dissenting Shares, if any) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into either (i) the right to receive a number of duly authorized, validly issued, fully paid and nonassessable shares of Parent Common Stock determined as set forth below; provided that Parent shall not issue more than 1.125 nor less than .91666 shares of Parent Common Stock per Share (the 'Exchange Ratio'), or (ii) if the alternative consideration described below is applicable, then the right to receive the Alternative Consideration (as defined below), plus, in each of clause (i) and (ii) of this sentence, any Additional Consideration (as defined below). For purposes hereof, 'Average Parent Share Price' shall mean the average closing price per share of Parent Common Stock on the NYSE as reported on the NYSE Composite Tape for fifteen NYSE trading days selected by Parent and the Company by lot from among the forty NYSE trading days ending on the fifth trading day immediately preceding the Company Special Meeting. 'Transaction Price' shall mean $27.50 per Share. The number of shares of Parent Common Stock into which each Share shall be converted in the Merger shall be determined as follows: In the event the Average Parent Share Price equals the Transaction Price, each Share shall be converted into one share of Parent Common Stock. In the event that the Average Parent Share Price is greater than the Transaction Price, each Share shall be converted into a number of shares of Parent Common Stock (rounded to the nearest one one-hundred thousandth) determined by the following formula: Transaction Price plus .5 X (Average Parent Share Price minus Number of shares of Parent Common Stock = Transaction Price) ------------------------------------ Average Parent Share Price In the event that the Average Parent Share Price is less than the Transaction Price, each Share shall be converted, at the option of Parent, into either: (I) a number of shares of Parent Common Stock (rounded to the nearest one one-hundred thousandth) determined by the following formula: Transaction Price minus .5 X (Transaction Price minus Average Number of shares of Parent Common Stock = Parent Share Price) -------------------------------- Average Parent Share Price or (II) one share of Parent Common Stock plus the Cash Adjustment Amount, without any interest thereon, where the Cash Adjustment Amount (as defined in the Merger Agreement) is determined by the following formula: Cash Adjustment Amount = .5 X (Transaction Price minus Average Parent Share Price); provided however, in no event shall the Cash Adjustment Amount be greater than $2.75 per Share. 23 All Shares that are owned by the Company as treasury stock and any Shares owned by Parent, the Purchaser or any other direct or indirect wholly owned Subsidiary of Parent shall, at the Effective Time, be cancelled and retired and shall cease to exist and no Parent Common Stock or cash, if the Alternative Consideration is applicable, shall be delivered in exchange therefor. The Merger Agreement provides that, on and after the Effective Time, holders of certificates which immediately prior to the Effective Time represented outstanding Shares (the 'Certificates') shall cease to have any rights as stockholders of the Company, except the right to receive the consideration set forth therein (other than the Merger Consideration) for each Share held by them or, if applicable, payments due to holders of Dissenting Shares. The Merger Agreement provides that in the event that the stockholders of Parent do not approve the issuance of Parent Common Stock pursuant to the Merger at the Parent Special Meeting (as defined below), but all conditions to the Merger are otherwise satisfied or waived (if permissible), the Company, Parent and the Purchaser shall nonetheless consummate the Merger and each Share issued and outstanding immediately prior to the Effective Time (other than treasury Shares and Shares owned by Parent and its Subsidiaries) will, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive the following consideration (the 'Alternative Consideration') in a combination of shares of Parent Common Stock and cash determined as follows: The number of shares of Parent Common Stock into which each Share shall be converted in the Merger (the 'Adjusted Exchange Ratio') shall equal the Exchange Ratio determined pursuant to the applicable formula set forth above (assuming no Cash Adjustment Amount is paid) multiplied by a fraction (the 'Adjustment Fraction'), the numerator of which is the number of shares of Parent Common Stock equal to 19.9% of the then outstanding shares of Parent Common Stock and the denominator of which is (a) the Exchange Ratio multiplied by (b) the aggregate number of outstanding Shares (other than treasury Shares and Shares owned by Parent and its Subsidiaries); and The amount of cash (the 'Adjusted Alternative Cash Consideration') into which each Share shall be converted in the Merger shall equal the Transaction Price multiplied by (1 minus the Adjustment Fraction). The Merger Agreement provides that in the event the Merger is not consummated prior to April 29, 1996 and the Company shall not have materially breached the Merger Agreement (other than by acts caused or permitted by Parent), then the stockholders of the Company will be entitled to receive interest on the amount of the Merger Consideration that they receive, from April 29, 1996 until the earlier of the Effective Time or June 30, 1996, calculated at an annual rate equal to the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York). For purposes of calculating the Merger Consideration, the Average Parent Share Price, if not otherwise ascertainable in accordance with the terms of the Merger Agreement, shall be the average price of Parent Common Stock based on the 15 highest closing prices of Parent Common Stock since the consummation of the Offer until the earlier of June 30, 1996 or the Effective Time. In the event Parent and/or the Purchaser, in violation of their obligations under the Merger Agreement, fails or refuses to consummate the Merger on or prior to June 30, 1996 and the Company shall not have materially breached the Merger Agreement (other than by acts caused or permitted by Parent), then, in addition to any rights or remedies that the Company and its stockholders otherwise have in law or at equity as a result thereof, the stockholders of the Company will be entitled to receive interest from June 30, 1996 on the amount of the Merger Consideration not paid until such Merger Consideration is paid, calculated at the annual rate of the higher of (i) the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York) plus 300 basis points or (ii) the amount otherwise permitted by law. For purposes of calculating the Merger Consideration, the Average Parent Share Price, if not otherwise ascertainable in accordance with the terms of the Merger Agreement, shall be the average price of Parent Common Stock based on the 15 highest closing prices of Parent Common Stock since the consummation of the Offer until such Merger Consideration is paid. Any additional consideration paid or payable pursuant to this paragraph or the immediately preceding paragraph is referred to herein as 'Additional Consideration.' If Shares are purchased in the Offer, Parent and the Purchaser have covenanted and agreed to consummate the Merger pursuant to the terms of the Merger Agreement not later than June 30, 1996. 24 In lieu of any fractional share of Parent Common Stock, Parent shall pay to each former stockholder of the Company who otherwise would be entitled to receive a fractional share of Parent Common Stock an amount in cash determined by multiplying (i) the Average Parent Share Price on the date on which the Effective Time occurs by (ii) the fractional interest in a share of Parent Common Stock to which such holder would otherwise be entitled. Each share of Parent Common Stock issued to holders of Shares in the Merger shall be issued together with one associated preferred stock purchase right (a 'Right') in accordance with the Shareholder Rights Agreement, dated as of April 5, 1989, between Parent and Harris Trust Company of New York (the 'Rights Agreement'). THE MARKET VALUE OF THE PARENT COMMON STOCK DURING THE PRICING PERIOD AND AFTER THE EFFECTIVE TIME WILL, AMONG OTHER THINGS, DEPEND UPON, AND IS EXPECTED TO FLUCTUATE WITH, THE PERFORMANCE OF PARENT, CONDITIONS (ECONOMIC OR OTHERWISE) AFFECTING THE RETAIL DRUGSTORE INDUSTRY, AND MARKET CONDITIONS AND OTHER FACTORS THAT GENERALLY INFLUENCE PRICES OF SECURITIES. ACCORDINGLY, IT IS LIKELY THAT AT OR AFTER THE EFFECTIVE TIME, THE MARKET VALUE OF THE MERGER CONSIDERATION WILL BE LESS THAN OR GREATER THAN THE OFFER PRICE. Treatment of Stock Options. The Merger Agreement provides that, effective as of the Effective Time, each option granted by the Company to purchase Shares that is outstanding and unexercised immediately prior thereto (the 'Company Stock Options'), will cease to represent a right to acquire Shares and will be converted automatically into an option to purchase shares of Parent Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the Company 1992 Long-Term Incentive Compensation Plan, as amended and the Company 1992 Non-Employee Directors' Stock Option Plan, as amended (together the 'Option Plans'), and the agreements evidencing grants thereunder). The number of shares of Parent Common Stock subject to, and the option price and terms and conditions of, the new option shall be determined in a manner that preserves both (i) the aggregate gain (or loss) on the Company Stock Option immediately prior to the Effective Time and (ii) the ratio of the exercise price per share subject to the Company Stock Option to the fair market value (determined immediately prior to the Effective Time) per share subject to such option, provided that any fractional shares of Parent Common Stock resulting from such determination will be rounded down to the nearest share. The Merger Agreement also provides that, effective as of the Effective Time, the Surviving Corporation will assume each Company Stock Option agreement, each as amended, as provided therein. The adjustment provided herein with respect to any Company Stock Options that are 'incentive stock options' (as defined in Section 422 of the Code) shall be and is intended to be effected in a manner that is consistent with Section 424(a) of the Code. The duration, vesting and other terms of the new options will be the same as the Company Stock Options that they replace, except that all references to the Company shall be deemed to be references to Parent. In the event that a holder of a Company Stock Option is terminated without Cause (as defined in the Merger Agreement) within 12 months of the Effective Time, then such holder's new option will become 100% exercisable as of such date of termination. The Merger Agreement further provides that, notwithstanding the immediately preceding paragraph, outstanding vested options under the 1992 Long Term Incentive Plan ('LTIP') held by Covered Executives (as defined in the Merger Agreement), including options that become vested in connection with a 'Change in Control' under the terms of existing award agreements under the LTIP, will, effective as of the Effective Time become exercisable under a cashless exercise procedure made available by the Company (subject to applicable law and any administrative procedures and policies deemed appropriate by the Company). Individuals subject to Section 16 of the Exchange Act will be provided with a cash compensation arrangement providing such individuals with the opportunity to receive a cash payment approximating the benefits that would be deprived by reason of Section 16 of the Exchange Act. The Merger Agreement provides that, effective as of the Effective Time, the Option Plans will terminate and the provisions in any other plan, program, agreement or arrangement, providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any of its Subsidiaries will be deleted. Furthermore, the Company will take all actions necessary to ensure that following the Effective Time, no holder of Company Stock Options or any participant in the Option Plans or any other plans, programs, agreements or arrangements will have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary of either of the foregoing. 25 Directors and Officers. Pursuant to the Merger Agreement, promptly upon the acceptance for payment of any Shares by Parent or any of its Subsidiaries pursuant to the Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by the Purchaser, Parent and any of their affiliates bears to the total number of Shares then outstanding. The Company shall, upon request of Parent, use its best efforts promptly either to increase the size of its Board of Directors or, at the Company's election, secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Company's Board, and shall cause Parent's designees to be so elected. At such time, the Company shall also cause persons designated by Parent to constitute the same percentage (rounded up to the next whole number) as is on the Company Board of (i) each committee of the Company Board, (ii) each board of directors (or similar body) of each Subsidiary of the Company and (iii) each committee (or similar body) of each such board, in each case only to the extent permitted by applicable law or the rules of any stock exchange on which the Shares are listed. Notwithstanding the foregoing, until the Effective Time, each of Parent, the Purchaser and the Company shall use its best efforts to retain as a member of the Company's Board at least two directors who are directors of the Company on the date of the Merger Agreement (the 'Continuing Directors'); provided, that subsequent to the purchase of and payment for Shares pursuant to the Offer, Parent shall always have its designees represent at least a majority of the entire Board of Directors. In the event of a vacancy on the Company Board resulting from the resignation or death of any Continuing Director, such vacancy shall be filled by the remaining Continuing Directors, or if there are no remaining Continuing Directors, by the designees of the Stockholder. The Company's obligations pursuant to this paragraph are subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Stockholders' Meetings. The Merger Agreement provides that in order to consummate the Merger, the Company, acting through the Company Board, will, in accordance with applicable law, duly call, give notice of, convene and hold the Company Special Meeting, as soon as practicable after the Registration Statement is declared effective, for the purpose of considering and taking action upon the Merger Agreement. The Company shall include in the joint proxy statement/prospectus forming a part of the Registration Statement (the 'Proxy Statement/Prospectus') the recommendation of the Company Board that stockholders of the Company vote in favor of the approval of the Merger and the adoption of the Merger Agreement. The Merger Agreement provides that Parent will vote, or cause to be voted, all of the Shares then owned by it, the Purchaser or any of its other Subsidiaries, in favor of the approval of the Merger and adoption of the Merger Agreement at the Company Special Meeting. Accordingly, if the Minimum Condition is satisfied, the Purchaser will have sufficient voting power to cause the approval and adoption of the Merger Agreement and the transactions contemplated thereby without the vote of any other stockholder of the Company. In order to consummate the Merger, Parent, acting through its Board of Directors, shall, in accordance with applicable law, duly call, give notice of, convene and hold a special meeting of its stockholders (the 'Parent Special Meeting' and together with the Company Special Meeting, the 'Special Meetings'), as soon as practicable after the Registration Statement is declared effective, for the purpose of authorizing the issuance of shares of Parent Common Stock pursuant to the Merger. Parent shall include in the Proxy Statement/Prospectus the recommendation of the Board of Directors of Parent that stockholders of Parent vote in favor of the issuance of shares of Parent Common Stock in the Merger. Interim Operations. In the Merger Agreement, the Company has covenanted and agreed that: (i) except as expressly provided in the Merger Agreement, (ii) during the period prior to the consummation of the Offer, except with the prior written consent of Parent, (iii) during the period following the consummation of the Offer and prior to the Effective Time, except with the authorization of the Company Board, including the affirmative vote of a majority of the Continuing Directors, and (iv) during the period following consummation of the Offer and prior to the Effective Time, except for prepayments by Parent of indebtedness of the Company and the advancement of funds by Parent to the Company on the terms and conditions, and at the interest rate, and for the purposes for which borrowing may be made, under the Company's existing credit facility: (a) the business of the Company and its Subsidiaries shall be conducted only in the ordinary course of business consistent with past practice and, to the extent consistent therewith, each of the Company and its Subsidiaries will use its best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, 26 employees, creditors and business partners; (b) the Company will not, directly or indirectly, split, combine or reclassify the outstanding Shares, or any outstanding capital stock of any of the Subsidiaries of the Company; (c) neither the Company nor any of its Subsidiaries will: (I) amend its certificate of incorporation or by-laws or similar organizational documents; (II) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than dividends paid by the Company's Subsidiaries to the Company or its Subsidiaries; (III) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of the Company or its Subsidiaries, other than issuances pursuant to exercise of stock-based awards or options outstanding on the date thereof; (IV) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any material assets other than (x) in the ordinary course of business consistent with past practice or (y) pursuant to existing agreements previously disclosed by the Company in writing to Parent and the Purchaser; or (V) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (d) neither the Company nor any of its Subsidiaries shall: (I) except as otherwise provided in the Merger Agreement, and except for normal, regularly scheduled increases for nonofficer employees consistent with past practice or pursuant to the terms of existing collective bargaining agreements, grant any increase in the compensation payable or to become payable by the Company or any of its Subsidiaries to any officer or employee (including through any new award made under, or the exercise of any discretion under, any Benefit Plan); (II) adopt any new, or amend or otherwise increase, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan agreement or arrangement; (III) enter into any, or amend any existing, employment or severance agreement with or, grant any severance or termination pay to any officer, director, employee or consultant of the Company or any of its Subsidiaries; or (IV) make any additional contributions to any grantor trust created by the Company to provide funding for non-tax-qualified employee benefits or compensation; or (V) provide any severance program to any Subsidiary which does not have a severance program as of the date of the Merger Agreement; (e) neither the Company nor any of its Subsidiaries shall modify, amend or terminate any of the Company Agreements or waive, release or assign any material rights or claims, except in the ordinary course of business consistent with past practice; (f) neither the Company nor any of its Subsidiaries will permit any material insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated without notice to Parent, except in the ordinary course of business consistent with past practice; (g) except as previously disclosed by the Company in writing to Parent and the Purchaser, neither the Company nor any of its Subsidiaries will: (I) incur or assume any debt except for borrowings under existing credit facilities in the ordinary course consistent with past practice; (II) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary course of business consistent with past practice; (III) make any loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned Subsidiaries of the Company or customary loans or advances to employees in accordance with past practice); or (IV) enter into any material commitment (including, but not limited to, any leases, capital expenditure or purchase of assets) other than purchases of inventory in the ordinary course of business consistent with past practice; (h) neither the Company nor any of its Subsidiaries shall change any of the accounting principles used by it unless required by GAAP; (i) neither the Company nor any of its Subsidiaries shall pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, (I) reflected or reserved against in the consolidated financial statements (or the notes thereto) of the Company and its consolidated Subsidiaries, (II) incurred in the ordinary course of business consistent with past practice or (III) which are legally required to be paid, discharged or satisfied; (j) neither the Company nor any of its Subsidiaries will adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of the Company or any of its Subsidiaries or any agreement relating to a Takeover Proposal (as defined below) (other than the Merger); (k) neither the Company nor any of its Subsidiaries will take, or agree to commit to take, any action that would make any representation or warranty of the Company contained in the Merger Agreement inaccurate in any respect at, or as of any time prior to, the Effective Time; (l) neither the Company nor any of its Subsidiaries will 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 27 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; (m) close, shut down, or otherwise eliminate any of the Company's stores other than in the ordinary course of business consistent with past practice; (n) change the name of or signage at any of the Company's stores; (o) close, shut down, or otherwise eliminate any of the Company's distribution centers; (p) move the location, close, shut down or otherwise eliminate the Company's headquarters, or effect a general staff reduction at such headquarters; (q) change or modify in any material respect the Company's existing advertising program and policies; (r) except as previously disclosed by the Company in writing to Parent and the Purchaser, enter into any new lease (other than renewals of existing leases after consultation with Parent) or purchase or acquire or enter into any agreement to purchase or acquire any real estate; (s) neither the Company nor any of its Subsidiaries will incur any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on the Company and its Subsidiaries; and (t) neither the Company nor any of its Subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. Treatment of Certain Indebtedness. The Merger Agreement provides that the Company will cooperate with Parent, if Parent so requests, to effect a defeasance of, and/or a repurchase by means of a debt tender offer (together with a solicitation of consents to eliminate the restrictive covenants) of the 9 1/8% Senior Notes due 2000 issued by the Company and the 10 1/8% Senior Notes due June 1, 2002 issued by Hook SupeRX, Inc. and guaranteed by the Company (the 'Debt Offers'), provided that any funds and all related out-of-pocket transaction expenses necessary to effect any such defeasance or repurchase shall be provided and borne by Parent, without any right of reimbursement. The Merger Agreement also provides that the Company and Parent will cooperate to effect such defeasance and/or repurchase in a manner which takes into account all relevant tax, accounting, corporate, structural, contractual and similar issues. Parent may commence the Debt Offers after the consummation of the Offer. No Solicitation. Pursuant to the Merger Agreement, the Company (and its Subsidiaries, and affiliates over which it exercises control) will not, and the Company (and its Subsidiaries, and affiliates over which it exercises control) will use their best efforts to ensure that their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents do not, directly or indirectly: (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal (as defined below) of the Company or any Subsidiary or an inquiry with respect thereto, or, (ii) in the event of an unsolicited Takeover Proposal for the Company or any Subsidiary or affiliate of the Company, engage in negotiations or discussions with, or provide any information or data to, any corporation, partnership, person or other entity or group (other than Parent, any of its affiliates or representatives) (each, a 'Person') relating to any Takeover Proposal, except in the case of clause (ii) above to the extent that (x) the Takeover Proposal is a bona fide written proposal submitted to the Company's Board of Directors and (y) the Company Board determines, after having received the oral or written opinion of outside legal counsel to the Company, that the failure to engage in such negotiations or discussions or provide such information would result in a breach of the Board of Directors' fiduciary duties under applicable law. The Company has agreed to notify Parent and the Purchaser orally and in writing of any such offers, proposals, inquiries or Takeover Proposals (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), within 24 hours of the receipt thereof, and shall thereafter inform Parent on a reasonable basis of the status and content of any discussions or negotiations with such a third party, including any material changes to the terms and conditions thereof. The Merger Agreement also provides that the Company shall, and shall cause its Subsidiaries and affiliates over which it exercises control, and will use best efforts to ensure their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents to immediately cease and cause to be terminated all discussions and negotiations that have taken place prior to the date of the Merger Agreement, if any, with any parties conducted theretofore with respect to any Takeover Proposal relating to the Company. The Merger Agreement provides that nothing contained in this paragraph will prohibit the Company or the Company Board from taking and disclosing to its stockholders a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or making such disclosure as may be required by applicable law. 28 As used in the Merger Agreement and herein, 'Takeover Proposal' when used in connection with any Person shall mean any tender or exchange offer involving the capital stock of such Person, any proposal for a merger, consolidation or other business combination involving such Person or any Subsidiary of such Person, any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the business or assets of, such Person or any Subsidiary of such Person, any proposal or offer with respect to any recapitalization or restructuring with respect to such Person or any Subsidiary of such Person or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to such Person or any Subsidiary of such Person other than pursuant to the transactions to be effected pursuant to the Merger Agreement. Directors' and Officers' Insurance and Indemnification. In the Merger Agreement, Parent agreed that at all times after the Effective Time, it will cause the Surviving Corporation and its Subsidiaries to indemnify, each person who is now, or has been at any time prior to the date of the Merger Agreement, an employee, agent, director or officer of the Company or of any of the Company's Subsidiaries, successors and assigns (individually an 'Indemnified Party' and collectively the 'Indemnified Parties'), to the fullest extent permitted by law, with respect to any claim, liability, loss, damage, judgment, fine, penalty, amount paid in settlement or compromise, cost or expense, including reasonable fees and expenses of legal counsel, (whenever asserted or claimed) ('Indemnified Liability') based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring at or prior to the Effective Time whether commenced, asserted or claimed before or after the Effective Time, including liability arising under the Securities Act, the Exchange Act or state law. The Merger Agreement provides that Parent will, and will cause the Surviving Corporation to, maintain in effect for not less than four years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries on the date of the Merger Agreement (provided that Parent may substitute therefor policies having at least the same coverage and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as insured) with respect to matters existing or occurring at or prior to the Effective Time; provided, however, that if the aggregate annual premiums for such insurance during such period shall exceed 200% of the per annum rate of the aggregate premium currently paid by the Company and its Subsidiaries for such insurance on the date of the Merger Agreement, then Parent will cause the Surviving Corporation to, and the Surviving Corporation will, provide the maximum coverage that will then be available at an annual premium equal to 200% of such rate. The Merger Agreement provides that Parent shall pay all expenses (including fees and expenses of counsel) that may be incurred by any Indemnified Party in successfully enforcing the indemnity or other obligations under this paragraph. The rights under this paragraph are in addition to rights that an Indemnified Party may have under the Certificate of Incorporation, By-laws, other similar organizational documents of the Company or any of its Subsidiaries or the DGCL. The Merger Agreement also provides that the rights under this paragraph shall survive consummation of the Merger and are expressly intended to benefit each Indemnified Party. Parent will cause the Surviving Corporation and any of its Subsidiaries (or their successors) to keep in effect the provisions of its Certificate of Incorporation or By-laws or similar organizational documents providing for indemnification to the fullest extent provided by law. Employee Benefits and Employee Matters. Pursuant to the Merger Agreement, Parent has agreed that, effective as of the Effective Time, the Company will provide to employees of the Company certain payments and benefits, as described below. As soon as practicable following the earlier of (A) the Effective Time and (B) the end of the Company's 1996 fiscal year, the Company will pay, pursuant to the terms of the Company's Economic Value Added Incentive Plan (the 'EVA Plan') as modified by the terms of the Merger Agreement, bonuses for fiscal year 1996, calculated based on the Company's financial results as of February 10, 1996, and annualized to equal a bonus for a 12-month period. With respect to executives of the Company listed on a schedule to the Merger Agreement ('Covered Executives'), effective as soon as practicable following the Effective Time (or if later, the date of termination of employment of the Covered Executive), the Company will pay to each Covered Executive severance payments (the 'Severance Payments'), on a bi-weekly basis or at such other intervals as are consistent with Parent's 29 executive payroll practices, based on one of the two formulae set forth below, pursuant to elections made by each Covered Executive prior to the Effective Time: (A) Severance Payments equal to, on an annualized basis, 'Base Pay' (as defined below), continuing for a period of three years with respect to Covered Executives who are listed as Group A Executives ('Group A Executives') on a schedule to the Merger Agreement and for a period of 18 months with respect to Covered Executives listed as Group B Executives ('Group B Executives') on a schedule to the Merger Agreement. For purposes of this provision, 'Base Pay' means the highest base pay paid to the Covered Executive during any one of the 1994, 1995 or 1996 fiscal years, provided that the base pay for the 1996 fiscal year will be calculated on an annualized basis; or (B) Severance Payments equal to, on an annualized basis, 'Base Plus Bonus Pay' (as defined below), continuing for a period of two years with respect to Group A Executives, and for a period of one year with respect to Group B Executives. For purposes of this provision 'Base Plus Bonus Pay' means Base Pay plus the amount that would have been paid to the executive under the EVA Plan for fiscal year 1995 as the targeted bonus (the '1995 Target Bonus'). In lieu of the Severance Payments described in clauses (A) and (B) above, Messrs. Hoven and James P. Mastrian will receive Severance Payments, continuing for three years, equal to, on an annualized basis, Base Plus Bonus Pay. The period during which a Covered Executive continues to receive Severance Payments is hereinafter referred to as the 'Severance Period' for such Covered Executive. During the Severance Period, each Covered Executive will continue to receive, at the Company's expense, continuation of benefits described in such Covered Executive's employment agreement with the Company on terms at least as favorable to the Covered Executive as is currently in effect, which benefits may be provided under benefit plans and programs maintained by Parent; provided, however, that to the extent any such Covered Executive receives comparable benefits from, and at the expense of, a subsequent employer, such benefits from the Company will cease. Notwithstanding anything in the Merger Agreement to the contrary, the Severance Payments described in clauses (A) or (B) above will be paid to a Covered Executive only if such Covered Executive is actively employed by the Company immediately prior to the Effective Time. In the event that a Covered Executive that continues employment with the Company following the Effective Time is terminated prior to the expiration of the Severance Period that would have applied had such Covered Executive been terminated effective as of the Effective Time, then such Covered Executive will be entitled to receive the Severance Payments described above. Each employee, other than any Covered Executive, of the Company who is covered by the Company's severance pay plan as in effect on November 1, 1995 (each, a 'Severance-Eligible Employee') and who is employed by the Company immediately prior to the Effective Time and terminated for other than 'Cause,' as defined below, within 12 months following the Effective Time, will be entitled to receive bi-weekly severance payments, consistent with Parent's payroll practices, for a six-month period commencing on such Severance-Eligible Employee's date of termination of employment, equal to, on an annualized basis, such Severance-Eligible Employee's Base Pay; provided, however, that such payments will be reduced (but not below zero), by the amount of compensation such Severance-Eligible Employee receives from a subsequent employer to the extent that such Severance-Eligible Employee is employed during such six-month period. For purposes of the Merger Agreement, 'Cause' will mean the conviction of an employee or executive (as the case may be) for the commission of a felony, including the entry of a guilty or nolo contendere plea, any willful, grossly negligent or fraudulent action or inaction by an employee or executive, as the case may be, or the employee's or executive's willful and continued failure to substantially perform an employee's or executive's assigned duties. Each Company employee who is (A) covered by the Company's Supplemental Executive Retirement Plan ('SERP') and (B) actively employed by the Company, in either case, immediately prior to the Effective Time (each, a 'SERP Executive') will be eligible to receive benefits under the SERP based on the terms of the SERP, 30 as modified by the terms of the Merger Agreement. For each SERP Executive (i) the amount of service taken into account for purposes of calculating benefits and vesting under the SERP will be equal to the SERP Executive's service with the Company prior to the Effective Time plus the Covered Executive's Severance Period, if any, and (ii) compensation for each SERP Executive for purposes of the SERP will include one-half of the 1995 Target Bonus for such SERP Executive. With respect to the eight Executives listed on a schedule to the Merger Agreement, the Company will provide such executives with a cash gross-up payment to make such executives whole for the excise taxes imposed on all benefits and other amounts paid or payable to such executive on account of the transactions contemplated by the Merger Agreement as a result of the application of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the 'Code'). With respect to all other employees of the Company who are entitled to benefits and other amounts paid or payable to such executive on account of the transactions contemplated by the Merger Agreement as a result of the application of Sections 280G and 4999 of the Code, the Company shall not be obligated to pay or provide to any such employee any payments or benefits to the extent that such payments or benefits would constitute a 'parachute payment' within the meaning of Section 280G(b)(2)(A) of the Code. The Company will amend the Company's Employee Stock Purchase Plan to provide that the option period that is in effect as of November 29, 1995 will cease as soon as practicable thereafter. The Company will provide outplacement services from a recognized outplacement provider selected by Parent to all employees of the Company as of the Effective Time who were based in Twinsburg, Ohio as of the Effective Time, and are terminated without Cause within one year of the Effective Time. In addition, pursuant to the Merger Agreement, employees of the Company who continue to be employed by the Company as of the Effective Time will receive employee benefits comparable to those benefits provided to similarly situated employees of Parent. In addition, with respect to medical benefits provided to continuing employees as of the Effective Time, waiting periods and pre-existing condition requirements under the plans covering the continuing employees will be waived, and these employees will be given credit for any copayments and deductibles actually paid by such employees under the Company's medical plans during the calendar year in which the Closing occurs. Finally, service with the Company will be recognized for purposes of eligibility under Parent's welfare plans as well as for purposes of Parent's programs or policies for vacation pay and sick pay. Representations and Warranties. In the Merger Agreement, the Company has made customary representations and warranties to Parent and the Purchaser with respect to, among other things, its organization, capitalization, corporate authorization, financial statements, public filings, employee benefit plans, insurance, compliance with laws, transactions with affiliates, litigation, absence of default, contracts, tax matters, labor matters, assets, real property, environmental matters, consents and approvals, information in the Proxy Statement/Prospectus, agreements with third party payors, vote required, undisclosed liabilities and the absence of any material adverse change in the Company since June 3, 1995. In the Merger Agreement, Parent and the Purchaser have made customary representations and warranties to the Company with respect to, among other things, its organization, capitalization, corporate authorization, financial statements, public filings, compliance with laws, litigation, absence of default, tax matters, consents and approvals, compliance with laws, financing, information in the Proxy Statement/Prospectus, opinion of financial advisors, undisclosed liabilities and the absence of any material adverse change in the Company since March 4, 1995. Conditions to the Merger. The respective obligations of Parent and the Purchaser, on the one hand, and the Company, on the other hand, to consummate the Merger are subject to the satisfaction (or, if permissible, waiver by the party for whose benefit such conditions exist) of the following conditions: (i) the Merger Agreement shall have been adopted by stockholders of the Company in accordance with the DGCL; (ii) no court, arbitrator or governmental body, agency or official shall have issued any order, decree or ruling which remains in force and there shall not be any statute, rule or regulation, restraining, enjoining or prohibiting the consummation of the Merger; (iii) the Registration Statement shall have become effective under the Securities Act and no stop order suspending effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose 31 shall have been initiated or threatened by the Commission; and (iv) Parent, the Purchaser or their affiliates shall have purchased the Shares pursuant to the Offer. Termination; Fees. The Merger Agreement may be terminated and the Merger contemplated therein may be abandoned at any time prior to the Effective Time, whether before or after stockholder approval thereof, (a) by mutual consent of the Board of Directors of Parent and the Company Board, (b) by either the Board of Directors of Parent or the Company Board (i) if Parent or the Purchaser has not purchased Shares in accordance with the terms of the Offer on or prior to April 29, 1996; provided, however, that the right to terminate the Merger Agreement shall not be available to any party whose failure to fulfill any obligations under the Merger Agreement has been the cause of, or resulted in, the failure to satisfy the conditions to the Offer; provided further, however, that Parent shall not have the right to terminate the Merger Agreement under this clause (i) if Parent or the Purchaser purchases any Shares in connection with the Offer after April 29, 1996; or (ii) if any Governmental Entity (as defined therein) shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties thereto shall use their best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement and such order, decree, ruling or other action shall have become final and non-appealable. The Merger Agreement may be terminated by the Company Board: (i) if, prior to the purchase of Shares pursuant to the Offer, the Company Board shall have (A) withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger in order to approve and permit the Company to execute a definitive agreement relating to a Takeover Proposal, and (B) determined, after having received the oral or written opinion of outside independent legal counsel to the Company, that the failure to take such action as set forth in the preceding clause (A) would result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that the Company shall have given Parent and the Purchaser at least thirty-six hours advance actual notice of any termination pursuant to this clause (i) and shall have made the payment referred to in the second following paragraph; or (ii) if prior to the purchase of Shares pursuant to the Offer, Parent or the Purchaser (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained therein or (y) breaches its representations and warranties in any material respect and such breach would have or would be reasonably likely to have a material adverse effect on Parent and its Subsidiaries; provided, however, that if any such breach is cured, the Company may not terminate the Merger Agreement pursuant to this clause (ii); or (iii) if Parent or the Purchaser shall have terminated the Offer, or the Offer shall have expired, without Parent or the Purchaser, as the case may be, purchasing any Shares pursuant thereto; provided that the Company may not terminate the Merger Agreement pursuant to this clause (iii) if the Company is in material breach of the Merger Agreement; or (iv) if, due to an occurrence that if occurring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Section 14 hereto, Parent, the Purchaser or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided, that the Company may not terminate the Merger Agreement pursuant to this clause (iv) if the Company is in material breach of the Merger Agreement. The Merger Agreement may be terminated by the Board of Directors of Parent: (i) if, due to an occurrence that if occurring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Section 14 hereto, Parent, the Purchaser or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided that Parent may not terminate the Merger Agreement pursuant to this clause (i) if Parent or the Purchaser is in material breach of the Merger Agreement; or (ii) if (A) prior to the purchase of Shares pursuant to the Offer, the Company Board shall have withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger Agreement or Merger or shall have recommended a Takeover Proposal or other business combination, or the Company shall have entered into an agreement in principle (or similar agreement) or definitive agreement providing for a Takeover Proposal or other business combination with a person or entity other than Parent, the Purchaser or their Subsidiaries (or the Company Board resolves to do any of the foregoing), or (B) prior to the consummation of the Offer, it shall have been publicly disclosed or Parent or the Purchaser shall have learned that any person, entity or 'group' (as that term is defined in Section 13(d)(3) of the Exchange Act) (an 'Acquiring Person'), other than Parent, the Purchaser or the Stockholder, or Magten Asset Management Corporation ('Magten') or FMR Corp. (including any of FMR 32 Corp.'s affiliates) shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 14.9% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 14.9% of any class or series of capital stock of the Company (including the Shares); or (iii) if Parent or the Purchaser, as the case may be, shall have terminated the Offer, or the Offer shall have expired without Parent or the Purchaser, as the case may be, purchasing any Shares thereunder, provided that Parent may not terminate the Merger Agreement pursuant to this clause (iii) if Parent or the Purchaser is in material breach of the Merger Agreement. If (w) the Company Board shall terminate the Merger Agreement pursuant to clause (i) in the immediately second preceding paragraph hereof, (x) the Board of Directors of Parent shall terminate the Merger Agreement pursuant to clause (ii)(A) in the immediately preceding paragraph hereof, (y) the Board of Directors of Parent shall terminate the Merger Agreement pursuant to clause (ii)(B) in the immediately preceding paragraph hereof and within nine months of such termination, an Acquiring Person shall acquire or beneficially own a majority of the then outstanding Shares or shall have obtained representation on the Company Board or shall enter into a definitive agreement with the Company with respect to a Takeover Proposal or similar business combination, or (z) the Board of Directors of Parent shall terminate the Merger Agreement pursuant to clause (i) or clause (iii) of the immediately preceding paragraph, in each case due to (I) a material breach of the representations and warranties of the Company set forth in the Merger Agreement or (II) a material breach of, or failure to perform or comply with, by the Company any material obligation, covenant or agreement contained in the Merger Agreement, then in any such case as described in clause (w), (x), (y) or (z) (each such case of termination being referred to as a 'Trigger Event'), the Company shall pay to Parent (not later than the date of termination of the Merger Agreement in the case of clauses (w), (x) and (z) above) an amount equal to $45 million. Termination of Existing Stockholder Agreements. Pursuant to the Merger Agreement, the Company and the Stockholder entered into a Termination Agreement, dated as of November 29, 1995, providing for the termination of (i) the Stockholder Agreement, dated as of June 1, 1992, between the Stockholder and the Company, and (ii) the Registration Rights Agreement, dated as of June 1, 1992 between the Stockholder and the Company. In addition, pursuant to the Merger Agreement, the Company and Magten, as agent for and on behalf of individual investment advisory clients, entered into a Termination Agreement, dated as of November 29, 1995, providing for the termination of the Registration Rights Agreement, dated as of January 20, 1993, between Magten and the Company. STOCKHOLDER AGREEMENT The following is a summary of the material terms of the Stockholder Agreement. This summary 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 Schedule 14D-1. The Stockholder Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. Capitalized terms not otherwise defined herein or in the following summaries shall have the meanings set forth in the Stockholder Agreement. Tender of Shares. Immediately after the execution of the Merger Agreement, the Purchaser and the Stockholder entered into the Stockholder Agreement. Upon the terms and subject to the conditions of such agreement, the Stockholder has agreed to validly tender (or cause the record owner of such Shares to tender), and not to withdraw, pursuant to and in accordance with the terms of the Offer, not later than prior to the expiration of the Offer, 13,102,288 Shares (and together with any Shares acquired by the Stockholder in any capacity after the date thereof and prior to the termination of the Stockholder Agreement whether upon the exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities, or by means of purchase, dividend, distribution, gift, bequest, inheritance or as a successor in interest in any capacity or otherwise, the 'Stockholder Shares') Beneficially Owned by the Stockholder, which Shares represent approximately 19.7% of the issued and outstanding Shares. The Stockholder Agreement also provides that the transfer by the Stockholder of the Stockholder Shares to the Purchaser in the Offer will pass to and unconditionally vest in the Purchaser good and valid title to such Shares. 33 Voting of Company Common Stock. The Stockholder Agreement provides that during the period commencing on the date of the Stockholder Agreement and continuing until the first to occur of (i) the Effective Time or (ii) termination of the Merger Agreement in accordance with its terms, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the Company's stockholders, however called, or in connection with any written consent of the stockholders of the Company, the Stockholder will vote (or cause to be voted) the Stockholder Shares held of record or Beneficially Owned by such Stockholder (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the terms thereof and each of the other actions contemplated by the Merger Agreement and the Stockholder Agreement and any actions required in furtherance thereof; (ii) against any action or agreement that would result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or the Stockholder Agreement; and (iii) except as otherwise agreed to in writing in advance by Parent, against the following actions (other than the Merger and the transactions contemplated by the Stockholder Agreement and the Merger Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its subsidiaries; (B) any sale, lease or transfer of a material amount of assets of the Company or its Subsidiaries, or a reorganization, restructuring, recapitalization, special dividend, dissolution or liquidation of the Company or its Subsidiaries; or (C) (1) any change in a majority of the persons who constitute the Company Board; (2) any change in the present capitalization of the Company including any proposal to sell a substantial equity interest in the Company and its Subsidiaries; (3) any amendment of the Company's Certificate of Incorporation or By-laws; (4) any other change in the Company's corporate structure or business; or (5) any other action which, in the case of each of the matters referred to in clauses (C)(1), (2), (3) or (4), is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or materially adversely affect the Offer, the Merger and the transactions contemplated by the Stockholder Agreement and the Merger Agreement. The Stockholder Agreement further provides that the Stockholder will not enter into any agreement or understanding with any person or entity the effect of which would be inconsistent or violative of the provisions and agreements described in the above paragraph. Stockholder Covenant. The Stockholder Agreement provides that, except as contemplated by the Stockholder Agreement, the Stockholder shall not for a period of six months following the termination of the Stockholder Agreement (other than as a result of a breach by Parent or the Purchaser) enter into, execute, or be a party to any agreement or understanding, written or otherwise, with any Person whereby the Stockholder (i) grants or otherwise gives to such Person an option or right to purchase or acquire any or all of the Stockholder Shares other than sales made in open market transactions; (ii) agrees or covenants to vote or to grant a proxy to vote any or all of the Stockholder Shares held of record or Beneficially Owned by the Stockholder, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the holders of Shares, however called, or in connection with any written consent of the holders of Shares; or (iii) agrees or covenants to tender any or all of the Stockholder Shares held of record or Beneficially Owned by the Stockholder into any tender offer or exchange offer relating to the Stockholder Shares. No Solicitation. The Stockholder Agreement provides that the Stockholder will not, and will cause its affiliates and officers, directors, employees, partners, investment bankers, attorneys, accountants and other agents and representatives of the Stockholder and such affiliates (such affiliates, officers, directors, employees, partners, investment bankers, attorneys, accountants, agents and representatives of any Person are hereinafter collectively referred to as the 'Representatives' of such Person) not to, directly or indirectly (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal of the Company or any affiliate or any inquiry with respect thereto, or (ii) in the event of an unsolicited Takeover Proposal for the Company or any affiliate of the Company, engage in negotiations or discussions with, or provide any information or data to, any Person (other than Parent, any of its affiliates or representatives) relating to any Takeover Proposal. Notwithstanding the restrictions set forth in this paragraph, any person who is an officer or director of the Company may exercise his fiduciary duties in his capacity as a director or officer of the Company consistent with the terms of the Merger Agreement. The Stockholder Agreement also provides that the Stockholder notify Parent and the Purchaser orally and in writing of any such offers, proposals, or inquiries relating to the purchase or acquisition by any Person of the Stockholder Shares (including, without limitation, the terms and conditions thereof and the identity of the Person 34 making it), within 24 hours of the receipt thereof. The Stockholder has also agreed to, and to cause its Representatives to, immediately cease and cause to be terminated any and all existing activities, discussions or negotiations, if any, with any parties conducted theretofore with respect to any Takeover Proposal relating to the Company, other than discussions or negotiations with Parent and its affiliates. Distribution of Shares of Parent Common Stock. The Stockholder Agreement provides that upon the consummation of the Merger, the Stockholder shall within 90 days thereafter either distribute the shares of Parent Common Stock to each of the limited partners of Zell/Chilmark Fund, L.P. or sell or otherwise dispose of such shares of Parent Common Stock, in each case in accordance with the governing documents thereto and applicable law; provided that no such sale or other disposition shall be made if immediately following such sale or other disposition the acquiror of such Parent Common Stock, together with the acquiror's affiliates and any members of a group of which the acquiror is a party, would Beneficially Own in the aggregate 4.9% or more of the shares of Parent Common Stock then outstanding. Restriction on Transfer, Proxies and Non-Interference. The Stockholder Agreement also provides that, except as otherwise provided in the Stockholder Agreement, the Stockholder will not, directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Stockholder Shares or any interest therein; (ii) grant any proxies or powers of attorney, deposit the Stockholder Shares into a voting trust or enter into a voting agreement with respect to the Stockholder Shares; or (iii) take any action that would make any representation or warranty of the Stockholder contained in the Stockholder Agreement untrue or incorrect or would result in a breach by the Stockholder of its obligations under the Stockholder Agreement or a breach by the Company of its obligations under the Merger Agreement. Termination. Except as otherwise provided therein, the covenants and agreements contained in the Stockholder Agreement with respect to the Stockholder Shares shall terminate upon the earlier of (i) the consummation of the Merger and (ii) the termination of the Merger Agreement in accordance with its terms except, that the covenant and agreement set forth in the Stockholder Covenant described in the fifth preceding paragraph shall survive for six months after such termination (other than a termination as a result of a breach by Parent or the Purchaser). STOCK OPTION AGREEMENT The following is a summary of the material terms of the Stock Option Agreement. This summary 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 a copy of which has been filed as an exhibit to the Schedule 14D-1. The Stock Option Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. Capitalized terms not otherwise defined herein or in the following summary shall have the meanings set forth in the Stock Option Agreement. Grant of Stock Option. The Stock Option Agreement provides for the grant by the Company to Parent of an unconditional, irrevocable option (a 'Stock Option') to purchase up to 13,251,010 fully paid and nonassessable Shares at a purchase price of $27.50 per Share (the 'Purchase Price'), or such other number of Shares as equals 19.9% of the Company's issued and outstanding Shares at the time of exercise of the Stock Option; provided that in no event shall the number of Shares for which the Stock Option is exercisable exceed 19.9% of the Shares issued and outstanding at the time of exercise of the Stock Option (the 'Option Shares'). Exercise of Stock Option. The Stock Option Agreement also provides that upon (x) the occurrence of a Trigger Event, or (y) the occurrence of a tender or exchange offer for some or all of the Shares or if a proposal for a Takeover Proposal shall have been publicly proposed to be made or shall have been made by another person or entity, the Stock Option shall become immediately exercisable, in whole or in part, and remain exercisable in whole or in part until the later of (i) the date which is six months after the date the Stock Option first became exercisable and (ii) the fifth business day following expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the 'HSR Act') (the 'Option Period'). 35 Sale of Option Shares. The Stock Option Agreement also provides that if, at any time following the exercise of the Stock Option, Parent will either (i) transfer, sell or otherwise dispose of any or all of the Option Shares, including by means of tender or exchange of any or all of the Option Shares pursuant to a tender or exchange offer involving the capital stock of the Company, or (ii) convert such Option Shares into cash, capital stock, other securities or any other consideration of any third party in a merger, any recapitalization or restructuring or similar business combination transaction (a 'Business Combination Transaction'), Parent will pay to the Company within five days the amount equal to the Profit (as defined below) Parent will receive, if any, pursuant to such Disposition or Business Combination Transaction. 'Profit,' for purposes of this paragraph, will equal (i) the product of (a) the number of Option Shares Parent transfers, sells, tenders, exchanges or otherwise disposes of pursuant to a Disposition or a Business Combination Transaction multiplied by (b) the excess of the per Share consideration received by Parent pursuant to such Disposition or Business Combination Transaction, valuing any non-cash consideration at its fair market value on the date of such consummation (not including any increase in such aggregate per Share consideration after the date thereof), over the Purchase Price. For purposes hereof, the fair market value of any non-cash consideration shall be the closing price or the last sale price, or, in case no such sale takes place on the day of consummation of such Business Combination Transaction, the average of the closing bid and asked prices, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which such consideration is listed or admitted to trading or, if such consideration is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if not so determinable, the fair value of such consideration on such date will be determined in good faith by the Board of Directors of Parent. Adjustment Upon Changes in Capitalization. The Stock Option Agreement provides that in the event of any change in Shares by reason of stock dividends, split-ups, recapitalizations, combinations, exchanges of shares or the like, the type and number of Shares subject to the Stock Option and the Purchase Price shall be appropriately adjusted and proper provision shall be made so that, in the event that any additional Shares are issued or otherwise become outstanding as a result of any such change after the date of the Stock Option Agreement (other than pursuant to the Stock Option Agreement), the number of Shares subject to the Stock Option shall be adjusted so that, after such issuance and together with Shares previously issued pursuant to the exercise of the Stock Option (as adjusted on account of any of the foregoing change in Shares), it equals 19.9% of the number of Shares then issued and outstanding. Termination. The Stock Option Agreement will terminate, except as otherwise provided therein, upon the earlier of (i) the consummation of the Merger and (ii) the expiration of the Option Period. CONFIDENTIALITY AGREEMENT The following is a summary of the material terms of the Confidentiality Agreement, dated as of August 17, 1995, between Parent and the Company (the 'Confidentiality Agreement'). This summary 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 a copy of which has been filed as an exhibit to the Schedule 14D-1. The Confidentiality Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. Capitalized terms not otherwise defined herein or in the following summary shall have the meanings set forth in the Confidentiality Agreement. Pursuant to the Confidentiality Agreement, Parent has agreed, among other things, to keep confidential certain non-public confidential or proprietary information of the Company furnished to Parent by or on behalf of the Company. The Confidentiality Agreement provides that for a period of eighteen months from the date of the Confidentiality Agreement, except with respect to a business combination with the Company or as otherwise specifically authorized in writing by the Company, neither Parent nor any of its directors, officers, employees, agents, advisors (including, without limitation, financial advisors, counsel and accountants), affiliates or controlling persons (collectively, the 'Parent Representatives') will, propose or publicly announce or otherwise disclose an intent to propose, or enter into or agree to enter into, singly or with any other person or directly or indirectly, (i) any form of business combination, acquisition or other transaction relating to the Company or any 36 affiliate thereof, or (ii) any form of restructuring, recapitalization or similar transaction with respect to the Company or any such affiliate, nor except as aforesaid during such period will Parent or any such Representative as a principal (1) acquire, or offer, propose or agree to acquire, by purchase or otherwise, any securities of the Company, any direct or indirect options or other rights to acquire any such securities ('Company Securities'), (2) make, or in any way participate in, any solicitation of proxies with respect to any Company Securities (including by the execution of action by written consent), become a participant in any election contest with respect to the Company, seek to influence any person with respect to any Company Securities or demand a copy of the Company's list of its stockholders or other books and records relating to holders of Company Securities, (3) participate in or encourage the formation of any partnership, syndicate or other group which owns or seeks or offers to acquire beneficial ownership of any Company Securities or which seeks to affect control of the Company or for the purpose of circumventing any provision of the Confidentiality Agreement or (4) otherwise act, alone or in concert with others (including by providing financing for another person), to seek or to offer to control or influence, in any manner, the management, the Company Board or policies or operations of the Company. The Merger Agreement provides that any provision in the Confidentiality Agreement which in any manner limits, restricts or prohibits the voting or acquisition of Shares by Parent or any of its affiliates or the representation of Parent's designees on the Company Board or which in any manner would be inconsistent with the Merger Agreement, the Stock Option Agreement or the Stockholder Agreement or the transactions contemplated thereby terminated as of the date of the Merger Agreement. The Merger Agreement further provides that the Company will not take any action that would impede, bar, restrict or otherwise interfere in any manner with Parent's rights under the Stockholder Agreement or the Stock Option Agreement, including, without limitation, Parent's right to exercise the Stock Option. APPRAISAL RIGHTS No appraisal rights are available in connection with the Offer. If only shares of Parent Common Stock are issued in the Merger, then stockholders will not have any appraisal rights. However, if the Merger is consummated and in the event (i) the Alternative Consideration or any Additional Consideration contemplated by the Merger Agreement is applicable or (ii) that Parent elects to pay any Cash Adjustment Amount, stockholders of the Company may 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 (excluding any element of value arising from the accomplishment or expectation of the Merger), 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. Phillip 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. 37 Shares which immediately prior to the Effective Time are held by stockholders who have properly exercised and perfected appraisal rights under the DGCL (the 'Dissenting Shares'), shall not be converted into the right to receive the Merger Consideration, but the holders of Dissenting Shares shall 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. Stockholders who sell Shares in the Offer will not be entitled to exercise any appraisal rights with respect to Shares purchased but, rather, will receive the Offer Price. 12. DIVIDENDS AND DISTRIBUTIONS. Except as expressly provided in the Merger Agreement, the Company has agreed that neither it nor any of its subsidiaries shall (i) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than dividends paid by the Company's Subsidiaries to the Company or its Subsidiaries, (ii) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of the Company or its Subsidiaries, other than issuances pursuant to exercise of stock-based awards or options outstanding on the date of the Merger Agreement as disclosed in the Merger Agreement or (iii) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock. See Section 6. 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. If the 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. 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 and their 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, 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 the listing of the Shares is discontinued, the market for the Shares could be adversely affected. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or through the National Association of Securities Dealers Automated Quotation System ('NASDAQ') or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Purchaser cannot predict whether the reduction in 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 it would cause future market prices to be greater or less than the Offer Price. The Shares are currently 'margin securities', as such term is defined under the rules 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 securities. Depending upon factors similar to 38 those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute 'margin securities' for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. The termination of 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 provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under the Exchange Act with respect to 'going private' transactions, no longer applicable to the Shares. In addition, '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 promulgated under the Securities Act. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be 'margin securities' or be eligible for stock exchange listing or NASDAQ reporting. 14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) the Purchaser's rights to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Merger Agreement), the 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 (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares, and may terminate the Offer as to any Shares not then paid for, if (i) any applicable waiting period under the HSR Act has not expired or terminated prior to the expiration of the Offer, (ii) the Minimum Condition has not been satisfied, or (iii) at any time on or after November 17, 1995 and prior to the acceptance for payment of any Shares, any of the following events shall occur or shall be determined by the Purchaser to have occurred: (a) there shall be instituted, pending or threatened any action or proceeding by any government or governmental authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Parent or the Purchaser or the consummation by Parent or the Purchaser of the Merger, seeking to obtain material damages relating to the Merger Agreement, the Stockholder Agreement, the Stock Option Agreement or any of the transactions contemplated thereby or otherwise seeking to prohibit directly or indirectly the transactions contemplated by the Offer or the Merger, or challenging or seeking to make illegal the transactions contemplated by the Stockholder Agreement, Stock Option Agreement or otherwise directly or indirectly to restrain, prohibit or delay the transactions contemplated by the Stockholder Agreement or the Stock Option Agreement, (ii) seeking to restrain, prohibit or delay Parent's, the Purchaser's or any of their subsidiaries' ownership or operation of all or any portion (other than an immaterial portion), of the business or assets of the Company or its subsidiaries, or to compel Parent or any of its subsidiaries to dispose of or hold separate all or any portion (other than an immaterial portion) of the business or assets of the Company or Parent or their respective subsidiaries, (iii) seeking to impose or confirm material limitations on the ability of Parent, the Purchaser or any of their subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Parent, the Purchaser or any of their subsidiaries or affiliates on all matters properly presented to the Company's stockholders, or (iv) seeking to require divestiture by Parent, or the Purchaser or any of their subsidiaries of any Shares; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, judgment, order or decree enacted, enforced, entered, promulgated, issued or deemed applicable to the Offer or the Merger, by any court, government or governmental authority or agency, domestic or foreign, that, directly or indirectly, results in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above; or (c) there shall have occurred (i) any general suspension of trading in, or limitation on the NYSE for a period in excess of three hours, (ii) the declaration of a banking moratorium or any suspension of payments 39 in respect of banks in the United States (whether or not mandatory), (iii) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, (iv) any limitation (whether or not mandatory) by any foreign or United States governmental authority or agency on the extension of credit by banks or other financial institutions, (v) any decline in either the Dow Jones Industrial Average or the Standard & Poor's Index of 500 Industrial Companies by an amount in excess of 20% measured from the close of business on November 29, 1995 or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (d) the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct in any material respect as of the date of consummation of the Offer as though made on or as of such date, except (i) for changes specifically permitted by the Merger Agreement and (ii) those representations and warranties that address matters only as of a particular date which are true and correct as of such date, or the Company shall have breached or failed in any material respect to perform or comply with any material obligation, agreement or covenant required by the Merger Agreement to be performed or complied with by it; or (e) the Merger Agreement shall have been terminated in accordance with its terms; or (f) any party to the Stockholder Agreement or the Stock Option Agreement other than the Purchaser and Parent shall have breached or failed to perform any of its agreements under such agreements or breached any of its representations and warranties in such agreements or any such agreement shall not be valid, binding and enforceable, except for such breaches or failures or failures to be valid, binding and enforceable that do not materially and adversely affect the benefits expected to be received by Parent and the Purchaser under the Merger Agreement, the Stockholder Agreement or the Stock Option Agreement; or (g) (i) it shall have been publicly disclosed or Parent or the Purchaser shall have otherwise learned that any person, entity or 'group' (as defined in Section 13(d)(3) of the Exchange Act), other than Zell/Chilmark Fund, L.P. or Magten or FMR Corp. (including any of FMR Corp.'s affiliates), Parent or its affiliates or any group of which any of them is a member, shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 14.9% of any class or series of capital stock of the Company (including the Shares), 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 14.9% of any class or series of capital stock of the Company (including the Shares); or (ii) any person, entity or group shall have entered into a definitive agreement or agreement in principle with the Company with respect to a merger, consolidation or other business combination with the Company; or (h) a tender or exchange offer for some or all of the Shares or proposal for a Takeover Proposal shall have been publicly proposed to be made or shall have been made by another person or entity; or (i) the Company Board of Directors shall have withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser (including by amendment of the Schedule 14D-9), its approval or recommendation of the Offer, the Merger Agreement, or the Merger, or recommended another proposal or offer, or shall have resolved to do any of the foregoing; or (j) there shall have occurred any event, change or effect (including the incurrence of any liability of any nature, whether or not accrued, contingent or otherwise) which has individually or in the aggregate, a material adverse effect on or with respect to the financial condition, business, results of operations, assets, liabilities, properties or prospects of the Company and its Subsidiaries; which in the sole judgment of Parent or the Purchaser, in any such case, and regardless of the circumstances (including any action or inaction by Parent or the Purchaser giving rise to such condition) makes it inadvisable to proceed with the Offer or with such acceptance for payment or payments. The foregoing conditions are for the sole benefit of Parent and the Purchaser and may be asserted by Parent or the Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Parent or the Purchaser in whole or in part at any time and from time to time in their sole discretion. The failure by Parent 40 or the Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to other facts and circumstances; and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 15. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. General. Except as otherwise disclosed herein, based upon its review of publicly available information with respect to the Company and the review of certain information furnished by the Company to Parent, neither the Purchaser nor Parent is aware of (i) 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 the acquisition of Shares by the Purchaser pursuant to the Offer or the Merger or (ii) any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required for the acquisition or ownership of Shares by the Purchaser as contemplated herein. Should any such approval or other action be required, the Purchaser currently contemplates that such approval or action would be sought. 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 the 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 be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, the Purchaser or Parent or that certain parts of the businesses of the Company, the 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. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 14. 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. Parent expects that on or about December 7, 1995 it will file a Notification and Report Form with respect to the Offer (the 'HSR Filing'). 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 the HSR Filing by Parent. Such filing is expected to be made on or about December 7, 1995, and if such filing is made on December 7, 1995 the waiting period with respect to the Offer will expire at 11:59 p.m., New York City time, on December 22, 1995, 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 or seeking divestiture of Shares acquired by the Purchaser or 41 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 the 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. See Section 14 for certain conditions to the Offer, including conditions with respect to litigation and certain governmental actions. State Takeover Laws. As a Delaware corporation, the Company is subject to Section 203 ('Section 203') of the DGCL. Section 203 would prevent an 'Interested Stockholder' (generally defined as a person who owns or has the right to acquire 15% or more of a corporation's voting stock, or an affiliate or associate thereof) from engaging in a 'Business Combination' (defined to include mergers and certain other transactions) with a Delaware corporation for a period of three years following the time that such person became an Interested Stockholder unless: (i) prior to such time, the board of directors of the corporation approved the transaction which resulted in the Interested Stockholder becoming an Interested Stockholder, (ii) upon consummation of the transaction which resulted in the Interested Stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the corporation outstanding at the time that the transaction commenced (excluding stock held by directors who are also officers and by employee stock ownership plans that do not allow plan participants to determine confidentially whether to tender shares) or (iii) at or subsequent to such time, the Business Combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the Interested Stockholder. In accordance with the provisions of Section 203, the Company Board has approved the transactions contemplated by the Merger Agreement, the Stockholder Agreement and the Stock Option Agreement, including the Purchaser's acquisition of Shares pursuant to the Offer. Accordingly, the transactions contemplated by the Merger Agreement, the Stockholder Agreement and the Stock Option Agreement, including the Purchaser's acquisition of Shares pursuant to the Offer, are exempt from the provisions of Section 203. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects, in such states. In 1982, in Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana may, as a matter of corporate law, and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. The 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, the 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, the Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the 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, the Purchaser may not be obligated to accept for payment any Shares tendered. See Section 14. Certain Litigation. On November 30, 1995, a purported class action entitled Silvert v. Revco D. S., Inc. et al. ('Silvert'), was filed in the Court of Chancery of the State of Delaware, New Castle County, on behalf of the class of all the Company's stockholders. The Silvert complaint named the Company, all of the Company's directors and Parent as defendants. The Silvert complaint alleges that the $27.50 per Share price offered by 42 Parent in the Offer is insufficient and that the Offer is unfair to the Company's stockholders and represents an attempt by the defendants to enrich themselves at the expense of the plaintiff class. The plaintiff in the Silvert action asserts that defendants violated their fiduciary duties to the Company's stockholders by allegedly failing adequately to evaluate the Company as a potential acquisiton candidate; to take adequate steps to enhance the Company's value as an acquisition candidate; and to create an active and open auction for the Company. The Silvert complaint further alleges that the Stock Option impedes the maximization of Company stockholder value. The Silvert complaint seeks, among other relief, a preliminary and permanent injunction barring defendants from taking any steps to accomplish the proposed Merger at a price that is not fair and equitable to the plaintiffs and enjoining any improper device or transaction which will impede maximization of stockholder value. The Silvert complaint also seeks unspecified damages for losses suffered and to be suffered by the plaintiff class as a result of the acts alleged in the Silvert complaint. 16. FEES AND EXPENSES. Except as set forth below, neither Parent nor the Purchaser will pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. DLJ is acting as Dealer Manager in connection with the Offer and is acting as financial advisor to Parent in connection with its acquisition of the Company. Parent has agreed, as compensation for DLJ's services, (i) to pay DLJ a fee of $1,550,000 at the time DLJ notifies the Board of Parent that it is prepared to deliver an opinion as to the fairness of the consideration to be paid by Parent in the Offer and the Merger and (ii) upon the request by DLJ from time to time, to reimburse DLJ promptly for all out-of-pocket expenses (including the reasonable fees and expenses of counsel) and to indemnify DLJ against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws. DLJ has delivered to Parent an opinion to the effect that the consideration to be paid by Parent pursuant to the Merger Agreement, taken as a whole, is fair to the stockholders of Parent from a financial point of view. Accordingly, DLJ is entitled to the foregoing fee. Information with respect to the fees payable by the Company to Morgan Stanley, the Company's financial advisor, is set forth in the Schedule 14D-9. The Purchaser has retained MacKenzie Partners, Inc. to act as the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and may be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. In addition, Harris Trust Company of New York has been retained as the Depositary. The Depositary has not been retained to make solicitations or recommendations in its role as Depositary. The Depositary will receive reasonable and customary compensation for its services in connection with the Offer, will be reimbursed for certain reasonable out-of-pocket expenses and may be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding offering material to their customers. 17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, the Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. 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 shall be deemed to be made on behalf of the Purchaser by the Dealer Manager or by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. 43 Parent and the Purchaser have filed with the Commission the Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Company has filed with the Commission the Schedule 14D-9, together with exhibits, setting forth the Company's recommendation of the Board of Directors with respect to the Offer and such other information required to be disseminated to stockholders. The Schedule 14D-1 and Schedule 14D-9 and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 7 (except that they will not be available at the regional offices of the Commission). OCEAN ACQUISITION CORPORATION December 4, 1995 44 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER 1. Directors and Executive Officers of Parent. Set forth below is the name, current business address, citizenship and the present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each Director and executive officer of Parent. Unless otherwise indicated, each person identified below is employed by Parent. The principal address of Parent and, unless otherwise indicated below, the current business address for each individual listed below is 30 Hunter Lane, Camp Hill, PA 17011. Each such person is a citizen of the United States. Directors are identified by an asterisk.
NAME AND CURRENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS - ------------------------- ----------------------------------------------------- Alex Grass*.............. Founder of Parent, Honorary Chairman of the Board of Parent and Chairman of the Board's Executive Committee since March 4, 1995 when he retired as Chairman of the Board and Chief Executive Officer of Parent, positions he held since the founding of Parent. Mr. Grass is also a director of Hasbro Inc. He is the father of Martin Grass. Martin L. Grass*......... Chairman of the Board and Chief Executive Officer of Parent since March 4, 1995. Previously, Mr. Grass was President and Chief Operating Officer since April 1989, had been Executive Vice President for three years and prior thereto had served as Senior Vice President. Mr. Grass has served with Parent in various capacities since 1978. Mr. Grass has been a member of the Board of Directors since 1982. Mr. Grass is the son of Alex Grass. Timothy J. Noonan*....... President and Chief Operating Officer of Parent since March 4, 1995 when he was also appointed as a member of the Board of Directors of Parent. Prior thereto, and for more than five years, Mr. Noonan was Executive Vice President of Parent. Preston Robert Tisch* ... Co-Chairman and Co-Chief Executive Officer of Loews Loews Corporation Corporation since March 1988. In addition, since 667 Madison Avenue March 1991, Mr. Tisch has been Chairman of the Board New York, NY 10021 of the N.Y. Football GIANTS, Inc. From August 1986 to March 1988, Mr. Tisch was Postmaster General of the United States. Prior thereto, Mr. Tisch had been President and Chief Operating Officer of Loews Corporation. Mr. Tisch has been a member of the Board of Directors of Parent since 1988. Mr. Tisch is also a director of Loews Corporation, CNA Financial Corporation, Bulova Watch Co., and Hasbro, Inc. Franklin C. Brown*....... Executive Vice President and Chief Legal Counsel of Parent. Prior to Mr. Brown's appointment as Executive Vice President in April 1993, Mr. Brown served as Senior Vice President and General Counsel of Parent. Mr. Brown has been a member of the Board of Directors of Parent since 1981. Philip Neivert* ......... Private investor whose operations are based in 50 Whitestone Lane Rochester, New York. Mr. Neivert has been a member of Rochester, NY 14618 the Board of Directors of Parent since 1969. Gerald Tsai, Jr.* ....... Chairman, President and Chief Executive Officer of Tsai Management, Inc. Delta Life Corporation, a position Mr. Tsai has held 20 Park Avenue since February 1993. Mr. Tsai had been Chairman of Suite 3709 the Executive Committee of the Board of Directors of New York, NY 10166 Primerica Corporation (formerly American Can Company) from December 1988 until April 1991. Mr. Tsai has been a member of the Board of Directors of Parent since 1987. Mr. Tsai is also a director of NAC Re Corporation, Sequa Corporation and Zenith National Insurance Corp., and is a trustee of Meditrust.
I-1
NAME AND CURRENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS - ------------------------- ----------------------------------------------------- Leonard Stern* .......... Chairman of the Board and Chief Executive Officer of Hartz Group, Inc. The Hartz Group, Inc. and affiliated companies, since 667 Madison Avenue 1979. Mr. Stern has been a member of the Board of 24th Floor Directors of Parent since 1986. New York, NY 10021 Henry Taub* ............. Honorary Chairman of the Board of Automatic Data 111 DeVriese Court Processing, Inc. since 1986. Mr. Taub has been a Tenafly, NJ 07670 member of the Board of Directors of Parent since 1984. Mr. Taub is also a director of Hasbro, Inc. Kevin J. Mann............ Executive Vice President Marketing of Parent since March 4, 1995. Previously, Mr. Mann was the Senior Vice President of Purchasing for Parent, a position he held for more than five years. Frank M. Bergonzi........ Executive Vice President and Chief Financial Officer of Parent since March 4, 1995. Previously, Mr. Bergonzi was Senior Vice President of Finance for Parent, a position he held for more than five years. Elliot S. Gerson......... Senior Vice President Philip D. Markovitz...... Senior Vice President Ronald A. Miller......... Senior Vice President Robert R. Souder......... Senior Vice President Joel F. Feldman.......... Senior Vice President Dennis J. Bowman......... Senior Vice President Wayne Gibson............. Senior Vice President Charles R. Kibler........ Senior Vice President Thomas R. Coogan......... Senior Vice President Gerald P. Cardinale...... Vice President Eric S. Elliott.......... Vice President Mary A. Verbryke......... Vice President W. Michael Knievel....... Vice President James E. Krahulec........ Vice President James O. Lott............ Vice President Raymond B. McKeeby....... Vice President Suzanne Mead............. Vice President James M. Talton.......... Vice President Michael F. Morris........ Vice President Joseph S. Speaker........ Vice President I. Lawrence Gelman....... Vice President and Secretary Richard J. Varmecky...... Vice President and Treasurer
I-2 Each of the executive officers listed above has served Parent or its subsidiaries in various executive capacities for the past five years, except for the following individuals: Mr. Gerson joined Parent as Senior Vice President in November 1995. Prior thereto since May 1993, Mr. Gerson was a partner in the law firm of Bolger Picker Hankin & Tannenbaum and prior thereto he was a partner of the law firm of Wolf, Block, Schorr and Solis-Cohen. Mr. Gibson joined Parent as Senior Vice President in June 1994. Prior thereto Mr. Gibson was a partner and director of the Retail and Distribution Practice Group in the Atlanta office of Deloitte & Touche for more than five years. Mr. Bowman has held his present position with Parent for two years. Prior thereto Mr. Bowman was a Senior Information Technology Consultant with McKinsey & Company. Mr. Talton joined Parent on April 1, 1995 as Vice President of Human Resources. For the year prior thereto, Mr. Talton was a Senior Vice President for Executive Assets Company. Prior thereto Mr. Talton held the position of Director of Employee and Labor Relations for PECO Energy Company since 1989. Mr. Varmecky was appointed Vice President and Treasurer of Parent in July 1995. Previously, Mr. Varmecky held the positions of Assistant Vice President and Corporate Controller of Parent for more than five years. Ms. Verbryke was appointed Vice President of Category Management, Purchasing of Parent in August 1995. Previously, Ms. Verbryke served as Assistant Vice President of Category Management, Purchasing of Parent. 2. Directors and Executive Officers of the Purchaser. Set forth below is the name and position of each director and officer of the Purchaser. The principal occupation or employment and citizenship of each such person is set forth in Part 1 of this Schedule I. Each person identified below is employed by the Purchaser and has held such position since the formation of the Purchaser in November 1995. The principal address of the Purchaser and the current business address for each individual listed below is 30 Hunter Lane, Camp Hill, PA 17011. Directors are identified by an asterisk.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS - ------------------------- -------------------------------------------------- Martin L. Grass*......... President Franklin C. Brown*....... Secretary and Vice President Frank M. Bergonzi*....... Treasurer and Vice President Elliot S. Gerson......... Assistant Vice President and Assistant Secretary
I-3 SCHEDULE II REVCO D.S., INC. 1925 ENTERPRISE PARKWAY TWINSBURG, OHIO 44087 INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER This Information Statement is being mailed on or about December 4, 1995, as part of Parent's Tender Offer Statement on Schedule 14D-1 and Schedule 13D (the 'Schedule 14D-1') to holders of record of the Shares at the close of business on or about November 30, 1995. You are receiving this Information Statement in connection with the possible election of persons designated by Parent to a majority of the seats on the Board of Directors of the Company (the 'Parent Designees'). The Merger Agreement requires the Company to use its best efforts to cause the Parent Designees to be elected to the Board of Directors of the Company under the circumstances described therein. This Information Statement is required by section 14(f) of the Securities Exchange Act of 1934, as amended, (the 'Exchange Act') and Rule 14f-1 thereunder. See 'BOARD OF DIRECTORS AND EXECUTIVE OFFICERS--Right to Designate Directors; Parent Designees.' You are urged to read this Information Statement carefully. You are not, however, required to take any action in connection with this Information Statement. Pursuant to the Merger Agreement, the Purchaser commenced the Offer on December 4, 1995. The Offer is scheduled to expire at 12:00 Midnight, New York City time, on Tuesday, January 2, 1996, unless the Offer is extended. The information contained in this Information Statement concerning the Company has been furnished to Parent and the Purchaser by the Company, and Parent assumes no responsibility for the accuracy or completeness of such information. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Schedule 14D-1 and the Offer to Purchase to which this Information Statement is attached. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS GENERAL As of November 29, 1995, the Company had a total of 67,287,990 Shares issued and outstanding, including 700,000 Shares of treasury stock. The Company's By-Laws provide that the business and affairs of the Company will be managed by, or under the supervision of, the Board of Directors, and that the Board of Directors may from time to time fix the number of Directors. The number of Directors is currently twelve. During fiscal year 1995, the Board of Directors held four meetings. All of the Directors, other than Mr. Samuel Zell, attended at least 75% of the meetings of the Board and committees of which they were members. Biographical information regarding each current Director is set forth below. Each member of the Board of Directors will serve until his or her successor is elected by the stockholders or until his or her earlier resignation or removal. Except where indicated below, each member of the Board of Directors has served since June 1, 1992. RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES Pursuant to the Merger Agreement, promptly upon the acceptance for payment of any Shares by Parent or any of its Subsidiaries pursuant to the Offer, Parent shall be entitled to designate such number of Directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product of the total number of Directors on such Board (giving effect to the Directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by the Purchaser, Parent and any of their affiliates bears to the total number of Shares then outstanding. The Company shall, upon request of Parent, use its best efforts promptly either to increase the size of its Board of Directors or, at the Company's election, secure the resignations of such number of its incumbent Directors as is necessary to enable Parent's Designees to be so elected to the Company's Board, and shall cause Parent's Designees to be so elected II-1 to the Company's Board, and shall cause Parent's Designees to be so elected. At such time, the Company shall also cause persons designated by Parent to constitute the same percentage (rounded up to the next whole number) as is on the Company's Board of Directors of (i) each committee of the Company's Board of Directors, (ii) each board of directors (or similar body) of each Subsidiary of the Company and (iii) each committee (or similar body) of each such board, in each case only to the extent permitted by applicable law or the rules of any stock exchange on which the Shares are listed. Notwithstanding the foregoing, until the Effective Time, Parent, the Purchaser and the Company shall use their best efforts to retain as a member of the Company Board at least two Directors who are Directors of the Company on the date the Merger Agreement is signed; provided, that subsequent to the purchase of and payment for Shares pursuant to the Offer, the Parent Designees shall always represent at least a majority of the entire Board of Directors. Parent has informed the Company that each of the Parent Designees listed below has consented to act as a Director. It is expected that the Parent Designees may assume office at any time following the purchase by the Purchaser of a majority of the Shares pursuant to the Offer, which purchase cannot be earlier than January 2, 1996, and that, upon assuming office, the Parent Designees will thereafter constitute at least a majority of the Board of Directors of the Company. PARENT DESIGNEES Parent may designate the following individuals to the Board of Directors of the Company. Such individuals's name, age as of the date hereof, present principal occupation or employment and five-year employment history are set forth below. Alex Grass Mr. Grass, age 67, Founder of Parent, has been the Honorary Chairman of the Board and Chairman of the Board's Executive Committee of Parent since March 4, 1995 when he retired as Chairman of the Board and Chief Executive Officer, positions he held since the founding of Parent. Mr. Grass is also a director of Hasbro Inc. He is the father of Martin Grass. Martin Grass Mr. Grass, age 41, has been Chairman of the Board and Chief Executive Officer of Parent since March 4, 1995. Previously, Mr. Grass was President and Chief Operating Officer since April 1989, had been Executive Vice President for three years and, prior thereto, had served as Senior Vice President. He has served with Parent in various capacities since 1978. He has been a Director of Parent since 1982. He is the son of Alex Grass. Franklin Brown Mr. Brown, age 67, is Executive Vice President and Chief Legal Counsel of Parent. Prior to his appointment as Executive Vice President in April 1993, Mr. Brown served for 13 years as Senior Vice President and General Counsel of Parent. Mr. Brown has been a Director of Parent since 1981. Frank M. Bergonzi Mr. Bergonzi, age 50, is Executive Vice President and Chief Financial Officer of Parent since March 4, 1995. Prior thereto, Mr. Bergonzi served as Senior Vice President of Parent. Timothy J. Noonan Mr. Noonan, age 53, is and has been a Director and President and Chief Operating Officer of Parent since March 4, 1995. Prior thereto, Mr. Noonan was Executive Vice President of Parent. Elliot Gerson Mr. Gerson, age 54, joined Parent as Senior Vice President in November 1995. Prior thereto since May 1993, Mr. Gerson was a partner in the law firm of Bolger Picker Hankin & Tannenbaum and prior thereto he was a partner of the law firm of Wolf, Block, Schorr and Solis-Cohen. II-2 Kevin J. Mann Mr. Mann, age 41, is Executive Vice President Marketing of Parent since 1995. Prior thereto, Mr. Mann was Senior Vice President of Parent. Thomas R. Coogan Mr. Coogan, age 40, has been Senior Vice President of Planning of Parent since July 1995. Prior thereto, Mr. Coogan was Vice President and Treasurer of Parent. BOARD OF DIRECTORS OF THE COMPANY Carl A. Bellini Mr. Bellini, age 61, was selected, effective August 1, 1994, by the Board of Directors to become a member of the Board to fill a vacancy. Mr. Bellini was elected Executive Vice President and Chief Operating Officer of the Company on October 13, 1993. From August 18, 1992 to October 13, 1993, Mr. Bellini served as Executive Vice President of Marketing and Stores of the Company. From approximately December 1991 to April 1992, Mr. Bellini served as Acting Chief Operating Officer of Standard Brands Paint Co., which filed a bankruptcy proceeding in March 1992 and emerged from bankruptcy during 1993. From June 1989 until June 1991, Mr. Bellini served as President and Chief Operating Officer of Erol's, Inc., a video and electronics chain based in Washington, D.C. From December 1987 to June 1989, Mr. Bellini served as Executive Vice President of Store Operations for the Company. Livio M. Borghese Mr. Borghese, age 56, is Chairman of Curtis Industries, Inc., a national distributor of hardware products, chemicals and automotive replacement parts and a manufacturer and distributor of security products. He was with Bear Stearns & Co. from 1968 to 1988, ending as Senior Managing Director and Member of the Executive Committee. Mr. Borghese was Chairman of International Corporate Finance at Prudential-Bache Securities in 1989. He presently owns a company engaged in international trading and investments and is a board member of OMI Corp., the United Kingdom Corp. and Noel Group, Inc. Rod F. Dammeyer Mr. Dammeyer, age 55, is, and since 1985 has been, President and a director of Itel Corporation ('Itel'), a holding and distribution company, and is, and since 1993 has been, Chief Executive Officer of Itel. Mr. Dammeyer is also a director of Great American Management and Investment Inc. (where he has also served, since February 1994, as President and Chief Executive Officer), Capsure Holdings Corp., ANTEC Corporation, Jacor Communications, Inc., Lukens Inc., The Vigoro Corporation, Falcon Building Products, Inc., and a trustee of Van Kampen Merritt closed-end mutual funds and Series Trust. Mr. Dammeyer is an indirect limited partner of the general partner of Zell/Chilmark Fund, L.P. ('Zell/Chilmark'). Mr. Dammeyer was selected, effective December 15, 1992, by the Board of Directors to become a member of the Board to fill a vacancy. Talton R. Embry Mr. Embry, age 48, is, and since 1978 has been, Managing Director and Chief Investment Officer of Magten Asset Management Corporation ('Magten'), which he established and which is an investment advisory firm. Mr. Embry is also a director of Capsure Holdings Corp., Varco International Inc. ('Varco'), TSX Corporation, Combined Broadcasting, Inc., BDK Holdings, Inc. and Thermodyne Holdings Corp. Mr. Embry and Mr. Zell were elected on July 27, 1992, as Co-Chairmen of the Board of Directors of the Company. Ben Evans Mr. Evans, age 66, was a partner of Ernst & Whinney, now Ernst & Young, until his retirement in 1989. Mr. Evans was an audit partner supervising the audits of companies in many diverse industries with heavy concentration in apparel, retailing and commercial finance. From 1978 through 1989, Mr. Evans was a member of Ernst & Whinney's corporate financial services group concentrating on bankruptcy assignments generally on behalf of unsecured creditors committees, with special emphasis in the apparel, retailing, food, drug and pharmaceutical industries. Since 1989, Mr. Evans has been a consultant for the firm of Ernst & Young in their II-3 corporate financial services group continuing work in the bankruptcy area. Mr. Evans is also a director of Jamesway Corporation, Kash n' Karry Food Stores, Inc. and Megafoods Stores, Inc. John V. Guttag Dr. Guttag, age 46, is Professor of Computer Science and Engineering at the Massachusetts Institute of Technology ('MIT'). Since his arrival at MIT in 1979, Dr. Guttag has headed the Laboratory for Computer Science's Systematic Program Development Group and currently is Associate Department Head for Computer Science of the Electrical Engineering and Computer Science Department. Dr. Guttag is a member of the governing council of the School of Engineering and a member of the Executive Committee of the Laboratory for Computer Science at MIT. Dr. Guttag is also a director of the Computing Research Association. Dr. Guttag was selected, effective March 23, 1994, by the Board of Directors to become a member of the Board to fill a vacancy. D. Dwayne Hoven Mr. Hoven, age 54, was elected Chief Executive Officer of the Company effective August 1993 and was elected President of the Company in July 1992. From July 1992 to August 1993, Mr. Hoven served as Chief Operating Officer of the Company. From December 1991 to July 1992, Mr. Hoven served as Executive Vice President, Marketing and Stores of the Company. From June 1992 to July 1992, Mr. Hoven served as a member of the interim office of the President of the Company. From July 1989 to December 1991, Mr. Hoven served as Executive Vice President of Stores of the Company. From January 1988 to June 1989, Mr. Hoven served as Senior Vice President of Distribution of the Company. Mr. Hoven was the sole shareholder, Chairman of the Board and Chief Executive Officer of Davis-Dyer Supply Co., a wholesale distributor, from prior to June 1986 to December 1987. Mr. Hoven is also a director of OfficeMax, Inc. Mr. Hoven was selected, effective August 27, 1992, by the Board of Directors to become a member of the Board to fill a vacancy. Walter B. Reinhold Mr. Reinhold, age 70, is Chairman of the Board of Varco, a company engaged in the business of manufacturing oil and gas well drilling equipment and machinery, drilling rig instrumentation and blow out prevention equipment. He has been with Varco since 1949 and was Chief Executive Officer from 1979 to April 1991, and prior thereto he served as Executive Vice President of Varco. Mr. Reinhold is a standing member of the American Petroleum Institute, Stanford Associates, and the Society of Petroleum Engineers. He is a director of the Amdahl Corporation, the National Ocean Industries Association and the Petroleum Equipment Suppliers Association and a trustee for the City of Hope. Sheli Z. Rosenberg Ms. Rosenberg, age 53, is, and since 1991 has been, a director of American Classic Voyages Co. and Vice President and Assistant Secretary of American Classic Voyages Co. since 1990 and 1991, respectively; is, and since 1980 has been, a member of Rosenberg & Liebentritt, P.C.; is, and since 1984 has been, a director of Great American Management and Investment, Inc., a diversified company with interests in manufacturing, agricultural, chemicals and fertilizers and financial services; is, and since 1985 has been, a director, Vice President and General Counsel of Capsure Holdings Corp., a company engaged in the business of specialty property and casualty insurance; is, and since 1994 has been, President and Chief Executive Officer, and from 1980, a director and Executive Vice President of Equity Financial and Management Company and Equity Group Investments, Inc.; and is, and from January 1994 until March 1995, a director of CFI Industries, Inc., a company engaged in the business of manufacturing thermoformed plastic packaging. Ms. Rosenberg is also a director of Eagle Industries, Inc., Anixter International Inc., Jacor Communications, Inc., Falcon Building Products, Inc. and The Vigoro Corporation, and a trustee of Equity Residential Properties Trust. Ms. Rosenberg has been Vice President of First Capital Benefits Administrators, Inc. ('First Capital') since July 1987. First Capital filed a petition under the federal bankruptcy laws on January 3, 1995. Ms. Rosenberg is an indirect limited partner of the general partner of Zell/Chilmark. Prior to October 4, 1991, Ms. Rosenberg was Vice President of Madison Management Group, Inc., which filed a petition under Chapter 11 of the Bankruptcy Code on November 8, 1991. Ms. Rosenberg was selected, effective March 23, 1994, by the Board of Directors to become a member of the Board to fill a vacancy. II-4 David M. Schulte Mr. Schulte, age 49, is, and since mid-1990 has been, one of two individuals (the other being Mr. Zell) who act as general partners of the general partner of Zell/Chilmark, a limited partnership with capital commitments in excess of $1,000,000,000 formed to invest in and provide capital and management support to companies that are engaged in or are the appropriate subject of significant recapitalizations or corporate restructurings, both in and out of the bankruptcy process. Since 1984, Mr. Schulte has been managing general partner of Chilmark Partners, L.P., a merchant banking firm that has specialized in providing corporate and investment banking advice to companies on the restructuring of their business in conjunction with recapitalizations, although he currently devotes all of his time to the affairs of Zell/Chilmark. Mr. Schulte is also a director of Jacor Communications, Inc. (where he also serves as Chairman of the Board), and Sealy Corporation. Thomas O. Thorsen Mr. Thorsen, age 64, has been a director of The Travelers Corporation, now known as The Travelers Group ('Travelers'), a multiline insurance, financial and health services institution, since 1987. Prior to his retirement in May 1992, Mr. Thorsen was Vice Chairman of the Board of Travelers since 1990. He was Vice Chairman and Chief Financial Officer from 1990 to 1991. Prior thereto, he was Executive Vice President and Chief Financial Officer from 1984 to 1990. Before joining Travelers, Mr. Thorsen served thirty-one years with General Electric Company in various financial positions, including Senior Vice President and Chief Financial Officer from 1980 to 1984. Mr. Thorsen is a director of Iowa Select Farms, Inc. and a member of the advisory committee of Iowa Select Farms, L.P., entities engaged in large scale hog production. He is also a director of PGA Golf Properties, Inc., an affiliate of the PGA of America involved in the development and ownership of golf facilities. Samuel Zell Mr. Zell, age 54, is, and since 1981 has been, Chairman of the Board of Equity Financial and Management Company and, since 1986 has been Chairman of the Board of Equity Group Investments, Inc., two privately owned affiliated investment and management companies; is, and since mid-1990 has been, the other individual (along with Mr. Schulte) who acts as a general partner of the general partner of Zell/Chilmark; is, and since 1985 has been, Chairman of the Board of Anixter International Inc., a company engaged in the distribution of wiring systems products; is, and since 1983 had been, Chairman of the Board, and from 1990 through 1993 has been Chief Executive Officer and President, of Great American Management and Investment, Inc., a diversified company with interests in manufacturing, agricultural, chemicals and fertilizers and financial services; from 1987 has served as Chairman of the Board and Chief Executive Officer of Capsure Holdings Corp., a company engaged in the business of specialty property and casualty insurance; is, and since 1993 has been Chairman of the Board of Equity Residential Properties Trust, a self-administered, self-managed equity real estate investment trust; and is Chairman of the Board and Chief Executive Officer, and from 1993 to March 31, 1995 had served as Co-Chairman of the Board, of Manufactured Home Communities, Inc., a self-administered and self-managed equity real estate investment trust. Mr. Zell is a member of the board of directors of American Classic Voyages Co. (where he has served as Chairman of the Board since August 1993), Sealy Corporation, The Vigoro Corporation, Quality Food Centers, Inc. and Falcon Building Products, Inc., where he has served as Chairman of the Board since 1994. Prior to October 4, 1991, Mr. Zell was President of Madison Management Group, Inc., which filed a petition under Chapter 11 of the Bankruptcy Code on November 8, 1991. Mr. Zell and Mr. Embry were elected on July 27, 1992, as Co-Chairmen of the Board of Directors of the Company. COMMITTEES OF THE BOARD The Company's By-Laws provide that the Board may designate one or more committees to exercise certain powers and authority of the Board of Directors. The Board of Directors committees are as follows: the Executive Committee, the Audit Committee, the Human Resources Committee and the Pension Administration/Investment Committee. Each committee consists of one or more of the Directors of the Company, as determined by the Board. Messrs. Embry (Chairman), Hoven and Zell have been appointed by the Board of Directors to constitute the Executive Committee of the Board of Directors. The Executive Committee is authorized to exercise all of the II-5 powers and authority of the Board of Directors, except to the extent restricted by the General Corporation Law of the State of Delaware (the 'DGCL'). The Executive Committee met once during the fiscal year 1995. The Audit Committee, which met three times during the fiscal year 1995, consists of Messrs. Evans, Guttag, Reinhold, Schulte and Thorsen (Chairman). The Audit Committee's responsibilities include the following: (i) satisfying itself that the Company's internal control system is effective and sufficient to safeguard the assets of the Company and permit the issuance of reliable financial reports for both internal and external purposes; (ii) reviewing the Company's accounting principles and practices and approving changes that are expected to have a significant impact on the Company's current or future financial statements; (iii) satisfying itself that the Company's financial statements present fairly the Company's financial condition and the results of its operations; (iv) satisfying itself as to the adequacy of the Company's financial statement disclosure; and (v) serving as an informed voice on the Board of Directors in evaluating and supporting the financial, accounting and internal audit functions of the Company. The Human Resources Committee, which met twice during the fiscal year 1995, consists of Messrs. Dammeyer, Embry (Chairman) and Evans and Ms. Rosenberg. The Human Resources Committee's responsibilities include the following: (i) reviewing and approving the Company's executive compensation structure and overall benefits program; (ii) administering certain of the Company's benefit plans; (iii) monitoring the performance and succession of senior management and recommending improvements when and as necessary; and (iv) providing for orderly continuity (including by recommending Director nominees to the full Board) of membership on the Board of Directors and its Committees. The Pension Administration/Investment Committee, which met once during the fiscal year 1995, consists of Messrs. Borghese, Dammeyer (Chairman) and Schulte. The Pension Administration/Investment Committee's responsibilities include the following: (i) administering the Revco D.S., Inc. Retirement Income Plan and Trust (the 'Retirement Plan'), as amended, in a nondiscriminatory manner for the exclusive benefit of participants and their beneficiaries, as required by the Retirement Plan documents and applicable law; and (ii) administering the 401(k) Savings Plan of Revco D.S., Inc., as amended (the 'Pension Plan'), in a nondiscriminatory manner for the exclusive purpose of providing benefits to the members and their beneficiaries, in accordance with the Savings Plan documents and applicable law. COMPENSATION OF THE BOARD Only Directors of the Company who are Company employees are eligible to participate in the Company's profit sharing, management incentive or pension plans, except that, under the Pension Plan, Directors who were covered by the Pension Plan as Company employees with vested rights retain such vested rights. Only Directors of the Company who are not Company employees are paid fees or remuneration for services on the Board or on any committee of the Board. Such fees consist of an annual stipend of $30,000 for each Director plus $1,000 for each committee member, other than the committee chairman, or $1,250 for the committee chairman, for each committee meeting attended on a date on which no Board meeting is scheduled. The annual stipend is paid in equal quarterly payments which are subject to a $1,000 reduction for each missed Board meeting. Directors also receive payment of travel and lodging expenses in connection with their attendance at Board and committee meetings. Pursuant to the terms of the Company's 1992 Non-Employee Directors' Stock Option Plan, as amended (the 'Directors' Plan'), current and future non-employee Directors of the Company other than Messrs. Zell, Embry and Schulte are eligible to receive grants of non-qualified stock options. The current non-employee Directors eligible to receive stock options under the Directors' Plan are Messrs. Borghese, Dammeyer, Evans, Guttag, Reinhold and Thorsen and Ms. Rosenberg. On July 27, 1992, each of the Directors identified above (other than Messrs. Dammeyer and Guttag and Ms. Rosenberg) as being eligible to receive options under the Directors' Plan, as well as one former Director who was a Director on July 27, 1992, was granted an option to purchase 10,000 Shares at the fair market value on the date of grant. Mr. Dammeyer was granted, on December 15, 1992, an option to purchase 10,000 Shares at the fair market value on the date of grant. Mr. Guttag and Ms. Rosenberg were each granted, on March 21, 1994, an option to purchase 10,000 Shares at the fair market value on the date of grant. On July 27, 1993, July 27, 1994 and July 27, 1995, each eligible Director (other than Mr. Guttag and II-6 Ms. Rosenberg), and on March 21, 1995, each of Mr. Guttag and Ms. Rosenberg, was granted an option to purchase 5,000 Shares at the fair market value on the date of grant. PROCEEDINGS RELATING TO DIRECTORS On September 9, 1993, Mr. Embry and Magten, without admitting or denying the allegations in a complaint by the Securities and Exchange Commission (the 'Commission'), consented to the entry of judgments enjoining them from violating (and, in the case of Mr. Embry, aiding and abetting violations of) anti-fraud and other provisions of the Exchange Act, the Investment Company Advisors Act of 1940, as amended, and the Investment Company Act of 1940, as amended. The Commission's complaint alleged principally that Mr. Embry failed to advise clients of certain personal trades relevant to clients' holdings, to obtain certain consents required under applicable law in connection therewith and to comply with certain reporting requirements. The complaint did not involve the securities of the Company. As part of the settlement, Mr. Embry made a $1 million payment for the benefit of certain of Magten's clients. During fiscal year 1994, Mr. Thorsen consented, without a hearing and without admitting or denying the matters set forth therein, to the issuance of an order of the Commission, and to the entry of the findings and imposition of the remedial sanctions set forth therein. The matters covered by the order have no relationship either to the Company or its securities. EXECUTIVE OFFICERS OF THE COMPANY Listed below are the names and ages of all executive officers of the Company as of November 29, 1995. Each executive officer will serve until his successor is selected by the Board of Directors or until his earlier resignation or removal. There are no family relationships among these officers.
NAME AND AGE POSITION - ------------------------------- ----------------------------------------------- D. Dwayne Hoven, 54............ President, Chief Executive Officer, and a Director Carl A. Bellini, 61............ Executive Vice President, Chief Operating Officer, and a Director James J. Hagan, 36............. Executive Vice President--Finance and Chief Financial Officer James P. Mastrian, 53.......... Executive Vice President of Marketing Douglas W. Coffey, 54.......... Senior Vice President of Human Resources Edwin R. Gropp, Jr., 48........ Senior Vice President of Information Systems Clarence D. Nichols, 49........ Senior Vice President, Store Operations Jack A. Staph, 50.............. Senior Vice President, Secretary and General Counsel Dante R. Barone, 52............ Vice President, Pharmacy Marketing Charles W. Breckenridge, 53.... Vice President of Control Support Services Brian P. Carney, 35............ Vice President and Controller Ware H. Grove, 45.............. Vice President and Treasurer Wilson A. Lester, 44........... Vice President, Distribution and Transportation Richard M. Mergo, 50........... Vice President, Store Operations Robert T. Raaf, 49............. Vice President of Taxes Jay E. Ross, 43................ Vice President, Merchandising Bruce E. Schwallie, 41......... Vice President, Marketing Robert A. Tamplin, 48.......... Vice President, Store Operations Robert I. Thompson, 42......... Vice President, Professional Operations George T. Watt, 51............. Vice President, Managed Care Hanley H. Wheeler, III, 37..... Vice President, Store Operations Paul N. Harris, 37............. Assistant Secretary Gregory G. Wilson, 47.......... Assistant Controller--Financial Planning
II-7 D. Dwayne Hoven was elected Chief Executive Officer of the Company effective August 1993 and was elected President of the Company in July 1992. From July 1992 to August 1993, Mr. Hoven served as Chief Operating Officer of the Company. From December 1991 to July 1992, Mr. Hoven served as Executive Vice President, Marketing and Stores of the Company. From June 1992 to July 1992, Mr. Hoven served as a member of the interim office of the President of the Company. From July 1989 to December 1991, Mr. Hoven served as Executive Vice President of Stores of the Company. From January 1988 to June 1989, Mr. Hoven served as Senior Vice President of Distribution for the Company. Mr. Hoven is also is a director of Office Max, Inc. Mr. Hoven was the sole shareholder, Chairman of the Board and Chief Executive Officer of Davis-Dyer Supply Co., a wholesale distributor, from prior to June 1986 to December 1987. Mr. Hoven was selected, effective August 27, 1992, by the Board of Directors to become a member of the Board to fill a vacancy. Carl A. Bellini was elected Executive Vice President and Chief Operating Officer of the Company on October 13, 1993. From August 18, 1992 to October 13, 1993, Mr. Bellini served as Executive Vice President of Marketing and Stores of the Company. From approximately December 1991 to April 1992, Mr. Bellini served as Acting Chief Operating Officer of Standard Brands Paint Co., which filed a bankruptcy proceeding in March 1992 and emerged from bankruptcy during 1993. From June 1989 until June 1991, Mr. Bellini served as President and Chief Operating Officer of Erol's, Inc., a video and electronics chain based in Washington, D.C. From December 1987 to June 1989, Mr. Bellini served as Executive Vice President of Store Operations of the Company. Mr. Bellini was selected, effective August 1, 1994, by the Board of Directors to become a member of the Board to fill a vacancy. James J. Hagan was elected Executive Vice President--Finance and Chief Financial Officer of the Company on August 8, 1995. From July 1993 to August 1995, Mr. Hagan served as Senior Vice President, Real Estate of the Company. From September 1988 to July 1993, Mr. Hagan was Vice President and Treasurer of the Company. From May 1987 to September 1988, Mr. Hagan was Assistant Treasurer of the Company. From prior to June 1986 to May 1987, Mr. Hagan served as Director, Treasury Services, of A&P. James P. Mastrian was elected Executive Vice President of Marketing of the Company in July 1994. From June 1992 to July 1994, Mr. Mastrian served as Senior Vice President, Marketing of the Company. From September 1990 to June 1992, Mr. Mastrian served as Vice President and General Manager, Marketing of the Company. From March 1990 to September 1990, Mr. Mastrian served as Executive Vice President of Milo Corp., a wholesaler and retailer of professional beauty and barber products. From October 1989 to March 1990, Mr. Mastrian was President and Chief Operating Officer of SuperX Drug Company of Arizona. From July 1987 to October 1989, Mr. Mastrian was Senior Vice President, Merchandising and Marketing of the Sherwin-Williams Company Paint Stores Group. Before July 1987, Mr. Mastrian was employed by Gray Drug Fair, a division of Sherwin-Williams Company, and served as President and General Manager of Gray Drug Fair from prior to June 1986 to July 1987. Douglas W. Coffey was elected Senior Vice President of Human Resources of the Company in July 1993. For five years prior to July 1993, Mr. Coffey served as Senior Vice President of Human Resources of Burdine's Department Stores, a division of Federated Department Stores. Edwin R. Gropp, Jr. was elected Senior Vice President, Information Systems of the Company in July 1993. For more than five years prior to July 1993, Mr. Gropp was employed most recently as Group Vice President of Management Services of Ralphs Grocery Company, a grocery chain based in Compton, California. Clarence D. Nichols was elected Senior Vice President, Store Operations, of the Company in June 1992. From November 1987 to June 1992, Mr. Nichols served as Regional Vice President for the Company's southern region. From August 1986 to November 1987, Mr. Nichols served as a regional merchandise manager for the Company. Jack A. Staph has been the Company's Senior Vice President, Secretary and General Counsel since December 1986 and served as a member of the interim office of the President of the Company from June 1992 to July 1992. Mr. Staph had been continuously employed as a member of the Company's in-house legal staff for more than ten years prior to June 1986. Dante R. Barone was elected Vice President, Pharmacy Marketing of the Company in May 1989. From March 1988 to May 1989, Mr. Barone served as divisional Vice President of Pharmacy Marketing of the II-8 Company. From prior to June 1986 to March 1988, Mr. Barone was a senior buyer for Walgreen Drug Co., a drugstore chain with retail store locations throughout the United States. Charles W. Breckenridge was elected Vice President, Control Support Services of the Company in June 1992. Mr. Breckenridge served as the Company's director of internal audit from August 1989 to June 1992. From February 1986 to August 1989, Mr. Breckenridge served as Director of Business Investigation Services at the public accounting firm of Coopers & Lybrand. Brian P. Carney was elected Vice President and Controller of the Company in June 1992. From October 1989 to June 1992, Mr. Carney served as the Company's director of general accounting. Prior to October 1989, Mr. Carney was a manager with the public accounting firm of Arthur Andersen & Co. (now known as Arthur Andersen LLP). Ware H. Grove was elected Vice President and Treasurer of the Company in August 1994. From March 1991 to July 1994, Mr. Grove was Vice President and Treasurer of Computerland Corporation (renamed Vaastar in March 1994), a distributor and reseller of personal computers and related services. Prior to that, Mr. Grove served as Assistant to the President and Assistant Treasurer for Manville Corporation, a manufacturer of building materials and paper products. Wilson A. Lester was elected Vice President, Distribution and Transportation of the Company in August 1995. From December 1993 to August 1995, Mr. Lester served as senior vice president of logistics of Fabri-Centers, Inc. From June 1990 to December 1993, Mr. Lester served as senior vice president of distribution for Phar-Mor, Inc. Richard M. Mergo was elected Vice President, Store Operations of the Company in March 1995. Mr. Mergo served as a regional Vice President of the Company from 1986 to March 1995. Robert T. Raaf assumed duties as Vice President of Taxes of the Company in July 1994. From July 1993 to July 1994, Mr. Raaf served as Vice President and Treasurer of the Company. From September 1989 to July 1993, Mr. Raaf was Vice President, Tax of the Company. For more than three years prior to September 1989, Mr. Raaf was a tax partner with Arthur Andersen & Co. (now known as Arthur Andersen LLP). Jay E. Ross was elected Vice President, Merchandising of the Company in March 1995. Mr. Ross has been continuously employed by the Company since 1969, most recently as director of merchandising. Bruce E. Schwallie was elected Vice President, Marketing of the Company in March 1995. From February 1991 until March 1995, Mr. Schwallie served in various capacities within the Company's marketing department, most recently as divisional merchandise manager. From September 1990 until January 1991, Mr. Schwallie was employed by RDS Acquisition Corp. in Phoenix, Arizona, where he served as director of merchandising. Robert A. Tamplin was elected Vice President, Store Operations of the Company in March 1995. Mr. Tamplin has been continuously employed by the Company for more than 25 years, most recently as a regional Vice President. Robert I. Thompson was elected Vice President, Professional Operations of the Company in March 1995. Mr. Thompson has been continuously employed by the Company since 1978, most recently as regional director of pharmacy operations. George T. Watt was elected Vice President, Managed Care of the Company in August 1995. Mr. Watt served as a Vice President of the Company from August 1994 until August 1995. From November 1986 until August 1994, Mr. Watt was employed by Thrift Drug Corporation, where he served as Vice President of Sales and Client Service for Thrift Drug's subsidiary, TDI Managed Care Services, Inc. Hanley H. Wheeler, III was elected Vice President, Store Operations of the Company in March 1995. Mr. Wheeler has been continuously employed by the Company since 1981, most recently as regional director of operations. Paul N. Harris was elected Assistant Secretary of the Company in July 1993. From prior to May 1989 to July 1993, Mr. Harris served as Senior Counsel for the Company. Gregory G. Wilson was elected Assistant Controller-Financial Planning of the Company in June 1992. From February 1988 to June 1992, Mr. Wilson served as director of financial planning and analysis of the Company, and from prior to June 1986 to February 1988, he served as director of investor relations of the Company. II-9 SECURITY OWNERSHIP OF CERTAIN PERSONS The following table sets forth information regarding the stock ownership as of November 16, 1995 of all Directors of the Company, all Directors and officers as a group, and all persons who are known by the Company to own beneficially more than 5% of the Shares. Each holder of Shares is entitled to one vote for each Share owned.
NAME NUMBER OF SHARES PERCENTAGE - ---------------------------------------- ---------------- ---------- FMR Corp. .............................. 9,450,822(1) 14.20%(1) 82 Devonshire Street Boston, Massachusetts 02109 General Motors Investment............... 3,107,603(2) 4.70%(2) Management Corporation 767 Fifth Avenue New York, New York 10153 Magten Asset Management Corporation..... 6,928,300(3) 10.40%(3) 35 East 21st Street New York, New York 10010 Zell/Chilmark Fund, L.P................. 13,102,288(4) 19.70%(4) Two North Riverside Plaza, Suite 1500 Chicago, Illinois 60606 Directors: Carl A. Bellini....................... 136,086(5) * (5) Livio M. Borghese..................... 21,199(6) * (6) Rod F. Dammeyer....................... 22,025(7) * (7) Talton R. Embry....................... 7,278,449(8) 10.93%(8) Ben Evans............................. 32,624(9) * (9) John V. Guttag........................ 15,521(10) * (10) D. Dwayne Hoven....................... 325,214(11) * (11) Walter B. Reinhold.................... 26,310(12) * (12) Sheli Z. Rosenberg.................... 7,169(13) * (13) David M. Schulte...................... 13,102,288(4) 19.70%(4) Thomas O. Thorsen..................... 22,042(14) * (14) Sam Zell.............................. 13,102,288(4) 19.70%(4) Named Executive Officers: D. Dwayne Hoven....................... 325,214(11) * (11) Carl A. Bellini....................... 136,086(5) * (5) Gregory K. Raven...................... 200,392(15) * (15) Jack A. Staph......................... 104,906(16) * (16) James P. Mastrian..................... 95,459(17) * (17) All Directors and officers as a group (34 individuals)................ 21,736,491(4)(5)(6)(7)(8) 32.64%(4)(5)(6)(7)(8)(9)(10) (9)(10)(11)(12) (11)(12)(13)(14)(15)(16) (13)(14)(15)(16) (17)(1)(18)(19) (17)(18)(19)
- ------------------ * Less than 1% (1) Based on a Statement on Schedule 13G, dated February 13, 1995, filed by FMR Corp., a corporation organized under the laws of the Commonwealth of Massachusetts. In its filing, FMR Corp. states that: Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp. and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of (Footnotes continued on next page) II-10 (Footnotes continued from previous page) 8,862,866 Shares as a result of acting as investment adviser to several investment companies registered under Section 8 of the Investment Company Act of 1940; Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank as defined in Section 3(a)(6) of the Exchange Act, is the beneficial owner of 563,422 Shares as a result of its serving as investment manager of institutional accounts; and Fidelity International Limited, a Bermudian joint stock company incorporated for an unlimited duration by private act of the Bermuda legislature, is the beneficial owner of 24,534 Shares. (2) Based on a Statement on Schedule 13G, dated April 28, 1994, filed by General Motors Investment Management Corporation ('GMIMCo'), a corporation organized under the laws of the State of Delaware. In its filing, GMIMCo states that it is registered as an investment adviser under the Investment Advisers Act of 1940 and that its principal business is providing investment advice and investment management services with respect to the assets of certain employee benefit plans of General Motors Corporation ('GM') and its subsidiaries and with respect to the assets of certain direct and indirect subsidiaries of GM and associated entities. GMIMCo also states that it has the responsibility to select and terminate investment managers with respect to such plans and, in this regard, three such retained managers, one of whom is Magten, manage the Shares to which this footnote relates on a discretionary basis (including with respect to voting and investment power). GMIMCo states that, in view of its authority to terminate such managers, the information in the Schedule 13G was provided. (3) Magten has beneficial ownership of an aggregate 6,928,300 Shares. Investment advisory clients of Magten beneficially own all of the Shares shown as beneficially owned by Magten (collectively, the 'Investment Advisory Shares'). Magten has shared dispositive power with respect to all of the Shares beneficially owned by the clients, shared voting power with respect to 5,009,209 of these Shares and no voting power with respect to 1,919,091 of these Shares. Magten may be deemed to be the beneficial owner of the Investment Advisory Shares because Magten's investment advisory contracts with its investment advisory clients grant it the power to vote and dispose of such Shares. Magten has declared that pursuant to Rule 13d-4 promulgated under the Exchange Act, the filing by it of its Schedule 13D shall not be construed as an admission that it is the beneficial owner of those Shares. (4) All of these Shares are owned by Zell/Chilmark. Zell/Chilmark is a Delaware limited partnership. The general partner of Zell/Chilmark is ZC Limited Partnership, an Illinois limited partnership whose sole business is to act as general partner of and manage the investment of the capital of Zell/Chilmark. The sole general partner of ZC Limited Partnership is ZC Partnership, a Delaware general partnership, the sole partners of which are ZC, Inc., an Illinois corporation wholly-owned and controlled by Mr. Zell, and CZ Inc., a Delaware corporation wholly-owned and controlled by Mr. Schulte. Mr. Zell and Mr. Schulte are Directors of the Company. Under the regulations of the Commission, Mr. Zell and Mr. Schulte may be deemed to be the beneficial owners of all of the Shares which are beneficially owned by Zell/Chilmark. Mr. Zell and Mr. Schulte disclaim beneficial ownership of the Shares beneficially owned by Zell/Chilmark. (5) Consists of (i) 35,216 Shares held by Mr. Bellini individually; (ii) 1,305 Shares held by Mr. Bellini's son who resides with him; and (iii) 99,565 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Company's Long-Term Incentive Plan. Mr. Bellini disclaims beneficial ownership of the Shares referred to in (ii) above. (6) Consists of (i) 6,353 Shares held by Mr. Borghese individually; and (ii) 14,846 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (7) Consists of (i) 22,025 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (8) Mr. Embry, as sole stockholder and a Managing Director of Magten, may be deemed to beneficially own all the Shares beneficially owned by Magten, as described in footnote (3) above. In addition, Mr. Embry owns directly 1,413 Shares. Mr. Embry has sole voting and dispositive power with respect to the 1,413 Shares owned directly by him. Mr. Embry, as trustee of four pension trusts for the benefit of current and former employees of Magten, including himself (the 'Pension Trusts'), also has sole voting and dispositive power (Footnotes continued on next page) II-11 (Footnotes continued from previous page) with respect to 338,320 Shares owned by such trusts (collectively, the 'Pension Trust Shares'). Mr. Embry, as trustee for three trusts for members of his family (the 'Family Trusts'), has sole voting and investment power with respect to 8,061 Shares (collectively, the 'Family Trust Shares'). Mr. Embry, as custodian for his son, has sole dispositive and voting power with respect to 942 Shares, and may be deemed under Section 13(d) of the Exchange Act to have beneficial ownership of 1,413 Shares owned by his wife. The Shares described in footnote (3) above as beneficially owned by Magten with respect to which Mr. Embry may be deemed a beneficial owner, together with the additional Shares described in this footnote. (8) with respect to which Mr. Embry may also be deemed a beneficial owner, aggregate 7,278,449 Shares. Mr. Embry has declared that pursuant to Rule 13d-4 the filing by him of his Schedule 13D shall not be construed as an admission that he is the beneficial owner of the Investment Advisory Shares, the Pension Trust Shares (to the extent such Shares exceed his and his wife's pro rata interest as beneficiaries of such trusts) or the Family Trust Shares. Mr. Embry disclaims beneficial ownership of the Shares owned by his wife. (9) Consists of (i) 10,582 Shares held by Mr. Evans individually; and (ii) 22,042 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (10) Consists of (i) 8,532 Shares held by Mr. Guttag individually; and (ii) 7,169 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (11) Consists of (i) 38,218 Shares held jointly by Mr. Hoven and his wife, and (ii) 286,996 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Company's Long-Term Incentive Plan. (12) Consists of (i) 4,268 Shares held by Mr. Reinhold individually; and (ii) 22,042 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (13) Consists of 7,169 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (14) Consists of 22,042 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan. (15) Consists of (i) 10,722 Shares held by Mr. Raven individually; (ii) 187,687 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Company's Long-Term Incentive Plan; and (iii) 1,983 Shares held by Mr. Raven's wife. Mr. Raven disclaims beneficial ownership of the Shares owned by his wife. On August 3, 1995, Mr. Raven announced his resignation from his positions with the Company. (16) Consists of (i) 10,512 Shares held by Mr. Staph individually; and (ii) 94,394 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Company's Long-Term Incentive Plan. (17) Consists of (i) 8,884 Shares held by Mr. Mastrian individually; and (ii) 95,459 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Company's Long-Term Incentive Plan. (18) Includes 1,141,992 Shares subject to currently exercisable non-qualified stock options granted pursuant to the Directors' Plan and the Company's Long-Term Incentive Plan. (19) Does not include 1,406,538 Shares subject to non-qualified stock options that will vest and become immediately exercisable pursuant to the Directors' Plan and the Company's Long-Term Incentive Plan as a result of the 'change of control' that will occur upon the acceptance for payment of Shares by Parent or any of its Subsidiaries pursuant to the Offer. II-12 EXECUTIVE COMPENSATION COMPENSATION AND OPTION TABLES The following tables show information with respect to the annual compensation for services in all capacities to the Company for the fiscal years ended May 29, 1993, May 28, 1994 and June 3, 1995 of (i) the Chief Executive Officer and (ii) those persons who were, at June 3, 1995, the other four most highly compensated executive officers of the Company (the 'named executive officers'). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------------------------- AWARDS ANNUAL COMPENSATION ---------------------- PAYMENTS ----------------------------------- SECURITIES ------------------- OTHER RESTRICTED UNDERLYING LONG-TERM ALL ANNUAL STOCK OPTIONS INCENTIVE OTHER NAME AND SALARY(5) BONUS(6) COMPENS. AWARD(S) GRANTED PAYMENTS COMPENS. PRINCIPAL POSITION YEAR $ $ $ $ $ $ $ - ---------------------------- ---- --------- -------- -------- ---------- ---------- --------- -------- D. Dwayne Hoven(1).......... 1995 $ 600,001 $877,548 (7) $0 336,009 $ 0 $277 President and Chief 1994 488,461 407,164 (7) 0 105,500 0 0 Executive Officer 1993 394,339 200,000 (7) 0 300,000 0 0 Carl A. Bellini(2).......... 1995 401,332 439,742 (7) 0 104,263 0 185 Executive Vice President 1994 342,594 227,180 (7) 0 45,000 0 0 and Chief Operating 1993 241,250 109,675 (7) 0 125,000 0 0 Officer Gregory K. Raven(3)......... 1995 332,463 362,895 (7) 0 84,507 0 151 Executive Vice President- 1994 313,283 207,663 (7) 0 0 0 0 Finance and Chief 1993 296,702 127,459 (7) 0 250,000 0 0 Financial Officer James P. Mastrian(4)........ 1995 285,865 313,254 (7) 0 71,536 0 132 Executive Vice President 1994 237,312 157,645 (7) 0 20,000 0 0 of Marketing 1993 220,272 94,276 (7) 0 100,000 0 0 Jack A. Staph............... 1995 242,208 231,919 (7) 0 41,814 0 109 Senior Vice President, 1994 225,241 149,304 (7) 0 0 0 0 Secretary and General 1993 217,192 91,855 (7) 0 125,000 0 0 Counsel
- ------------------ (1) D. Dwayne Hoven was elected Chief Executive Officer of the Company effective August 1993 and was elected President of the Company in July 1992. From December 1991 to July 1992, Mr. Hoven served as Executive Vice President, Marketing and Stores of the Company. (2) Carl A. Bellini was elected Executive Vice President and Chief Operating Officer on October 13, 1993. From August 1992 to October 1993, Mr. Bellini served as Executive Vice President of Marketing and Stores of the Company. From June 1992 to August 1992, Mr. Bellini was not an employee of the Company. (3) On August 3, 1995, Gregory K. Raven announced his resignation from his positions with the Company. (4) James P. Mastrian was elected Executive Vice President of Marketing of the Company on July 26, 1994. From June 1992 to July 1994, Mr. Mastrian served as Senior Vice President of Marketing of the Company. (5) Salary information for fiscal year 1995 is based upon a fifty-three week reporting period. Salary information for fiscal years 1994 and 1993 is based upon fifty-two week reporting periods. (6) Under the provisions of the EVA bonus plan (as defined below), certain limitations exist regarding cash payout of the bonus earned. A portion of the bonus earned is deferred until future years and is paid out in accordance with plan provisions. Accordingly, not all of the bonus earned was paid. (7) Amounts are below the minimum amount required to be disclosed by applicable Exchange Act rules. II-13 OPTIONS GRANTED IN FISCAL YEAR 1995 INDIVIDUAL GRANTS(1)
% OF TOTAL POTENTIAL REALIZABLE OPTIONS VALUE OF ASSUMED GRANTED ANNUAL RATES OF STOCK TO PRICE APPRECIATION FOR OPTIONS EMPLOYEES EXERCISE OF OPTION TERM (2) GRANTED IN FISCAL BASE PRICES ---------------------- NAME $ YEAR ($/SH) EXPIRATION DATE 5% 10% - ----------------------- ------- --------- ----------- ------------------- ---------- ---------- Dwayne Hoven........... 300,000 20.2% $ 18.00 July 26, 2004 $2,529,900 $7,740,300 26,952(4) 1.8% 18.00 July 27, 2002 201,547 524,728 9,057(4) 0.6% 18.00 December 13, 2003 70,056 214,461 Carl A. Bellini........ 30,000 2.0% 19.00 September 20, 2004 267,090 817,020 60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060 10,400(4) 0.7% 18.00 August 19, 2002 69,701 194,407 3,863(4) 0.3% 18.00 December 13, 2003 29,880 91,472 Gregory K. Raven(3).... 60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060 2,455(4) 0.2% 18.00 July 27, 2002 21,098 50,536 22,052(4) 1.5% 18.00 July 27, 2002 164,905 429,330 James P. Mastrian...... 60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060 9,801(4) 0.7% 18.00 July 27, 2002 73,292 190,816 1,735(4) 0.1% 18.00 January 3, 2004 13,420 41,083 Jack A. Staph.......... 30,000 2.0% 18.00 July 26, 2004 252,990 774,030 9,801(4) 0.7% 18.00 July 27, 2002 73,292 190,816 2,013(4) 0.1% 18.00 July 27, 2002 17,300 41,438
- ------------------ (1) All options granted after July 27, 1993 are granted at the fair market value of the Shares at the date of grant. On each anniversary of the date of grant, the exercise price for each option granted increases annually by an amount equal to 5% of the option price then in effect for all non-vested options. Except for certain immediately vested options granted in July 1992, options granted pursuant to the Company's Long-Term Incentive Plan vest as follows: 20% on the first anniversary of the date of grant; 40% on the second anniversary of the date of grant; 60% on the third anniversary of the date of grant; 80% on the fourth anniversary of the date of grant and 100% on the fifth anniversary of the date of grant. Options granted are for a term of not more than ten years from the date of grant. (2) The dollar amounts under these columns are the result of the calculations at the 5% and 10% rates set by the Commission and, therefore, are not intended to forecast possible future appreciation, if any, of the Company's stock price. The dollar amounts assume that the exercise price increases by 5% per year on all non-vested options. The Company did not use an alternative formula for a grant date valuation, as the Company is not aware of any formula which will determine with reasonable accuracy a present value based on the future unknown or volatile factors. (3) On August 3, 1995, Gregory K. Raven announced his resignation from his positions with the Company. (4) These options were granted pursuant to anti-dilution provisions of the Company's Long-Term Incentive Plan as a result of a rights offering consummated in fiscal 1995. These options vest in accordance with the terms of the original option grant to which they pertain. II-14 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND 1995 FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS OF FISCAL FISCAL YEAR-END ACQUIRED ON VALUES YEAR-END EXERCISABLE/ EXERCISABLE/ EXERCISE REMITTED UNEXERCISABLE UNEXERCISABLE NAME (#) ($) (#) ($) - ----------------------- ----------- -------- ---------------------- ----------------------- D. Dwayne Hoven........ 0 $0 $143,695 $ 1,430,111 0 572,814 2,137,086 Carl A. Bellini........ 0 0 44,352 417,653 211,411 937,202 Gregory K. Raven(1).... 0 0 126,277 1,408,271 208,230 1,482,094 James P. Mastrian...... 0 0 48,268 506,232 143,268 742,353 Jack A. Staph.......... 0 0 66,434 747,152 95,880 660,987
- ------------------ (1) On August 3, 1995, Gregory K. Raven announced his resignation from his positions with the Company. SUMMARY OF COMPENSATION PLANS Described below are material employment and employee benefit agreements and arrangements as they currently exist. Pursuant to the terms of the Merger Agreement, certain terms and conditions of such agreements and arrangements will be amended. A description of such amendments is set forth in Section 11 of the Offer to Purchase under 'Merger Agreement--Employee Benefits and Employee Matters.' EXECUTIVE COMPENSATION PROGRAM Base salary and bonus guidelines are set forth in the Company Executive Compensation Program. The purpose of the Executive Compensation Program is to establish and maintain a performance and achievement oriented environment throughout the Company. The program emphasizes the development of the Company so as to achieve and sustain above average growth in earnings with excellence in management, retailing, pharmacy and customer service. With this emphasis in mind, the program is designed so that executives may earn higher than average total compensation (base salary plus bonus) for doing an above-average job. Base Salary. The Company's overall salary structure is reviewed annually, using outside executive compensation surveys of the retail industry in general and chain drugstores in particular; to ensure that it remains competitive. Positions are classified within the salary structure on the basis of assigned responsibilities. The salary mid-point of a grade assigned to a position is the salary level that approximates the Company's judgment, based on an evaluation of the latest survey information available, as to appropriate compensation levels. Where salary information is unavailable for a particular position, the salary grade assigned is based on other positions having similar responsibilities within the Company and in companies with comparable revenues. Individual base salaries are reviewed at least annually; however, salaries are not necessarily increased each year. Decisions relating to salary increases are based upon guidelines furnished by senior management. Salary increases are granted based on each executive's performance as well as his position in the applicable salary range. Bonus. On July 27, 1993 the Board of Directors implemented the Company's revised bonus program. The objectives underlying the revised bonus program are to (i) more closely link bonus awards to value added for the Company's stockholders, and (ii) promote a culture of performance and ownership among the Company's managers. The program involves sharing certain of the Company's business risks with stockholders, but also provides access to the upside potential associated with value creation. Accordingly, the program rewards long- term enduring improvements in stockholder value. The program, as revised effective with the 1995 fiscal year to ensure the existence of a direct link between bonuses and total stockholder value, is described below. All II-15 executive officers and senior managers, and certain regional and district managers are eligible to receive bonuses under the bonus program. Awards under the bonus program are focused on the generation of improved economic value added ('EVA'), which consists of net operating profit after taxes, as reduced by a capital charge. EVA results from (i) enhanced business efficiencies, (ii) profitable growth, and (iii) strategic expense reduction. For the fiscal year ended June 3, 1995, EVA was $40.289 million and target EVA was $20.379 million. At the beginning of each fiscal year, participants in the bonus program are credited with a number of performance units equal to their target bonus, which is a percentage (ranging from 15% to 60% for the Chief Executive Officer) of their base compensation. At the end of the fiscal year the units have a value based on the Company's EVA performance. If EVA improves sufficiently (currently, EVA for a fiscal year must improve by $5 million from the average of the previous year's actual EVA and the previous year's target EVA), the units have a $1.00 value and the target award is earned. Underperformance results in a less than $1.00 unit value while particularly strong performance generates a greater than $1.00 value. The percentage increase or decrease is determined by reference to an EVA target interval based on a percentage of the Company's capital. More specifically, the excess or deficit of actual EVA over target EVA is divided by the target interval to determine the percentage value of a unit. Bonus awards flow through a 'bonus bank.' If the bank balance is less than a specified percentage of the target award, the entire balance is paid, however, when the bank balance exceeds the specified percentage of the target award, only a portion of the excess is paid currently, and the balance is deferred and ultimately paid only if EVA performance is sustained. At the end of each three-year period, the expected EVA improvement target, as well as the EVA target interval, is adjusted to equal a percentage of the Company's ending capital at such time based on the average EVA improvement of certain representative companies and the average standard deviation of EVA of these companies. The amount of the bonus paid to the participants other than the Chief Executive Officer is also subject to the participant's satisfaction of individual performance objectives. The portion of the bonus based on satisfaction of individual performance goals ranges from 25% to 75%. For the plan year ended June 3, 1995, the Company exceeded target EVA with respect to the named executive officers by 142.21%, resulting in a value per unit of $2.42. LONG-TERM INCENTIVE PLAN The Long-Term Incentive Plan was adopted by the Board of Directors on July 27, 1992 and approved by the Company's stockholders on October 14, 1992. There are 6,520,000 Shares reserved for issuance under the Long-Term Incentive Plan; as of November 16, 1995, 2,548,922 Shares remained available for grants under the Long-Term Incentive Plan. The Long-Term Incentive Plan provides for the grant of incentive and non-qualified stock options, reload options, stock appreciation rights, restricted stock awards, stock bonus awards and performance plan awards. The Committee administers the Long-Term Incentive Plan and has sole discretion to determine those employees to whom awards will be granted, the number of awards to be granted, the provisions applicable to each award and the time periods during which the awards may be exercised. No awards may be granted after July 27, 2002. To date, long-term incentive awards granted under the Long-Term Incentive Plan consist solely of non-qualified stock options. In order to enhance the link to stockholder value and to create a strong performance requirement for options, the options include a 5% cost of capital charge. Under this approach, the exercise price of options granted under the Long-Term Incentive Plan increases annually by 5% until the Shares subject to the option vest. Awards made under the Long-Term Incentive Plan are intended to provide key employees with additional incentives designed to enhance the profitable growth of the Company as well as the value of the Shares. During the fiscal year ended June 3, 1995, the Committee awarded non-qualified stock options to acquire 336,009 Shares, at a price per Share of $18, to the President and Chief Executive Officer, and an aggregate of 302,120 Shares, at an average price per share of $18.10, to the other named executive officers, for a total of 638,129 of the 1,485,239 options that were awarded under the Long-Term Incentive Plan for the fiscal year ended June 3, 1995. These awards were made in recognition of the Company's strong financial performance and commitment to excellence in the conversion of stores acquired from Hook-SupeRx, Inc., and were based on a multiple of competitive annual grants as observed in the marketplace for persons in similar positions. II-16 With the exception of a total of 75,000 immediately vested grants (25,000 of which were awarded to the Chief Executive Officer, all of which have been exercised) made on July 27, 1992 to the named executive officers, awards made under the Long-Term Incentive Plan vest over a period of five years at a rate of 20% each year, thereby encouraging the retention of key employees who receive awards. During the fiscal year ended June 3, 1995, the Committee adjusted the number of options held by officers and key employees through the grant of fair market value options pursuant to anti-dilution provisions of the Long-Term Incentive Plan as a result of the completion during the fiscal year of a rights offering. EMPLOYMENT AGREEMENT WITH CERTAIN EXECUTIVES The Company has entered into employment agreements (the 'Executive Employment Agreements') with each of the named executive officers. Each of the Executive Employment Agreements is effective until terminated by the Company or the named executive officer, with or without cause. The Executive Employment Agreements provide that, in the event of a termination for cause by the named executive officer or a termination without cause by the Company, the Company will have an obligation to continue benefits and to pay the terminated named executive officer's salary for a period of 24 months. DEFINED BENEFIT PLAN The Pension Plan is a defined benefit pension plan generally covering employees of the Company, other than those covered by collective bargaining agreements that provide for pension benefits. On reaching normal retirement at or after age 65, a participant is generally entitled to receive a monthly retirement benefit for life. Alternative actuarially equivalent forms of benefit payments are provided for in the Pension Plan. Vesting under the Pension Plan occurs after five years of service (with no vesting where less than five years of service has been completed). The annual retirement benefit at the normal retirement age of at least 65 is equal to an amount which, when added to the participant's social security benefit, is the product of the employee's average earnings for the last five years of his service and the applicable percentage set forth in the table below. If the employee has fewer than 30 years of credited service with the Company, the benefit determined by this formula is reduced by a percentage determined substantially by the ratio of the number of years of credited service to 30. A participant who has attained age 55 and has completed five years of service may elect early retirement with reduced monthly benefit payments. The amounts shown in the following table are based on the pension being paid during the lifetime of the retired employee only, including social security benefits, and would be reduced for service of less than 30 years and on an actuarially equivalent basis in the event of a survivor benefit or other optional form of payment.
RETIREMENT BENEFIT FINAL AVERAGE (% OF FISCAL MONTHLY PAY AVERAGE PAY) - ------------------ ------------------ $ 500............ 81% 1,000............ 73 1,500............ 65 2,000............ 60 2,500............ 56 3,000............ 54 3,500............ 52 4,000............ 51 4,500 or more.... 50
II-17 The following table sets forth the estimated annual benefits (including social security) payable to a participant who qualifies for normal retirement in 1995 with the specified average earnings during the last five calendar years prior to retirement and the specified years of credited service:
AVERAGE ANNUAL EARNINGS YEARS OF CREDITED SERVICE FOR FIVE-YEAR PERIOD ---------------------------------------------------------- PRECEDING RETIREMENT(1) 10 15 20 25 30 OR MORE - ----------------------- -------- -------- -------- -------- ---------- $125,000............... $ 30,426 $ 38,445 $ 46,464 $ 54,483 $ 62,500 150,000............... 34,592 44,694 54,796 64,898 75,000 175,000............... 38,758 50,943 63,128 75,313 87,500 200,000............... 42,926 57,195 71,464 85,733 100,000 225,000............... 47,092 63,444 79,796 96,148 112,500 250,000............... 51,258 69,693 88,128 106,563 125,000* 300,000............... 59,592 82,194 104,796 127,398* 150,000* 400,000............... 76,258 107,193 138,128* 169,063* 200,000* 450,000............... 84,592 119,694 154,795* 189,898* 225,000* 500,000............... 92,926 132,195* 171,463* 210,733* 250,000* 600,000............... 109,592 157,194* 204,796* 252,398* 300,000* 700,000............... 126,258* 182,193* 238,128* 294,063* 350,000*
- ------------------ (1) For plan years beginning on or after January 1, 1989, the Internal Revenue Code, as amended (the 'Code') limits the amount of compensation that can be used for plan calculation purposes to $200,000 (indexed). For plan years beginning on or after January 1, 1994, this limit is reduced to $150,000 (indexed). * As required by the Code, plan payments may not provide annual benefits exceeding a maximum amount, currently $120,000. The years of credited service of those individuals named in the Summary Compensation Table as of June 3, 1995, were: Mr. Hoven--6.9167; Mr. Bellini--3.7500; Mr. Raven--7.5000; Mr. Staph--22.1667; and Mr. Mastrian--4.2500. The amounts covered under the Pension Plan include salary and bonus for each of the named executive officers in the Summary Compensation Table. OTHER INFORMATION CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS In July 1994, Zell/Chilmark acquired 3,181,838 Shares at a price of $14.00 per Share pursuant to the exercise of its rights in connection with a rights offering (the '1994 Rights Offering') to the Company's stockholders of record as of June 13, 1994 and pursuant to certain standby purchase arrangements. The Company paid Zell/Chilmark a fee in the amount of $2,918,383 for acting as standby purchaser in the 1994 Rights Offering. As of November 16, 1995, Zell/Chilmark beneficially owned 19.70% of the outstanding Shares. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Exchange Act requires the Company's executive officers and Directors to file reports of ownership and changes in ownership with the Commission and the NYSE. The Company believes that during the period from May 29, 1994 through June 3, 1995, its executive officers and Directors complied with all applicable Section 16(a) filing requirements, except that one Director, Rod Dammeyer, inadvertently filed one of his reports late. This conclusion is based solely on a review of the copies of such forms furnished to the Company in accordance with the Commission's regulations and certain written representations received by the Company. II-18 Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Overnight Courier: By Hand: Wall Street Station 77 Water Street, Receive Window P.O. Box 1023 4th Floor 77 Water Street, New York, NY 10268-1023 New York, NY 10005 5th Floor New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by telephone: (212) 701-7624 Any questions or requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or other tender offer materials may be directed to the Information Agent at the telephone number and address listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll-Free (800) 322-2885 The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 140 Broadway New York, New York 10005 (310) 282-5065 (call collect) or Call Toll-Free (800) 237-5022 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL To Tender Shares of Common Stock of REVCO D.S., INC. PURSUANT TO THE OFFER TO PURCHASE DATED DECEMBER 4, 1995 BY OCEAN ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY OF THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK By Hand: By Overnight Courier: By Mail: Receive Window 77 Water Street, Wall Street Station 77 Water Street, 4th Floor P.O. Box 1023 5th Floor New York, NY 10005 New York, NY 10268-1023 New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by telephone: (212) 701-7624 ------------------ DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders of Revco D.S., Inc., either if certificates evidencing Shares ('Share Certificates') are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company, the Midwest Securities Trust Company or the Philadelphia Depository Trust Company (each, a 'Book-Entry Transfer Facility' and collectively, the 'Book-Entry Transfer Facilities') pursuant to the book-entry transfer procedure described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase (as defined below). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in 'THE TENDER OFFER--Terms of the Offer; Number of Shares and Proration; Expiration Date' of the Offer to Purchase) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Shares must do so pursuant to the guaranteed delivery procedures described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. See Instruction 2. / / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution: - --------------------------------------------------------------------------- Check Box of Applicable Book-Entry Transfer Facility: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number ____________________ Transaction Code Number ____________________ / / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ___________________________________________ Window Ticket No. (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 Book-Entry Transfer Facility: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number_________________ Transaction Code Number_____________________ - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - -------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS SHARE CERTIFICATE(S) AND SHARE(S) NAME(S) APPEAR(S) ON SHARE TENDERED (ATTACH ADDITIONAL LIST, IF CERTIFICATE(S)) NECESSARY) - -------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES SHARE EVIDENCED BY NUMBER OF CERTIFICATE SHARE SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** --------------------------------------- _______________________________________ _______________________________________ _______________________________________ _______________________________________ TOTAL SHARES __________________________ - -------------------------------------------------------------------------------- * Need not be completed by stockholders delivering Shares by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. - -------------------------------------------------------------------------------- NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), the above-described shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), pursuant to the Purchaser's offer to purchase 35,144,833 Shares, or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the Expiration Date, at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the 'Offer Price'), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 4, 1995 (the 'Offer to Purchase'), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'). The undersigned understands that the Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way 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 the Shares tendered herewith, in accordance with the terms of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and with respect to any and all non-cash dividends, distributions, rights, other Shares or other securities issued or issuable and rights declared, paid or distributed in respect of such Shares on or after November 29, 1995) (collectively, 'Distributions'), and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Share Certificates evidencing such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by a Book-Entry Transfer Facility, together, in either case, with all accompanying evidence of transfer and authenticity, to or upon the order of the Purchaser, (ii) present such Shares and all 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 all Distributions, all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned irrevocably appoints Martin L. Grass and Franklin C. Brown, designees of the Purchaser, as proxies of the undersigned, each with full power of substitution, to the full extent of the undersigned's rights with respect to the Shares tendered by the undersigned and accepted for payment by the Purchaser (and with respect to any and all Distributions). All such proxies shall be considered coupled with an interest in the tendered Shares. This appointment will be effective if, when, and only to the extent that, the Purchaser accepts such Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior proxies given by the undersigned with respect to such Shares (and such other Shares and securities) will, without further action, be revoked, and no subsequent proxies may be given nor any subsequent written consent executed by the undersigned (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of the Purchaser will, with respect to the Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of the undersigned as they in their sole discretion may deem proper at any annual or special meeting of the stockholders of the Company or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise, and the Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares. 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 all 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 such Shares are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of the Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer of appropriate insurance thereof, the Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby or deduct from such purchase price, the amount or value of each such Distribution as determined by the Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. The Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Purchaser 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, the Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein in the box entitled 'Special Payment Instructions,' please issue the check for the purchase price of all Shares purchased, and issue all Share Certificates evidencing Shares not purchased or not tendered, in the name(s) of the registered holder(s) appearing above under 'Description of Shares Tendered.' Similarly, unless otherwise indicated in the box entitled 'Special Delivery Instructions,' please mail the check for the purchase price of all Shares purchased and all Share Certificates evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under 'Description of Shares Tendered.' In the event that the boxes entitled 'Special Payment Instructions' and 'Special Delivery Instructions' are both completed, please issue the check for the purchase price of all Shares purchased and issue all Share Certificates evidencing Shares not purchased or not tendered in the name(s) of, and mail such check and Share Certificates to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled 'Special Payment Instructions,' please credit any Shares tendered hereby and delivered by book-entry transfer, but which are not purchased, by crediting the account at the Book-Entry Transfer facility designated above. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares tendered hereby. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned, or if Shares tendered hereby and delivered by book-entry transfer which are not purchased are to be returned by credit to an account at one of the Book-Entry Transfer Facilities other than that designated above. Issue check and/or Share Certificate(s) to: Name: __________________________________________________________________________ (PRINT PRINT) Address: _______________________________________________________________________ ________________________________________________________________________________ (ZIP CODE) ________________________________________________________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) / / Credit Shares delivered by book-entry transfer and not purchased to the account set forth below: Check appropriate box: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number _________________________________________________________________ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned at an address other than that shown under 'Description of Shares Tendered.' Mail check and/or Share Certificate(s) to: Name: __________________________________________________________________________ (PRINT PRINT) Address: _______________________________________________________________________ ________________________________________________________________________________ (ZIP CODE) IMPORTANT SHAREHOLDERS: SIGN HERE (Please Complete Substitute Form W-9 on Reverse) ________________________________________________________________________________ ________________________________________________________________________________ Signature(s) of Holder(s) Dated: ____________________________________, 1995/6 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share 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 a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s) ________________________________________________________________________ ________________________________________________________________________________ (Please Print) Capacity (full title) __________________________________________________________ (See Instruction 5) Address ________________________________________________________________________ ________________________________________________________________________________ (Zip Code) Area Code and Telephone No. ____________________________________________________ Taxpayer Identification or Social Security No. _________________________________ (See Substitute Form W-9 on reverse side) GUARANTEE OF SIGNATURE(S) (If Required -- See Instructions 1 and 5) Authorized Signature ___________________________________________________________ Name ___________________________________________________________________________ (Please Print) Title __________________________________________________________________________ Name of Firm ___________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ (Include Zip Code) Area Code and Telephone No. ____________________________________________________ Dated __________________________________________________________________, 1995/6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Signature Guarantees. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association, or other entity that is a member in good standing of the Securities Transfer Agent's Medallion Program or the New York Stock Exchange Medallion Signature Guarantee Program (each, an 'Eligible Institution'), unless the Shares tendered hereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled 'Special Delivery Instructions' or the box entitled 'Special Payment Instructions' on this Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 5. If a Share Certificate is registered in the name of a person other than the signer of this Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Share Certificates. This Letter of Transmittal is to be used either if Share Certificates are to be forwarded herewith or if Shares are to be delivered by book-entry transfer pursuant to the procedure set forth in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. Share Certificates evidencing all tendered Shares, or confirmation of a book-entry transfer of such Shares, if such procedure is available, into the Depositary's account at one of the Book-Entry Transfer Facilities pursuant to the procedures set forth in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase, together with a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message, as defined below) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the reverse hereof prior to the Expiration Date (as defined in 'THE TENDER OFFER--Terms of the Offer; Number of Shares and Proration; Expiration Date' of the Offer to Purchase). If Share Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares pursuant to the guaranteed delivery procedure described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. Pursuant to such procedure: (i) such 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 provided by the Purchaser herewith, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates for all tendered Shares, in proper form for transfer, or a Book Entry Confirmation, in each case together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees 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 execution of the Notice of Guaranteed Delivery, all as described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. The term 'Agent's Message' means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares, that such participant has received and agrees to be bound by the terms of this Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND 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. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. By execution of this Letter of Transmittal (or a facsimile hereof), all tendering stockholders waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein under 'Description of Shares Tendered' is inadequate, the Share Certificate numbers, the number of Shares evidenced by such Share Certificates and the number of Shares tendered should be listed on a separate schedule and attached hereto. 4. Partial Tenders. (Not applicable to stockholders who tender by book-entry transfer.) If fewer than all the Shares evidenced by any Share Certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares which are to be tendered in the box entitled 'Number of Shares Tendered.' In such cases, new Share Certificate(s) evidencing the remainder of the Shares that were evidenced by the Share Certificates delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled 'Special Delivery Instructions,' as soon as practicable after the expiration or termination of the Offer. All Shares evidenced by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificates evidencing such Shares without alteration, enlargement or any other change whatsoever. If any Share tendered hereby is 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 the names of different holders, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Shares. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of Share Certificates or separate stock powers are required, unless payment is to be made to, or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), in which case, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers 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 tendered hereby, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchaser of such person's authority so to act must be submitted. 6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, the Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any 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 Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), the amount of any stock 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 the Purchaser of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES EVIDENCING THE SHARES TENDERED HEREBY. 7. Special Payment and Delivery Instructions. If a check for the purchase price of any Shares tendered hereby is to be issued, or Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate is to be sent to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled 'Description of Shares Tendered,' the appropriate boxes on this Letter of Transmittal must be completed. Stockholders delivering Shares tendered hereby by book-entry transfer may request that Shares not purchased be credited to such account maintained at a Book-Entry Transfer Facility as such stockholder may designate in the box entitled 'Special Payment Instructions' on the reverse hereof. If no such instructions are given, all such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated on the reverse hereof as the account from which such Shares were delivered. 8. Requests for Assistance or Additional Copies. Requests for assistance may be directed to the Information Agent or Dealer Manager at their respective addresses or telephone numbers set forth below. 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 obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks or trust companies. 9. Substitute Form W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ('TIN') on the 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 such stockholder is not subject to backup withholding of federal income tax. If a tendering stockholder has been notified by the Internal Revenue Service that such stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such stockholder has since been notified by the Internal Revenue Service that such stockholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price of all Shares purchased from such stockholder. If the tendering stockholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such stockholder should write 'Applied For' in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If 'Applied For' is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price to such stockholder until a TIN is provided to the Depositary. 10. Lost, Destroyed or Stolen Certificates. If any certificate(s) representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder 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 FACSIMILE HEREOF), PROPERLY COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN AGENT'S MESSAGE (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a stockholder whose tendered Shares are accepted for payment is required by law 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 such stockholder's social security number. 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 such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies with respect to a stockholder, the Depositary is required to withhold 31% of any payments made to such stockholder. Backup withholding is not an additional tax. Rather, the 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 withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct TIN by completing the form below certifying (a) that the TIN provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN), and (b) that (i) such stockholder has not been notified by the Internal Revenue Service that such stockholder is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such stockholder that such stockholder 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 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. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the stockholder should write 'Applied For' in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9. If 'Applied For' is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price to such stockholder until a TIN is provided to the Depositary. PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK - -------------------------------------------------------------------------------- SUBSTITUTE PART I--PLEASE PROVIDE FORM W-9 YOUR TIN IN THE BOX AT ______________________ RIGHT AND CERTIFY BY Social Security Number DEPARTMENT OF THE SIGNING AND DATING BELOW. OR TREASURY INTERNAL REVENUE SERVICE _______________________ Employee Identification Number (If awaiting TIN write 'Applied For') Payer's Request for PART II--For Payee Exempt From Backup Withholding, Taxpayer Identification see the enclosed Guidelines and complete as Number (TIN) instructed herein. CERTIFICATION--Under penalties of perjury, I certify that: (1) The number shown in this form is my correct Taxpayer Identification Number (or a Taxpayer Identification Number has not been issued to me and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service ('IRS') or Social Security Administration office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within sixty (60) days, 31% of all acceptable payments made to me thereafter will be withheld until I provide a number), and (2) I am not subject to backup withholding either because I have not been notified by the IRS that I am subject to backup withholding as a result of failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATE 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 under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) SIGNATURE _______________________________________ DATE _________________, 1995/6 - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. Questions and requests for assistance or additional copies of the Offer to Purchase, Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below: The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 The Dealer Manager for the Offer is: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 140 Broadway New York, New York 10005 (310) 282-5065 (call collect) or Call Toll-Free (800) 237-5022 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY for Tender of Shares of Common Stock of REVCO D.S., INC. to OCEAN ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION (Not To Be Used For Signature Guarantees) This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) if (i) certificates ('Share Certificates') evidencing shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), are not immediately available, (ii) time will not permit all required documents to reach Harris Trust Company of New York, as Depositary (the 'Depositary'), prior to the Expiration Date (as defined in 'THE TENDER OFFER--Terms of the Offer; Number of Shares and Proration; Expiration Date' of the Offer to Purchase (as defined below)) or (iii) the procedure for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary. See 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Overnight Courier: By Hand: Wall Street Station 77 Water Street, Receive Window P.O. Box 1023 4th Floor 77 Water Street, New York, NY 10268-1023 New York, NY 10005 5th Floor New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by telephone: (212) 701-7624 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This form 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. Ladies and Gentlemen: The undersigned hereby tenders to Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 4, 1995 (the 'Offer to Purchase'), and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedures described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. Number of Shares: ____________________________ Name(s) of Record Holder(s): Certificate Nos. (if available): _____________ _______________________________ ______________________________________________ _______________________________ (Please Print) Check ONE box if Shares will be tendered by book-entry transfer: Address(es): __________________ / / The Depository Trust Company ________________________________ / / Midwest Securities Trust Company (Zip Code) / / Philadelphia Depository Trust Company Company Area Code and Tel. No.: Account Number: ______________________________ ________________________________ Area Code and Tel. No.: ________ Dated: ______________________________ , 1995/6 Signature(s): __________________ ________________________________ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES) The undersigned, 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 having an office or correspondent in the United States, hereby (a) represents that the tender of shares effected hereby complies with Rule 14e-4 of the Securities Exchange Act of 1934, as amended, and (b) guarantees delivery to the Depositary, at one of its addresses set forth above, of certificates evidencing the Shares tendered hereby in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's accounts at The Depository Trust Company, the Midwest Securities Trust Company or the Philadelphia Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantees, or an Agent's Message (as defined in 'THE TENDER OFFER--Acceptance for Payment and Payment for Shares' of the Offer to Purchase), and any other documents required by the Letter of Transmittal, within three New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and Share Certificates to the Depositary within the time period shown herein. Failure to do so could result in financial loss to such Eligible Institution. Name of Firm: _________________________ ____________________________________ (Authorized Signature) Address: ______________________________ Title: _____________________________ _______________________________________ Name: ______________________________ (Zip Code) Area Code and Tel. No.: _______________ Date: _____________________, 1995/6 NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.(A)(4) 5 LETTER TO BROKERS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 140 Broadway New York, New York 10005 Offer to Purchase for Cash 35,144,833 Shares of Common Stock of REVCO D.S., INC. at $27.50 NET PER SHARE IN CASH by OCEAN ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. December 4, 1995 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to act as Dealer Manager in connection with the Purchaser's offer to purchase 35,144,833 shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the Expiration Date (as defined in 'THE TENDER OFFER--Terms of the Offer; Number of Shares and Proration; Expiration Date' of the Offer to Purchase (as defined below)), at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the 'Offer Price'), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated December 4, 1995 (the 'Offer to Purchase'), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer') enclosed herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, 35,144,833 SHARES, OR SUCH OTHER NUMBER OF SHARES AS EQUALS 50.1% OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS AS OF THE EXPIRATION OF THE OFFER (SUCH NUMBER OF SHARES BEING THE 'MINIMUM NUMBER'), BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER (THE 'MINIMUM CONDITION'). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE 'THE TENDER OFFER--CONDITIONS OF THE OFFER' OF THE OFFER TO PURCHASE. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, or who hold Shares registered in their own names, we are enclosing the following documents: 1. Offer to Purchase, dated December 4, 1995; 2. Letter of Transmittal to be used by holders of Shares in accepting the Offer and tendering Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the certificates evidencing such Shares (the 'Share Certificates') are not immediately available or time will not permit all required documents to reach Harris Trust Company of New York (the 'Depositary') prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis; 4. A letter to stockholders of the Company from Mr. D. Dwayne Hoven, President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; 5. A letter which 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 with regard to the Offer; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. 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), the Purchaser will purchase, by accepting for payment, and will pay for the Minimum Number of Shares validly tendered prior to the Expiration Date (and not properly withdrawn in accordance with 'THE TENDER OFFER--Withdrawal Rights' of the Offer to Purchase) promptly after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions set forth in 'THE TENDER OFFER--Conditions of the Offer' of the Offer to Purchase. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, tendered Shares if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the Share Certificates or timely confirmation of a book-entry transfer of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company, the Midwest Securities Trust Company or the Philadelphia Depository Trust Company pursuant to the procedures set forth in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in 'THE TENDER OFFER--Acceptance for Payment and Payment for Shares' of the Offer to Purchase) and (iii) any other documents required by the Letter of Transmittal. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager as described in 'THE TENDER OFFER--Fees and Expenses' of the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. The Purchaser will pay any stock transfer taxes incident to the transfer to it of validly tendered Shares, except as otherwise provided in Instruction 6 of the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or a facsimile thereof), with any required signature guarantees and any other required documents, should be sent to 2 the Depositary, and certificates evidencing the tendered Shares should be delivered or such Shares should be tendered by book-entry transfer, all in accordance with the Instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender Shares, but it is impracticable for them to forward their Share Certificates or other required documents prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified under 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent at its address and telephone number set forth on the back cover page of the Offer to Purchase. Additional copies of the enclosed materials may be obtained by calling the Information Agent, MacKenzie Partners, Inc., collect at (212) 929-5500 or toll-free at (800) 322-2885, or from brokers, dealers, commercial banks or trust companies. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (310) 282-5065 (call collect) or (800) 237-5022 NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF PARENT, THE PURCHASER, THE DEPOSITARY, THE INFORMATION AGENT OR THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(5) 6 LETTER TO CLIENTS Offer to Purchase for Cash 35,144,833 Shares of Common Stock of REVCO D.S., INC. at $27.50 NET PER SHARE IN CASH by OCEAN ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. December 4, 1995 To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated December 4, 1995 (the 'Offer to Purchase'), and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer') in connection with the Offer by Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to purchase 35,144,833 shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), or such other number of Shares as equals 50.1% of the Shares outstanding as of the Expiration Date (as defined in 'THE TENDER OFFER--Terms of the Offer; Number of Shares and Proration; Expiration Date' of the Offer to Purchase), at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the 'Offer Price'), upon the terms and subject to the conditions set forth in the Offer. Stockholders whose certificates evidencing Shares ('Share Certificates') are not immediately available or who cannot deliver their Share Certificates and all other documents required by the Letter of Transmittal to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer to the Depositary's account at a Book-Entry Transfer Facility (as defined in 'THE TENDER OFFER--Acceptance for Payment and Payment for Shares' of the Offer to Purchase) on a timely basis and who wish to tender their Shares must do so pursuant to the guaranteed delivery procedure described in 'THE TENDER OFFER--Procedures for Tendering Shares' of the Offer to Purchase. See Instruction 2 of the Letter of Transmittal. 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 MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE 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. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $27.50 per Share, net to the seller in cash. 2. The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Tuesday, January 2, 1996, unless the Offer is extended. 3. The Offer is being made for 35,144,833 Shares, or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the Expiration Date. 4. The Board of Directors of the Company unanimously (with one director absent and two directors abstaining) has determined that each of the Offer and the Merger (as defined in 'INTRODUCTION' of the Offer to Purchase) is fair to, and in the best interests of the stockholders of the Company and unanimously (with one director absent and two directors abstaining) recommends that stockholders of the Company who desire to receive cash for their Shares accept the Offer and tender their Shares pursuant to the Offer. 5. The Offer is conditioned upon, among other things, 35,144,833 Shares, or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the Expiration Date, being validly tendered and not withdrawn prior to the expiration of the Offer. The Offer is also subject to other terms and conditions. See 'THE TENDER OFFER--Conditions of the Offer' of the Offer to Purchase. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal 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 the Purchaser by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form set forth in this letter. 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. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH 35,144,833 SHARES OF COMMON STOCK OF REVCO D.S., INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated December 4, 1995, and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'), in connection with the Offer by Ocean Acquisition Corporation, a Delaware corporation (the 'Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to purchase 35,144,833 shares of common stock, par value $.01 per share (the 'Common Stock' or the 'Shares'), of Revco D.S., Inc., a Delaware corporation (the 'Company'), or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the expiration of the Offer. This will instruct you to tender to the Purchaser the number of Shares indicated below (or, if no number is indicated below, all Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. SIGN HERE Number of Shares to be Tendered: ___________________________ Shares* ________________________________________ Account Number: __________________ ________________________________________ Signature(s) ________________________________________ Dated: , 1995/6 ________________________________________ Please type or print name(s) ________________________________________ ________________________________________ Please type or print address(es) here ________________________________________ Area Code and Telephone Number ________________________________________ Taxpayer Identification or Social Security Number(s) - ------------------ * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.(A)(6) 7 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 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 SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the account or, (joint account) if combined funds, any one of the individuals(1) 3. Husband and wife The actual owner of the account or, (joint account) if joint funds, either person(1) 4. Custodian account of a minor (Uniform The minor(2) Gift to Minors Act) 5. Adult and minor The adult or, if the minor is the (joint account) only contributor, the minor(1) 6. Account in the name of guardian or The ward, minor, or incompetent committee for a designated ward, person(3) minor, or incompetent person 7. a. The usual revocable savings trust The grantor-trustee(1) account (grantor is also trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 8. Sole proprietorship account The owner(4) - -------------------------------------------------------------------------------- RO - -------------------------------------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - -------------------------------------------------------------------------------- 9. A valid trust, estate, or pension The legal entity (Do not furnish the trust 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 The organization organization account 12. Partnership account held in the name The partnership of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the 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 number, 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: o A corporation. o A financial institution. o An organization exempt from tax under section 501(a), or an individual retirement plan. o The United States or any agency or instrumentality thereof. o A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. o A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. o An international organization or any agency, or instrumentality thereof. o A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. o A real estate investment trust. o A common trust fund operated by a bank under section 584(a). o An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1). o An entity registered at all times under the Investment Company Act of 1940. o A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: o Payments to nonresident aliens subject to withholding under section 1441. o Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. o Payments of patronage dividends where the amount received is not paid in money. o Payments made by certain foreign organizations. o Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: o 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. o Payments of tax-exempt interest (including exempt-interest dividends under section 852). o Payments described in section 6049(b)(5) to non-resident aliens. o Payments on tax-free covenant bonds under section 1451. o Payments made by certain foreign organizations. o 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 IDENTIFICATION 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, 6041(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, 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 required to file tax returns. Beginning January 1, 1984, payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain 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 subject 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 patronage 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 evidence 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 imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 TEXT OF PRESS RELEASE [LOGO] MAILING ADDRESS P.O. Box 3165 Harrisburg, PA 17105 GENERAL OFFICE 30 Hunter Lane PRESS RELEASE Camp Hill, PA 17011 For Further Information Contact: CONTACTS: MEDIA: INVESTORS: SUZANNE MEAD FRANK BERGONZI VP Corporate Communications Executive VP and CFO (717) 975-5887 (717) 975-5750 JOELE FRANK Abernathy MacGregor Scanlon (212) 371-5999 FOR IMMEDIATE RELEASE RITE AID CORPORATION AND REVCO COMBINE TO CREATE NATION'S LARGEST DRUGSTORE CHAIN MERGER CREATES COMPANY WITH OVER $11 BILLION IN REVENUES CASH TENDER SCHEDULED TO COMMENCE EARLY NEXT WEEK ------------------------ CAMP HILL, PA (November 30, 1995)--Rite Aid Corporation (RAD: NYSE, PSE) and Revco D.S., Inc. (RXR: NYSE) today announced that they have entered into a definitive merger agreement in which Rite Aid would acquire Revco. The merger creates the nation's largest drugstore chain with expected annualized revenues of over $11 billion and more than 4,500 stores in 22 states and the District of Columbia. The transaction is expected to be accretive to Rite Aid's earnings per share by the end of the first year of operations following the merger. Under the agreement, Rite Aid would purchase, in a first-step tender offer, at least 50.1% of the outstanding shares of Revco on a fully-diluted basis for $27.50 per share in cash and the remainder of the outstanding shares would be converted into Rite Aid stock in a second-step merger. As described below, the value of Rite Aid shares to be received for each Revco share in the second-step merger will increase to the extent the average value of Rite Aid stock is greater that $27.50 per share during a pricing period and will decrease if the average value of Rite Aid stock is less than $27.50 per share during such pricing period, but in no event will more than 1.125 shares or less than .91666 shares of Rite Aid stock be issued for each Revco share in the merger. The tender offer is not conditioned on obtaining financing. The total value of the merger is approximately $1.8 billion. The merger, which was approved by each company's Board of Directors, is expected to be completed in the first quarter of 1996. The tender offer is scheduled to commence early next week. Martin Grass, Chairman of the Board of Directors and Chief Executive Officer of Rite Aid, said, 'The combination of these two great companies will create the preeminent retail drugstore chain in the United States. This transaction will nearly double our revenues and number of stores. Our significant investment in technology and infrastructure coupled with our innovative management changes have prepared us to seize the competitive advantage this merger represents. We anticipate a quick and smooth integration of the two companies. 'The merger will increase Rite Aid's competitive advantage in our prescription benefits management subsidiary, Eagle Managed Care,' Mr. Grass continued. 'The addition of Revco's mail order capacity, as well as the increased number of outlets available in the combined entity, complements and broadens Rite Aid's managed healthcare delivery system. This expanded capacity is important leverage in attracting new contracts to the company. 'We will be the best-positioned retail drugstore chain in the country to compete with the three large vertically integrated pharmacy benefit managers owned by the major pharmaceutical manufacturers. This combination should allow Rite Aid to offer customers the most competitive pharmacy prescription prices and services.' D. Dwayne Hoven, President and Chief Executive Officer of Revco, said, 'In an environment of consolidation, Revco's Board of Directors felt that this offer was fair and reasonable and in the best interest of our stockholders. This offer is the culmination of one of the most remarkable turnarounds in corporate history. We built a company with productive real estate, clean inventories and great people. Revco people should not lose sight of what they have accomplished.' Rite Aid expects to achieve synergies of $156 million through elimination of overlapping positions, streamlining distribution, reducing redundant advertising, and enhanced purchasing power. As in past Rite Aid mergers, Rite Aid will provide excellent severance packages, including out-placement counseling, to all affected personnel. Following completion of the merger, the Revco stores will operate under the Rite Aid banner. The headquarters of Rite Aid will remain in Camp Hill, Pennsylvania. Rite Aid indicated that it plans to take a pre-tax charge to earnings of $163 million to cover the cost of integrating the two companies. Rite Aid anticipates that only a small percentage of the combined company's stores will be closed. A decision on which drugstores will be closed will occur after the merger is completed. The merger agreement provides for Ocean Acquisition Corporation, a subsidiary of Rite Aid, to make a cash tender offer for at least 50.1% of the outstanding shares of common stock of Revco on a fully diluted basis at a price of $27.50 per share. The tender offer will be followed by a second-step merger in which each share of Revco not acquired in the tender offer will be converted into the right to receive Rite Aid common stock and/or, under certain circumstances, cash. The per share value of Rite Aid common stock which stockholders of Revco would receive in the second-step merger will be determined during a randomly selected fifteen-day pricing period during the forty trading days ending five days before the meeting of stockholders of Revco to consider the merger. Stockholders of Revco would receive one share of Rite Aid common stock if the average market value of Rite Aid common stock during the pricing period is $27.50. If the average value of Rite Aid common stock is greater than $27.50 during the selected fifteen-day pricing period, stockholders of Revco will receive, for each Revco share, Rite Aid common stock having a value of $27.50 plus 50% of the increase in market value of Rite Aid common stock over $27.50, provided that in no event would Rite Aid issue less than .91666 shares of Rite Aid common stock for each Revco share in the merger. Similarly, if the average value of Rite Aid common stock during the pricing period is less than $27.50, stockholders of Revco will receive, for each Revco share, Rite Aid common stock having a value of $27.50 less 50% of the decrease in market value of Rite Aid common stock below $27.50, provided that in no event would Rite Aid issue more than 1.125 shares of Rite Aid common stock. If the average value of Rite Aid common stock during the pricing period is less than $27.50, Rite Aid would have the option of delivering, for each Revco share, one share of Rite Aid common stock plus cash in an amount equal to 50% of the decrease in market value of Rite Aid common stock below $27.50, provided that in no event would more than $2.75 per Revco share be paid in cash. In the event that the stockholders of Rite Aid do not approve the issuance of Rite Aid common stock pursuant to the merger, but all conditions to the merger are otherwise satisfied or waived, each Revco share would be converted into the right to receive a combination of cash and shares of Rite Aid common stock (determined based on the formulas described above) representing in the aggregate 19.9% of Rite Aid's outstanding shares. Rite Aid also stated that it has entered into a stockholder agreement with Zell/Chilmark Fund L.P., the major stockholder of Revco, pursuant to which Zell/Chilmark has agreed to tender its Revco shares (representing approximately 19.7 % of Revco's outstanding shares) into Rite Aid's tender offer and to vote in favor of the 2 merger. Revco has granted Rite Aid an option to purchase 19.9% of Revco's shares under certain circumstances at $27.50 per share. The tender offer is conditioned on, among other things, the valid tender of 50.1% of the outstanding Revco shares on a fully diluted basis and the expiration or termination of any applicable waiting period under the Hart- Scott-Rodino Antitrust Improvements Act of 1976. Donaldson, Lufkin & Jenrette Securities Corporation provided a fairness opinion for Rite Aid. Morgan Stanley & Co. Incorporated provided a fairness opinion for Revco. Revco D.S., Inc., based in Twinsburg, Ohio, operates over 2,100 stores in 14 Midwestern, Southeastern and Eastern states and has annual sales of approximately $4.4 billion. Rite Aid Corporation, based in Camp Hill, Pennsylvania, is the nation's largest drugstore chain, with over 2,700 stores in 21 states and the District of Columbia. General information about Rite Aid including corporate background and press releases is available, free of charge, through the company's News-On-Demand fax service at 800-916-7788. 3 EX-99.(A)(8) 9 FORM OF SUMMARY ADVERTISEMENT DATED DECEMBER 4, 1995 Exhibit 99.(a)(8) 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 December 4, 1995 and the related Letter of Transmittal 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 Ocean Acquisition Corporation by Donaldson, Lufkin & Jenrette Securities Corporation (the "Dealer Manager") or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash 35,144,833 Shares of Common Stock of Revco D.S., Inc. at $27.50 Net Per Share in Cash by Ocean Acquisition Corporation a wholly owned subsidiary of Rite Aid Corporation Ocean Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ("Parent"), hereby offers to purchase 35,144,833 shares of common stock, par value $.01 per share ("Shares"), of Revco D.S., Inc., a Delaware corporation (the "Company"), or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the expiration of the Offer (as defined below) at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 4, 1995 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, JANUARY 2, 1996, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, 35,144,833 Shares, or such other number of Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of the expiration of the Offer (such number of Shares being the "Minimum Number"), being validly tendered and not withdrawn prior to the expiration of the Offer (the "Minimum Condition"). The Offer is also subject to other terms and conditions. Parent and the Purchaser have entered into (I) a Stockholder Agreement with Zell/Chilmark Fund, L.P. pursuant to which, among other things, such stockholder has agreed to (x) tender in the Offer, and (y) vote in favor of the Merger (as defined below) upon the terms and subject to the conditions thereof, all Shares owned by such stockholder, representing approximately 19.7% of the outstanding Shares, and (II) a Stock Option Agreement with the Company pursuant to which, among other things, the Company has granted Parent an option (the "Option") to purchase up to 13,251,010 fully paid and nonassessable Shares, or such other number of Shares as equals 19.9% of the Company's issued and outstanding Shares at the time of the exercise of the Option. The Board of Directors of the Company (the "Company Board") unanimously (with one director absent and two directors abstaining) has determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company and unanimously (with one director absent and two directors abstaining) recommends that stockholders of the Company who desire to receive cash for their Shares accept the Offer and tender their Shares pursuant to the Offer. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including the approval and adoption of the Merger Agreement (as defined below) by the requisite vote of the stockholders of the Company. See Section 11 of the Offer to Purchase. Under the General Corporation Law of the State of Delaware (the "DGCL"), the approval of the Company 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 Company Board has unanimously (with one director absent and two directors abstaining) approved and adopted the Merger Agreement and the transactions contemplated thereby. Accordingly, if the Minimum Condition is satisfied, the Purchaser will have sufficient voting power to cause the approval and adoption of the Merger Agreement and the transactions contemplated thereby, without the vote of any other stockholder. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of November 29, 1995 (the "Merger Agreement"), by and among Parent, the Purchaser and the Company. The Merger Agreement provides that, following the consummation of the Offer and the satisfaction or waiver of certain conditions, at the effective time of the Merger (the "Effective Time"), the Purchaser will be merged with and into the Company (the "Merger") in accordance with the relevant provisions of the DGCL. Following the consummation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsidiary of Parent. At the Effective Time, each outstanding Share (other than Shares held in the treasury of the Company or owned by Parent, the Purchaser or any other direct or indirect wholly owned subsidiary of Parent and other than Shares held by stockholders who have properly exercised and perfected any appraisal rights under the DGCL) will be converted into either (i) the right to receive a number of duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $1.00 per share, of Parent (the "Parent Common Stock"), determined as set forth below; provided that Parent shall not issue more than 1.125 nor less than .91666 shares of Parent Common Stock per Share (the "Exchange Ratio") or (ii) if the Alternative Consideration (as described below) is applicable, then the right to receive the Alternative Consideration. The per share value of the Parent Common Stock which stockholders of the Company would receive in the Merger will be determined during a randomly selected fifteen-day pricing period (the "Pricing Period") during the forty trading days ending five days before the meeting of the stockholders of the Company to consider the Merger. Stockholders of the Company would receive one share of Parent Common Stock if the average market value per share of Parent Common Stock during the Pricing Period is $27.50. If the average per share value of Parent Common Stock determined during the Pricing Period is greater than $27.50, stockholders of the Company will receive, for each Share, that amount of Parent Common Stock having a value of $27.50 plus 50% of the increase in market value of Parent Common Stock over $27.50, provided that in no event would Parent issue less than .91666 shares of Parent Common Stock for each Share in the Merger. Similarly, if the average per share value of Parent Common Stock determined during the Pricing Period is less than $27.50, stockholders of the Company will receive, for each Share, Parent Common Stock having a value of $27.50 less 50% of the decrease in market value of Parent Common Stock below $27.50, provided that in no event would Parent issue more than 1.125 shares of Parent Common Stock for each Share in the Merger. Alternatively, if the average per share value of the Parent Common Stock determined during the Pricing Period is less than $27.50, Parent would have the option of delivering, for each Share, one share of Parent Common Stock plus cash in an amount equal to 50% of the decrease in market value of Parent Common Stock below $27.50, provided that in no event would more than $2.75 per Share be paid in cash. In the event that the stockholders of Parent do not approve the issuance of Parent Common Stock pursuant to the Merger, but all conditions to the Merger are otherwise satisfied or waived (if permissible), the Company, Parent and the Purchaser will nonetheless consummate the Merger and each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in treasury and Shares owned by Parent and its Subsidiaries and other than Shares held by stockholders who have properly exercised and perfected appraisal rights under the DGCL) will, at the Effective Time, be converted into the right to receive a combination of (x) shares of Parent Common Stock which will represent in the aggregate 19.9% of the then outstanding shares of Parent Common Stock (which will be determined in a manner consistent with the determination of the Exchange Ratio) and (y) cash based on a pro rata portion of $27.50 (the "Alternative Consideration"). The Merger Agreement provides that in the event the Merger is not consummated prior to certain dates, holders of Shares will be entitled to receive interest on the consideration to be received in the Merger calculated at rates agreed to between Parent and the Company. The Purchaser expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time or from time to time to extend for any reason the period of time during which the Offer is open, including the occurrence of any conditions specified in Section 14 of the Offer to Purchase, by giving oral or written notice of such extension to Harris Trust Company of New York (the "Depositary"). During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw his Shares. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. 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 extension or amendment), the Purchaser will purchase by accepting for payment and pay for the Minimum Number of Shares validly tendered prior to the Expiration Date (as defined in the Offer to Purchase) and not withdrawn in accordance with Section 4 of the Offer to Purchase promptly after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions to the Offer. If more than the Minimum Number of Shares are validly tendered and not withdrawn prior to the Expiration Date, the Purchaser will, upon the terms and subject to the conditions of the Offer, accept such Shares for payment on a pro rata basis, with adjustments to avoid purchases of fractional Shares. Because of the difficulty of determining the precise number of Shares validly tendered and not withdrawn, if proration is required, the Purchaser would not expect to announce the final proration factor until approximately six New York Stock Exchange 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 from MacKenzie Partners, Inc. (the "Information Agent"), and may also be able to obtain such preliminary information from their brokers. The Purchaser will not pay for any Shares accepted for payment pursuant to the Offer until the final proration factor is known. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment pursuant to 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 payments from the Purchaser and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid by the Purchaser, regardless of any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates"), or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in Section 2 of the Offer to Purchase) pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a 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) and (iii) any other documents required by the Letter of Transmittal. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer (including proration due to tenders of Shares in excess of the Minimum Number of Shares), or if Share Certificates are submitted representing more Shares than are tendered, Share Certificates representing unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in Section 3 of the Offer to Purchase, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to Tuesday, January 2, 1996, and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after Thursday, February 1, 1996, or at such later time as may apply if the Offer is extended. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in Section 4 of the Offer to Purchase. Any such delay will be by an extension of the Offer to the extent required by law. 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 such 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 of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as 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 Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. 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 the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished for subsequent transmittal to beneficial owners of Shares, 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. 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 or for additional copies of the Offer to Purchase, the Letter of Transmittal or other tender offer materials may be directed to the Information Agent at its address and telephone number as set forth below, and copies will be furnished promptly at the Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll-Free (800) 322-2885 The Dealer Manager for the Offer is: Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway New York, New York 10005 (310) 282-5065 (call collect) or Call Toll-Free (800) 237-5022 December 4, 1995 EX-99.(B)(1) 10 LETTER FROM J.P. MORGAN SECURITIES INC. Exhibit 99.(b)(1) November 16, 1995 Rite Aid Corporation P.O. Box 3165 Harrisburg, PA 17105 Attention: Mr. Frank Bergonzi, Executive Vice President- Chief Financial Officer Ladies and Gentlemen: We understand that Rite Aid Corporation (the "Borrower") intends to acquire certain assets (the "Transac- tion") of Target (the "Seller"). A portion of the financing for such acquisition would be effected by a syndicated loan financing. You have requested J.P. Morgan Securities Inc. ("JPMSI"), to arrange financing in the syndicated bank market the amount of $2,500,000,000 for the Borrower in connection with the Transaction (the "Proposed Financing"). In response to your request in connection with the Transaction, please be advised that we are highly confi- dent that (a) the aggregate amount of the Proposed Financing can be raised by the Borrower and (b) in the event that the stockholders of the Borrower do not approve the proposed issuance of additional common stock of the Borrower contem- plated in the Transaction, an aggregate amount of up to $3,000,000,000 can be raised by the Borrower in the syndi- cated bank market. The foregoing is based upon our knowl- edge and experience in the loan syndication market and subject to the assumptions set forth below. Our view is based on and subject to, among other factors, (i) our consideration of the information the Bor- rower has supplied to us to date (without any independent investigation); (ii) the absence of adverse changes in the relevant markets or in the regulatory environment that in our judgment is likely to materially and adversely affect the syndication of the Proposed Financing; it being under- stood that there can be no assurance that such markets or regulatory environment will not so change in the future; (iii) our present understanding of the terms upon which the Rite Aid Corporation November 16, 1995 Page 2 Borrower intends to effect the Transaction; (iv) representa- tions by the Borrower to us of its willingness to cooperate with us in structuring an appropriate credit facility, in particular if it should become necessary to raise $3,000,000,000 in financing; (v) the absence of any domestic or international event, act or occurrence which materially disrupts the relevant markets; it being understood that there can be no assurance that any such disruption will not occur in the future; (vi) our current understanding of the proposed capital structure of the Borrower after giving effect to any financing referred to herein; (vii) the ab- sence of material adverse changes in the financial condi- tion, business, assets, results of operations, or prospects of the Borrower or the Seller and (viii) any necessary actions by or restrictions of federal, state, or other governmental agencies or regulatory authorities in connec- tion with the Transaction. Please be advised that this letter is not a commitment to obtain financing for the Transaction and creates no obligation on our part in connection therewith. This letter is intended solely for the use of the Borrower and not any other person and may not be used or relied upon by, or disclosed, referred to or communicated by you (in whole or in part) to any third party for any purpose whatsoever (except to your professional advisors, the Seller and its professional advisors for their purposes in evaluat- ing the Borrower's bid and as may otherwise be required by law in the opinion of your counsel) except with our prior written permission. We look forward to working with you on this transaction. Sincerely, J.P. MORGAN SECURITIES INC. By: /s/ Stephen Kenneally ------------------------ Name: Stephen Kenneally Title: Vice President EX-99.(B)(2) 11 LETTER FROM MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND J.P. MORGAN SECURITIES Exhibit 99.(b)(2) November 24, 1995 Mr. Frank Bergonzi Executive Vice President & CFO Rite Aid Corporation P.O. Box 3165 Harrisburg, PA 17105 Dear Mr. Bergonzi: You have advised us that Rite Aid Corporation ("Rite Aid" or the "Company") proposes to establish a syndicated credit facility in an amount of approximately $2,500,000,000 of senior bank financing for the purposes of: (i) the acquisition of Revco D.S., Inc. ("Revco"); (ii) the refinancing of certain existing debt of the Company; and (iii) working capital and general corporate purposes. In connection with this transaction, J.P. Morgan Securi- ties Inc. ("JPMSI") and Morgan Guaranty Trust Company of New York ("Morgan") are pleased to propose a five-year revolving credit facility of up to $2,500,000,000 (the "Revolver") based on the terms and conditions described in the attached Summary of Terms and Conditions (the "Term Sheet"). This letter and the attached Term Sheet are also referred to as the Commitment Letter. Morgan is pleased to commit to provide up to $500,000,000 of the Credit Facility based on the attached Term Sheet. Morgan's commitment of $500,000,000 is subject to (i) acceptance by you, as set forth in the last paragraph, by 8:00 a.m. (New York City Time), November 30, 1995; (ii) there not having occurred any change in or disruption of the financial or banking markets since the date hereof that would have an adverse effect on the syndication of the Revolver; (iii) there not having occurred a material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of (A) the Company or the Company and its Subsidiaries, taken as a whole or (B) Revco, in each case since the date of the most recent audited financial statements; (iv) there not having occurred any issuance or syndication, attempt to issue or syndicate, announcement of the issuance or syndication of, or engagement in discussions concerning the syndication or issuance of, any debt facility or debt security (including renewals of existing facilities) by the Company or its affiliates, (v) the negotiation, execution and delivery of mutually acceptable definitive loan documentation (to be prepared by Morgan's counsel, Davis Polk & Wardwell) by January 31, 1996; and (vi) the other conditions set forth in the attached Term Sheet. Mr. Frank Bergonzi November 24, 1995 Page 2 It is JPMSI's intention to syndicate the Revolver to a group of financial institutions (the "Banks") acceptable to Morgan and the Company. The Company will not withhold its approval of any financial institution of recognized standing which customarily participates in credit facilities of this nature. Rite Aid agrees to provide such assistance in the syndication effort as may be reasonably requested, including making members of management of the Company and its subsidiaries available to meet with prospective syndicate members, and assisting JPMSI in the preparation of the financing memorandum. It is our expectation that the general syndication will be launched as soon as possible after the date of your acceptance of this commitment. By signing below, Rite Aid acknowledges its obligation to pay Morgan and JPMSI the fees set forth in the letter dated November 24, 1995 (the "Fee Letter") among Rite Aid, Morgan and JPMSI. By signing below, Rite Aid represents and warrants that all information that has been or will be provided to Morgan or JPMSI is true in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading and, in the case of financial projections so provided, have been prepared in good faith based on reasonable assumptions (it being understood that such projections are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and that no assurance can be given that the projections will be realized). You agree to supplement the information and projections from time to time so that the represen- tations and warranties contained in this paragraph remain correct. In addition, by signing below, Rite Aid agrees to indemnify and defend Morgan and JPMSI and each other Bank, their respective affiliates and the directors, officers, agents, and employees of the foregoing from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or reasonable expenses arising out of or by reason of any investiga- tion, litigation or other proceeding brought or threatened relating to any loan made or proposed to be made in connection with the matters herein referred to (including, but without limitation, any use made or proposed to be made by Rite Aid or any of its affiliates of the proceeds of such loans, but excluding any such losses, liabilities, claims damages or expenses incurred by reason of the gross negligence or willful misconduct of the indemnitee) including, without limitation, amounts paid in settlement, court costs, and reasonable fees and disbursements of counsel incurred in connection with any such pending or threatened investigation, litigation or other proceeding. This letter is intended to be solely for the benefit of the parties hereto and is not intended to confer, and shall not be deemed to confer, any benefits upon, or create any rights in or in favor of, any person other than the parties hereto, except as provided in the immediately preceding paragraph. Mr. Frank Bergonzi November 24, 1995 Page 3 If you accept and agree to this proposal, please so indicate by signing in the space provided below and returning a copy of this letter to us. This offer will expire 8:00 a.m. (New York City Time), November 30, 1995, if this letter and the Fee Letter have not been accepted by you by that time. Neither this letter nor its contents may be disclosed to any person other than the officers and directors of Rite Aid and the professional advisors to Rite Aid in connection with the proposed acquisition unless either (i) this letter and the Fee Letter shall have been accepted by Rite Aid as set forth in the preceding para- graph prior to such disclosure or (ii) Morgan and JPMSI have otherwise consented in writing. Any disclosure by Rite Aid not permitted by the preceding sentence shall constitute the agreement of Rite Aid to pay the commitment letter fee contemplated by the Fee Letter. Very truly yours, MORGAN GUARANTY TRUST COMPANY J.P. MORGAN SECURITIES INC. OF NEW YORK By: /s/ James E. Condon By: /s/ Stephen J. Kenneally ---------------------- --------------------------- Name: James E. Condon Name: Stephen J. Kenneally Title: Vice President Title: Vice President Accept and Agreed to this 29 day of November 1995 RITE AID CORPORATION By: /s/Frank M. Bergonzi --------------------------- Name: Frank M. Bergonzi Title: Executive VP and CFO Term Sheet Borrower: Rite Aid Corporation ("Rite Aid"). Amount: $2,500,000,000. Purpose: Finance the acquisition (the "Acquisition") of Big Fish (the "Target"), refinance existing Target bank debt, refinance existing Rite Aid bank debt, refinance Target 9.125% and 10.125% senior notes, refinance Rite Aid convertible debentures, and general corporate purposes. Agent: Morgan Guaranty Trust Company of New York ("Morgan"). Lenders: Syndicate of lenders acceptable to Rite Aid and Morgan ("the Banks"). Facility Description: Reducing revolving credit facility. Final Maturity: December, 2000. Amortization: The Facility shall reduce to $1,500,000,000 two years after the date of consummation of the Tender Offer referred to below (the "Tender Offer Closing Date"). Arranger: J.P. Morgan Securities Inc. Availability: Drawings may be made at any time up to but excluding the Final Maturity. Mandatory Commitment Reduction: All net proceeds from debt issues with a maturity greater than one year and all net proceeds from any equity issues until such time as the aggregate commitments have been reduced to $1,500,000,000. Borrowing Options: Adjusted LIBOR, Adjusted CD, Base Rate and Money Market Bid. LIBOR and CD will be adjusted for reserves and other regulatory requirements, if any. Base Rate means the higher of Morgan's prime rate or the federal funds rate + 0.50%. 1 Money Market Option Description: The Borrower may request the Agent to solicit competitive bids from the Banks at a margin over LIBOR or at an absolute rate. Each Bank 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 advances made by a Bank shall be deemed usage of the facility for the purpose of fees and availability. However, each Bank's advance shall not reduce such Bank'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 Banks 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 Banks in proportion to the amount for which each Bank 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 be at the rates per annum, varying commensurate with credit quality, set forth in the attached Pricing Grid. If S&P and Moody's ratings are more than one notch different, an average rating will apply. Margins: See attached Pricing Grid. Facility Fee: A per annum fee calculated on a 360 day basis payable on each Bank's commitment irrespective of usage, quarterly in arrears and on termination of a Bank's Commitment. See attached Pricing Grid. Participation Fee: An upfront participation fee determined by each bank's commitment amount and payable on each bank's aggregate commit- ment. Commitment Level Fee ---------------- --- $500,000,000 $200,000,000 (to be determined) $150,000,000 $100,000,000 $50,000,000 to $75,000,000 Pricing will be set at Level III until Rite Aid's senior unsecured long-term debt ratings are affirmed by S&P and Moody's. If 2 S&P or Moody's has not affirmed Rite Aid's rating by June 30, 1996, pricing will be set at Level IV. Reference Lenders: Morgan and two other banks representative of the syndicate. Interest Payments: At the end of each applicable Interest Period or quarterly, if earlier. Interest Periods: Syndicated Borrowing: --------------------- Base Rate - 30 days. Adjusted LIBOR Loans - 1, 2, 3, or 6 months. Adjusted CD Loans - 30, 60, 90, or 180 days. Non-Syndicated Borrowings: -------------------------- Money Market LIBOR Loans - minimum 1 month. Money Market Absolute Rate Loan - minimum 14 days. Drawdowns: Minimum amounts of $10 million with additional increments of $1 million. Drawdowns are at the Borrower's option with same day notice for Base Rate Loans, one business day's notice for Money Market Absolute Rate Loans, one business day's notice for Adjusted CD Loans, three business days' notice for Adjusted LIBOR Loans, and five business days' notice for Money Market LIBOR Loans. Optional Prepayments: Base Rate Loans, Adjusted LIBOR, and Adjusted CD may be prepaid at any time on three business days' notice. Money Market Loans may not be prepaid before the end of an Interest Period. Termination or Reduction of Commitments: The Borrower may terminate unused commitments in amounts of at least $25 million at any time on three business days notice. Representations and Warranties: With respect to the Borrower and its Consolidated or Significant Subsidiaries, as appropriate, including but not limited to: 1. Corporate existence. 2. Corporate and governmental authorization; no contravention; binding effect. 3. Financial information. 3 4. No material adverse change. 5. Full disclosure. 6. No material litigation. 7. Compliance with laws, including ERISA. 8. Payment of taxes. 9. Existence, incorporation, etc. of subsidiaries. 10. Environmental matters. 11. Accuracy of both the Borrower's and the Target's representations and warranties contained in the Merger Agreement at signing and at date of initial borrowing. Conditions to Initial Borrowing: Conditions precedent to the initial borrowing under the Facility will include (without limitation): 1. The Borrower and the Target shall have entered into a Merger Agreement in form and substance satisfactory to the Lenders providing for the Acquisition to be effected by a cash tender offer (the "Tender Offer") for 51% of the Target's common stock and a subsequent merger (the "Merger") in which common stock of the Borrower will be issued to the Target's stockholders. 2. Terms and conditions of the Tender Offer shall be in form and substance satisfactory to the Lenders (including, without limitation, conditions that (i) any "poison pill" of the Target be redeemed or otherwise rendered inapplicable to the Tender Offer, (ii) Section 203 of the Delaware General Corporation Law not prevent the Merger from being consummated within 180 days after the Tender Offer Closing Date and (iii) the Purchases shall own and control the number of shares of the Target's common stock as shall be necessary to approve the Merger without the affirmative vote or approval of any other shareholders); the conditions to the consummation of the Tender Offer shall have been satisfied and shall not have been waived (for which purpose conditions must be fulfilled to the satisfaction of the Lenders in their reasonable determination); and tendered shares shall have been accepted for payment pursuant to the Tender Offer in accordance with the terms of the Tender Offer. 4 3. There shall have been accepted for payment pursuant to the Tender Offer sufficient shares of the Target for the Borrower to be able to effect the consummation of the Merger without the affirmative vote of any other shareholder(s) of the Target. 4. The Lenders' satisfaction that all other necessary licenses, permits and governmental and third-party filings, consents and approvals for the Acquisition and the Merger have been obtained and remain in full force and effect. 5. The Tender Offer and the financing thereof shall be in compliance with all laws and regulations (including, without limitation, the margin regulations). 6. Cancellation of the $250 million and $350 million Credit Agreements dated as of February 7, 1994. Conditions to Each Borrowing: Customary in Credit Agreements of this nature, including but not limited to: 1. Absence of Default. 2. Accuracy of representations and warranties. 3. Negotiation and execution of satisfactory closing documentation. Covenants: Customary in Credit Agreements of this nature, including but not limited to: 1. Information. 2. Payment of obligations. 3. Maintenance of property; insurance coverage. 4. Conduct of business; maintenance of existence. 5. Compliance with laws. 6. Inspection of property, books, and records. 7. Restriction on debt of subsidiaries. 8. Restriction on sales with leases back. 5 9. Negative pledge (including subsidiary stock and assets) with customary exceptions and a basket of 5% of consolidated net tangible assets. 10. Total borrowed funds shall not exceed $3.0 billion before January 1, 1997. 11. EBIT plus Rent to Interest Expense plus Rent Fiscal Year Level 1996 1.65 1997 1.65 1998 1.75 1999 1.85 2000 1.85 12. Total Borrowed Funds, as a percent of total capital Fiscal year-end Level 1996 64% 1997 61% 1998 58% 1999 50% 2000 50% 13. Limitation on minority investments. 14. Consolidations, mergers and sale of assets. 15. Use of proceeds. Events of Default: Customary in Credit Agreements of this nature, including but not limited to: 1. Failure to pay principal under the Credit Agreement when due. Failure to pay interest, fees or other amounts within 5 days of when due. 2. Failure to meet covenants (with grace periods, where appropriate). 3. Representations or warranties false in any material respect when made. 4. Cross default to other debt of the Borrower and its subsidiaries in excess of $25 million (in aggregate) which is triggered by (i) failure to pay when due (including any applicable grace period) or (ii) an event which results in 6 acceleration of, or with the giving of notice or lapse of time or both would enable the holder to accelerate the maturity of its debt. 5. Change of ownership or control. 6. Other usual defaults with respect to the Borrower and Subsidiaries, including but not limited to insolvency, bankruptcy, ERISA, and judgment defaults. Increased Costs/ Change of Circumstances: The credit agreement will contain customary provisions protecting the Banks in the event of unavailability of funding, illegality, increased costs and funding losses (including funding losses incurred as a result of prepayment of Adjusted CD and Adjusted LIBOR loans). Capital adequacy compensation will be required only with respect to capital requirements adopted after the date hereof. Indemnification: The Borrower will indemnify the Banks against all losses, liabilities, claims, damages, or expenses relating to their loans, the Borrower's use of loan proceeds or the commitments, 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: Banks 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 will be allowed with the consent of the Borrower, such consent not to be unreasonably withheld. Assignment to a Bank's affiliate or a Federal Reserve Bank is allowed without the consent of the Borrower. Expenses: Borrower will pay all legal and other reasonable out-of-pocket expenses of the Agent related to this transaction and any subsequent amendments or waivers, including the reasonable fees and expenses of Davis Polk & Wardwell, special counsel to the Agent. Governing Law: State of New York. 7 Rite Aid Corporation Pricing Grid (basis points per annum)
Pricing Level Level I Level II Level III Level IV Level V Basic for Pricing: If the Borrower's If the Borrower's If the If the If no other senior unsecured senior unsecured Borrower's Borrower's level applies long-term debt is long-term debt senior unsecured senior unsecured rated A- or higher is rated BBB+ by long-term debt long-term debt by S&P and A3 or S&P or Baa1 by is rated BBB by is rated BBB- by higher by Moody's S&P or Baa2 by S&P or Baa3 by Moody's Moody's Moody's Facility Fee 9.00 10.00 13.50 18.75 25.00 LIBOR Spread 18.50 27.50 29.00 31.25 45.00 CD Spread 31.00 40.00 41.50 43.75 57.50 "Used"Cost 27.50 37.50 42.50 50.00 70.00
Notes: 1. Pricing will be set at Level III until Rite Aid's senior unsecured long-term debt ratings are affirmed by S&P and Moody's. 2. If S&P or Moody's has not affirmed Rite Aid's rating by June 30, 1996, pricing will be set at Level IV. 3. If S&P and Moody's ratings are more than one notch different, an average rating will apply. EX-99.(C)(1) 12 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER BY AND AMONG RITE AID CORPORATION OCEAN ACQUISITION CORPORATION AND REVCO D.S., INC. DATED AS OF NOVEMBER 29, 1995 TABLE OF CONTENTS Page ARTICLE I THE OFFER AND MERGER . . . . . . . . . . . . 2 Section 1.1 The Offer . . . . . . . . . . . . . . . . . 2 Section 1.2 Company Actions . . . . . . . . . . . . . . 4 Section 1.3 The Merger. . . . . . . . . . . . . . . . . 7 Section 1.4 Effective Time . . . . . . . . . . . . . . . 8 Section 1.5 Closing . . . . . . . . . . . . . . . . . . 8 Section 1.6 Directors and Officers . . . . . . . . . . . 8 Section 1.7 Stockholders' Meetings . . . . . . . . . . . 10 ARTICLE II CONVERSION OF SHARES . . . . . . . . . . . . 11 Section 2.1 Conversion of Shares . . . . . . . . . . . . 11 Section 2.2 Alternative Consideration and Additional Consideration . . . . . . . . . . . . . . . 13 Section 2.3 Issuance of Parent Common Stock or Payment of Cash Consideration . . . . . . . . . . . . . 15 Section 2.4 Treatment of Stock Options . . . . . . . . . 18 Section 2.5 Stock Transfer Books . . . . . . . . . . . . 20 Section 2.6 Dissenting Shares . . . . . . . . . . . . . 20 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 20 Section 3.1 Organization . . . . . . . . . . . . . . . . 20 Section 3.2 Capitalization . . . . . . . . . . . . . . . 22 Section 3.3 Corporate Authorization; Validity of Agreement; Company Action . . . . . . . . . 24 Section 3.4 Consents and Approvals; No Violations . . . 25 Section 3.5 SEC Reports and Financial Statements . . . . 26 Section 3.6 Absence of Certain Changes . . . . . . . . . 27 Section 3.7 No Undisclosed Liabilities . . . . . . . . . 27 Section 3.8 Information in Proxy Statement/Prospectus. . 28 Section 3.9 Employee Benefit Plans; ERISA . . . . . . . 28 Section 3.10 Litigation . . . . . . . . . . . . . . . . . 32 Section 3.11 No Default. . . . . . . . . . . . . . . . . 32 Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . 33 Section 3.13 Contracts . . . . . . . . . . . . . . . . . 35 Section 3.14 Assets; Real Property . . . . . . . . . . . 35 Section 3.15 Environmental Matters. . . . . . . . . . . . 36 Section 3.16 Reimbursement . . . . . . . . . . . . . . . 37 Section 3.17 Labor Relations . . . . . . . . . . . . . . 37 Section 3.18 Insurance . . . . . . . . . . . . . . . . . 37 Section 3.19 Transactions with Affiliates. . . . . . . . 38 Section 3.20 Compliance with Law . . . . . . . . . . . . 38 Section 3.21 Vote Required . . . . . . . . . . . . . . . 38 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB . . . . . . . . . . . . . . . . . . . . 38 Section 4.1 Organization . . . . . . . . . . . . . . . . 38 Section 4.2 Capitalization . . . . . . . . . . . . . . . 39 Section 4.3 Corporate Authorization; Validity of Agreement; Necessary Action . . . . . . . . 40 Section 4.4 Consents and Approvals; No Violations . . . 41 i Page Section 4.5 SEC Reports and Financial Statements . . . . 42 Section 4.6 Absence of Certain Changes . . . . . . . . . 43 Section 4.7 No Undisclosed Liabilities. . . . . . . . . 43 Section 4.8 Information in Proxy Statement/Prospectus. . 43 Section 4.9 Litigation . . . . . . . . . . . . . . . . . 44 Section 4.10 Taxes. . . . . . . . . . . . . . . . . . . . 44 Section 4.11 Compliance with Law . . . . . . . . . . . . 46 Section 4.12 No Default . . . . . . . . . . . . . . . . . 46 Section 4.13 Financing. . . . . . . . . . . . . . . . . . 47 Section 4.14 Opinion of Financial Advisor. . . . . . . . 47 ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . 47 Section 5.1 Interim Operations of the Company . . . . . 47 Section 5.2 Treatment of Certain Indebtedness . . . . . 51 Section 5.3 Access to Information . . . . . . . . . . . 52 Section 5.4 Consents and Approvals . . . . . . . . . . . 53 Section 5.5 Employee Benefits . . . . . . . . . . . . . 54 Section 5.6 No Solicitation . . . . . . . . . . . . . . 58 Section 5.7 Additional Agreements . . . . . . . . . . . 60 Section 5.8 Publicity . . . . . . . . . . . . . . . . . 60 Section 5.9 Notification of Certain Matters . . . . . . 60 Section 5.10 Directors' and Officers' Insurance and Indem- nification . . . . . . . . . . . . . . . . . 61 Section 5.11 Rule 145 Affiliates . . . . . . . . . . . . 62 Section 5.12 Cooperation . . . . . . . . . . . . . . . . 62 Section 5.13 Proxy Statement/Prospectus . . . . . . . . . 63 Section 5.14 New York State Real Property Transfer and Gains Taxes. . . . . . . . . . . . . . . . 64 Section 5.15 Confidentiality/Standstill Agreement. . . . 64 Section 5.16 Stock Exchange Listing. . . . . . . . . . . 64 ARTICLE VI CONDITIONS . . . . . . . . . . . . . . . . . 65 Section 6.1 Conditions to the Obligations of Each Party 65 ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . 65 Section 7.1 Termination . . . . . . . . . . . . . . . . 65 Section 7.2 Effect of Termination . . . . . . . . . . . 68 Section 7.3 Termination Fee . . . . . . . . . . . . . . 69 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . 69 Section 8.1 Fees and Expenses . . . . . . . . . . . . . 69 Section 8.2 Finders' Fees . . . . . . . . . . . . . . . 70 Section 8.3 Amendment and Modification. . . . . . . . . 70 Section 8.4 Nonsurvival of Representations and Warranties 70 Section 8.5 Notices . . . . . . . . . . . . . . . . . . 71 Section 8.6 Interpretation . . . . . . . . . . . . . . . 72 Section 8.7 Counterparts . . . . . . . . . . . . . . . . 72 Section 8.8 Entire Agreement; No Third Party Beneficia- ries; Rights of Ownership . . . . . . . . . 72 Section 8.9 Severability . . . . . . . . . . . . . . . . 73 Section 8.10 Specific Performance. . . . . . . . . . . . 73 ii Page Section 8.11 Governing Law. . . . . . . . . . . . . . . . 73 Section 8.12 Assignment . . . . . . . . . . . . . . . . . 73 Section 8.13 Joint and Several Liability . . . . . . . . 73 Exhibits Annexes iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of November 29, 1995, by and among Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and Revco D.S., Inc., a Delaware corporation (the "Company"). WHEREAS, the Boards of Directors of Parent, Sub and the Company have approved, and deem it advisable and in the best interests of their respective stockholders to consummate, the acquisition of the Company by Parent upon the terms and subject to the conditions set forth herein; WHEREAS, it is intended that the acquisition be accomplished by Sub commencing a cash tender offer for Shares (as defined in Section 1.1) to be followed by a merger of Sub with and into the Company (the "Merger"), with the Company being the surviving corporation; WHEREAS, as a condition and inducement to Parent and Sub entering into this Agreement and incurring the obligations set forth herein, concurrently with the execution and delivery of this Agreement, Parent is entering into a Stockholder Agreement with Zell/Chilmark Fund, L.P. in the form of Exhibit A hereto (the "Zell/Chilmark Stockholder Agreement"), pursuant to which, among other things, such stockholder has agreed to vote the Shares then owned by such stockholder in favor of the Merger provided for herein; WHEREAS, as a condition and inducement to Parent and Sub entering into this Agreement and incurring the obligations set forth herein, concurrently with the execution and delivery of this Agreement, Parent and the Company are entering into a Stock Option Agreement in the form of Exhibit B hereto (the "Stock Option Agreement"), pursuant to which, among other things, the Company has granted Parent the right to purchase Shares representing 19.9% of the outstanding Shares at the date of exercise under certain circumstances; WHEREAS, the Board of Directors of the Company has approved the transactions contemplated by this Agreement, the Zell/Chilmark Stockholder Agreement and the Stock Option Agreement in accordance with the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL") and has resolved to recommend the acceptance of the Offer (as defined in Section 1.1) and the approval of the Merger by the holders of Shares; and NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein and in the Zell/Chilmark Stockholder Agreement and the Stock Option Agreement, the parties hereto agree as follows: ARTICLE I THE OFFER AND MERGER Section 1.1 The Offer. (a) As promptly as practicable (but in no event later than five business days after the public announcement of the execution hereof), Sub shall commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) an offer (the "Offer") to purchase for cash not less than 35,144,833 shares and up to all of the issued and outstanding common stock, par value $.01 per share (referred to herein as either the "Shares" or "Company Common Stock"), of the Company at a price of $27.50 per Share, net to the seller in cash (such price, or such higher price per Share as may be paid in the Offer, being referred to herein as the "Offer Price"), the exact number of Shares within such range to be determined by Parent in its sole discretion, it being hereby agreed that Parent may change the amount of Shares sought to be purchased in the Offer within such range at any time prior to consummation of the Offer, provided that Parent complies with the requirements of Rule 14e-1 of the Exchange Act. The Offer shall be subject to there being validly tendered and not withdrawn prior to the expiration of the Offer, at least 35,144,833 Shares or such other number of Shares as shall equal 50.1% of the Shares outstanding on a fully-diluted basis as of the expiration of the Offer (the "Minimum Condition") and to the other conditions set forth in Annex A hereto. Sub shall, on the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, accept for payment and pay for Shares tendered as soon as practicable after the later of the satisfaction of the conditions to the Offer and the expiration of the Offer; provided, however, that no such payment shall be made until after any calculation of proration as required by applicable 2 law. The obligations of Sub to commence the Offer and to accept for payment and to pay for any Shares validly tendered on or prior to the expiration of the Offer and not withdrawn shall be subject only to the conditions set forth in Annex A hereto. The Offer shall be made by means of an offer to purchase (the "Offer to Purchase") containing the terms set forth in this Agreement and the conditions set forth in Annex A hereto. Without the written consent of the Company, Sub shall not amend or waive the Minimum Condition, decrease the Offer Price, change the number of Shares sought to an amount less than 50.1% of the outstanding Shares on a fully-diluted basis, change the form of consideration to be paid pursuant to the Offer or impose conditions to the Offer in addition to those set forth in Annex A hereto, or amend any other term or condition of the Offer in any manner which is adverse to the holders of Shares; provided, however, that if on the initial scheduled expiration date of the Offer (as it may be extended in accordance with the terms hereof), all conditions to the Offer shall not have been satisfied or waived, the Offer may be extended from time to time without the consent of the Company for such period of time as is reasonably expected to be necessary to satisfy the unsatisfied conditions. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such increase in each case without the consent of the Company. (b) Parent and Sub shall file with the United States Securities and Exchange Commission (the "SEC") as soon as practicable on the date the Offer is commenced, a Tender Offer Statement on Schedule 14D-1 with respect to the Offer (together with all amendments and supplements thereto and including the exhibits thereto, the "Schedule 14D-1") which will include, as exhibits, the Offer to Purchase and a form of letter of transmittal and summary advertisement (collectively, together with the Schedule 14D-1 and any amendments and supple- ments thereto, the "Offer Documents"). Parent and Sub represent that the Offer Documents will comply in all material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, will not 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 3 circumstances under which they were made, not misleading, except that no representation is made by Parent or Sub with respect to information supplied by the Company in writing for inclusion in the Offer Documents. The information supplied by the Company for inclusion in the Offer Documents will not, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, 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 were made, not misleading. Each of Parent and Sub further agrees to take all steps necessary to cause the Offer Documents to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Each of Parent and Sub, on the one hand, and the Company, on the other hand, 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 and misleading in any material respect, and Parent and Sub further agree to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given the opportunity to review the Schedule 14D-1 and the Offer Documents before they are filed with the SEC. In addition, Parent and Sub agree to provide the Company and its counsel in writing with any comments Parent, Sub or their counsel may receive from time to time from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. Parent and Sub will cooperate with the Company in re- sponding to any comments received from the SEC with respect to the Offer and amending the Offer in response to any such comments. Section 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that the Board of Directors, at a meeting duly called and held, has unanimously (with one director absent and two directors abstaining) (i) determined that this Agreement and the transactions contemplated hereby, including, without limitation, the Offer, the Merger, the Zell/Chilmark 4 Stockholder Agreement, the Stock Option Agreement and the transactions contemplated thereby, are fair to and in the best interests of the holders of Shares, (ii) approved this Agreement and the transactions contemplated hereby, including, without limitation, the Offer and the Merger, and approved the Zell/Chilmark Stockholder Agreement, the Stock Option Agreement and the transactions contemplated thereby, such determination and approval constituting approval thereof for purposes of Section 203 of the DGCL, and (iii) resolved to recommend that the stockholders of the Company who desire to receive cash for their Shares accept the Offer and tender their Shares thereunder to Sub and that all stockholders of the Company approve and adopt this Agreement; provided, however, that prior to the purchase by Sub of Shares pursuant to the Offer, the Company may modify, withdraw or change such recommendation only to the extent that the Board of Directors of the Company determines, after having received the oral or written opinion of outside legal counsel to the Company, that the failure to so withdraw, modify or change would result in a breach of the Board of Directors' fiduciary duties under applicable laws. (b) Concurrently with the commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto and including the exhibits thereto, the "Schedule 14D-9") which shall contain the recommendation referred to in clauses (i), (ii) and (iii) of Section 1.2(a) hereof; provided, however, that the Company may modify, withdraw or change such recommendation only to the extent that the Board of Directors of the Company determines, after having received the oral or written opinion of outside legal counsel to the Company, that the failure to so withdraw, modify or change would result in a breach of the Board of Directors' fiduciary duties under applicable laws and any such withdrawal, change or modification shall not constitute a breach of this Agreement. The Company represents that the Schedule 14D-9 will comply in all material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not 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 5 circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Sub for inclusion in the Schedule 14D-9. The information supplied by Parent and Sub for inclusion in the Schedule 14D-9 will not, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, 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 were made, not misleading. The Company further agrees to take all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Each of the Company, on the one hand, and Parent and Sub, on the other hand, 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 and misleading in any material respect and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given the opportunity to review the Schedule 14D-9 before it is filed with the SEC. In addition, the Company agrees to provide Parent, Sub and their counsel in writing with any comments the Company or its counsel may receive from time to time from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. The Company will cooperate with Parent and Sub in responding to any comments received from the SEC with respect to the Schedule 14D-9 and amending the Schedule 14D-9 in response to any such comments. (c) In connection with the Offer, if requested by Sub, the Company will promptly furnish or cause to be furnished to Sub mailing labels, security 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 Sub with such information and assistance as Sub or its agents may reasonably request in communicating the Offer to the stockholders of the Company. Except for such steps as are necessary to disseminate the Offer 6 Documents, Parent and Sub shall hold in confidence the information contained in any of such labels and lists and the additional information referred to in the preceding sentence, will use such information only in connection with the Offer, and, if this Agreement is terminated, will upon request of the Company deliver or cause to be delivered to the Company all copies of such information then in its possession or the possession of its agents or representatives. (d) The Board of Directors of the Company has received the written opinion of Morgan Stanley & Co. Incorporated ("Company Financial Advisor"), dated as of a date which is on or prior to the date of this Agreement, to the effect that, as of such date, the consideration to be received by holders of Shares (other than Sub and its affiliates) pursuant to the Offer and Merger, taken together, is fair from a financial point of view to such holders (the "Company Fairness Opinion"). The Company has delivered to Sub a copy of the Company Fairness Opinion, together with Company Financial Advisor's autho- rization to the inclusion of the Company Fairness Opinion in the Offer Documents and the Proxy Statement/Prospectus (as defined in Section 1.7). Section 1.3 The Merger. Subject to the terms and conditions of this Agreement and in accordance with the DGCL at the Effective Time, the Company and Sub shall consummate a merger (the "Merger") pursuant to which (i) Sub shall be merged with and into the Company and the separate corporate existence of Sub shall thereupon cease, and (ii) the Company shall be the successor or surviving corporation in the Merger (the "Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware. Pursuant to the Merger, (x) the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation, and (y) the Bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-laws. The Merger shall have the effects set forth in the DGCL. 7 Section 1.4 Effective Time. (a) Parent, Sub and the Company will cause a Certificate of Merger (the "Certificate of Merger") with respect to the Merger to be executed and filed on the date of the Closing (as defined in Section 1.5) (or on such other date as Parent and the Company may agree) with the Secretary of State of the State of Delaware as provided in the DGCL. The Merger shall become effective on the date on which the Certificate of Merger has been duly filed with the Secretary of State or such time as is agreed upon by the parties and specified in the Certificate of Merger, and such time is hereinafter referred to as the "Effective Time". (b) If Shares are purchased in the Offer, Parent and Sub covenant and agree to consummate the Merger pursuant to the terms of this Agreement not later than June 30, 1996. Section 1.5 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m., New York City time, on a date to be specified by the parties, which shall be no later than the third business day after satisfaction or waiver of all of the conditions set forth in Article VII hereof (the "Closing Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York, unless another time, date or place is agreed to in writing by the parties hereto. Section 1.6 Directors and Officers. (a) Promptly upon the acceptance for payment of any Shares by Parent or any of its Subsidiaries (as defined in Section 3.1 hereof) pursuant to the Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Sub, Parent and any of their affiliates bears to the total number of shares of Company Common Stock then outstanding. The Company shall, upon request of Parent, use its best efforts promptly either to increase the size of its Board of Directors or, at the Company's election, secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Company's Board, and shall cause Parent's designees to be 8 so elected. At such time, the Company shall also cause persons designated by Parent to constitute the same percentage (rounded up to the next whole number) as is on the Company's Board of Directors of (i) each committee of the Company's Board of Directors, (ii) each board of directors (or similar body) of each Subsidiary of the Company and (iii) each committee (or similar body) of each such board, in each case only to the extent permitted by applicable law or the rules of any stock exchange on which the Company Common Stock is listed. Notwithstanding the foregoing, until the Effective Time, each of Parent, Sub and the Company shall use its best efforts to retain as a member of the Company's Board of Directors at least two directors who are directors of the Company on the date hereof (the "Continuing Directors"); provided, that subsequent to the purchase of and payment for Shares pursuant to the Offer, Parent shall always have its designees represent at least a majority of the entire Board of Directors. In the event of a vacancy on the Board of Directors resulting from the resignation or death of any Continuing Director, such vacancy shall be filled by the remaining Continuing Directors, or if there are no remaining Continuing Directors by the designees of Zell/Chilmark Fund, L.P. The Company's obligations under this Section 1.6(a) shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to such Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.6(a), including mailing to stockholders the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elected to the Company's Board of Directors. Parent or Sub will supply the Company any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1. The provisions of this Section 1.6(a) are in addition to and shall not limit any rights which Sub, Parent or any of their affiliates may have as a holder or beneficial owner of Shares as a matter of law with respect to the election of directors or otherwise. (b) From and after the time, if any, that Parent's designees constitute a majority of the Company's Board of Directors and prior to the Effective Time, (i) any material amendment of this Agreement, (ii) any termi- nation of this Agreement by the Company, (iii) any exten- 9 sion of time for performance of any of the obligations of Parent or Sub hereunder, (iv) any waiver of any condition or any of the Company's rights hereunder, (v) any amendment or change to the Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries, (vi) any amendment or change to any Benefit Plan (as defined in Section 3.9(a)) or compensation policies or severance obligations (including those agreements or obligations referenced in Section 3.9 hereof or set forth in Schedule 3.9 of the Company Disclosure Schedule) or (vii) any amendment or change to the policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries on the date hereof, may be effected only by the action of a majority of the Board of Directors of the Company, which majority includes a majority of the Continuing Directors; provided, that if there shall be no Continuing Directors, actions may be effected by majority vote of the entire Board of Directors of the Company. Any actions with respect to the enforcement of this Agreement by the Company shall be effected only by the action of a majority of the Continuing Directors. (c) The directors and officers of Sub at the Effective Time shall, from and after the Effective Time, be the initial directors and officers of the Surviving Corporation until their successors shall have been duly elected or appointed or qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and By-laws. Section 1.7 Stockholders' Meetings. (a) In order to consummate the Merger, the Company, acting through its Board of Directors, shall, in accordance with applicable law, duly call, give notice of, convene and hold a special meeting of its stockholders (the "Company Special Meeting"), as soon as practicable after the registration statement on Form S-4 (together with all amendments, schedules, and exhibits thereto) to be filed by Parent in connection with the registration of the Parent Common Stock to be issued by Parent in the Merger (the "Registration Statement") is declared effective, for the purpose of considering and taking action upon this Agreement. The Company shall include in the joint proxy statement/prospectus forming a part of the Registration Statement (the "Proxy Statement/Prospectus") the recommendation of the Board of Directors of the Company that 10 stockholders of the Company vote in favor of the approval of the Merger and the adoption of this Agreement. Parent agrees that it will vote, or cause to be voted, all of the Shares then owned by it, Sub or any of its other Subsidiaries, in favor of the approval of the Merger and adoption of the Merger Agreement at the Company Special Meeting. (b) In order to consummate the Merger, Parent, acting through its Board of Directors, shall, in accordance with applicable law, duly call, give notice of, convene and hold a special meeting of its stockholders (the "Parent Special Meeting" and together with the Company Special Meeting, the "Special Meetings"), as soon as practicable after the Registration Statement is de- clared effective, for the purpose of authorizing the issuance of shares of Parent Common Stock (as defined below) pursuant to the Merger. Parent shall include in the Proxy Statement/Prospectus the recommendation of the Board of Directors of Parent that stockholders of Parent vote in favor of the issuance of shares of Parent common stock, par value $1.00 per share ("Parent Common Stock"), in the Merger. (c) Nothing in this Section 1.7 is intended to impair the fiduciary duties of the Boards of Directors of the Company or Parent or, in the case of the Board of Directors of the Company, to restrict its ability to exercise its right of termination pursuant to Section 7.1(c)(1) of this Agreement. ARTICLE II CONVERSION OF SHARES Section 2.1 Conversion of Shares. (a) Each share of Common Stock, par value $.01 per share, of Sub issued and outstanding immediately prior to the Effective Time, without any other action by Parent, Sub or the Company, shall, at the Effective Time, be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Shares to be cancelled pursuant to Section 2.1(d) hereof and other than Dissenting Shares 11 (as defined in Section 2.6), if any) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into either (i) the right to receive a number of duly authorized, validly issued, fully paid and nonassessable shares of Parent Common Stock determined as set forth in clause (c) below; provided that Parent shall not issue more than 1.12500 nor less than .91666 shares of Parent Common Stock per Share (the "Exchange Ratio") or (ii) if the alternative consideration contemplated by Section 2.2 hereof is applicable, then the right to receive the Alternative Consideration (as defined in Section 2.2), plus, in each of clause (i) and (ii) above, any Additional Consideration contemplated by Section 2.2 hereof. (c) For purposes hereof, "Average Parent Share Price" shall mean the average closing price per share of Parent Common Stock on the New York Stock Exchange (the "NYSE") as reported on the NYSE Composite Tape for fifteen NYSE trading days selected by Parent and the Company by lot from among the forty NYSE trading days ending on the fifth trading day immediately preceding the Company Special Meeting. "Transaction Price" shall mean $27.50 per Share. The number of shares of Parent Common Stock into which each Share shall be converted in the Merger shall be determined as follows: 1. In the event the Average Parent Share Price equals the Transaction Price, each Share shall be converted into one share of Parent Common Stock. 2. In the event that the Average Parent Share Price is greater than the Transaction Price, each Share shall be converted into a number of shares of Parent Common Stock (rounded to the nearest one one-hundred thousandth) determined by the following formula: Number of shares of Transaction Price plus .5 x (Average Parent Common Stock = Parent Share Price minus Transaction Price) --------------------------------------------- Average Parent Share Price 3. In the event that the Average Parent Share Price is less than the Transaction Price, each Share shall be converted, at the option of Parent, into either: 12 (I) a number of shares of Parent Common Stock (rounded to the nearest one one-hundred thousandth) determined by the following formula: Number of shares of Transaction Price minus .5 x (Transaction Parent Common Stock = Price minus Average Parent Share Price) ------------------------------------------- Average Parent Share Price or (II) one share of Parent Common Stock plus the Cash Adjustment Amount, without any interest thereon, where the Cash Adjustment Amount is determined by the following formula: Cash Adjust- = .5 x (Transaction Price minus ment Amount Average Parent Share Price); provided, however, in no event shall the Cash Adjustment Amount be greater than $2.75 per Share. (d) All shares of Company Common Stock that are owned by the Company as treasury stock and any shares of Company Common Stock owned by Parent, Sub or any other direct or indirect wholly owned Subsidiary of Parent shall, at the Effective Time, be cancelled and retired and shall cease to exist and no Parent Common Stock or cash, if the alternative consideration contemplated by Section 2.2 hereof is applicable, shall be delivered in exchange therefor. (e) On and after the Effective Time, holders of certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") shall cease to have any rights as stockholders of the Company, except the right to receive the consideration set forth in this Article II (other than the Additional Consideration provided by Section 2.2(c) hereof) (the "Merger Consideration") for each Share held by them or, if applicable, payments due to holders of Dissenting Shares (as defined in Section 2.6 hereof). Section 2.2 Alternative Consideration and Additional Consideration. (a) In the event that the stockholders of Parent shall not approve the issuance of Parent Common Stock pursuant to the Merger at the Parent Special Meeting, but all conditions to the Merger are otherwise satisfied or waived (if permissible), the 13 Company, Parent and Sub shall nonetheless consummate the Merger and each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than treasury Shares and Shares owned by Parent and its Subsidiaries) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder hereof, be converted into the right to receive the following consideration (the "Alternative Consideration") in a combination of shares of Parent Common Stock and cash determined as follows: 1. The number of shares of Parent Common Stock into which each Share shall be converted in the Merger (the "Adjusted Exchange Ratio") shall equal the Exchange Ratio determined pursuant to Section 2.1(c) hereof (assuming no Cash Adjustment Amount is paid) multiplied by a fraction (the "Adjustment Fraction"), the numerator of which is the number of shares of Parent Common Stock equal to 19.9% of the then outstanding shares of Parent Common Stock and the denominator of which is (a) the Exchange Ratio multiplied by (b) the aggregate number of outstanding Shares (other than treasury Shares and Shares owned by Parent and its Subsidiaries); and 2. The amount of cash (the "Adjusted Alternative Cash Consideration") into which each Share shall be converted in the Merger shall equal the Transaction Price multiplied by 1 minus the Adjustment Fraction. (b) In the event the Merger is not consummated prior to April 29, 1996 and the Company shall not have materially breached this Agreement (other than by acts caused or permitted by Parent), then the stockholders of the Company shall be entitled to receive interest on the amount of the Merger Consideration that they receive, from April 29, 1996 until the earlier of the Effective Time or June 30, 1996, calculated at an annual rate equal to the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York). For purposes of calculating the Merger Consideration, the Average Parent Share Price, if not otherwise ascertainable in accordance with the terms of this Agreement, shall be the average price of Parent Common Stock based on the 15 highest closing prices of Parent Common Stock since the consummation of the Offer until the earlier of June 30, 1996 or the Effective Time. 14 (c) In the event Parent and/or Sub, in violation of their obligations under this Agreement, fails or refuses to consummate the Merger on or prior to June 30, 1996 and the Company shall not have materially breached this Agreement (other than by acts caused or permitted by Parent), then, in addition to any rights or remedies that the Company and its stockholders otherwise have in law or at equity as a result thereof, the stockholders of the Company shall be entitled to receive interest from June 30, 1996 on the amount of the Merger Consideration not paid until such Merger Consideration is paid, calculated at the annual rate of the higher of (i) the prime rate of interest (as announced from time to time by Morgan Guaranty Trust Company of New York) plus 300 basis points or (ii) the amount otherwise permitted by law. For purposes of calculating the Merger Consideration, the Average Parent Share Price, if not otherwise ascertainable in accordance with the terms of this Agreement, shall be the average price of Parent Common Stock based on the 15 highest closing prices of Parent Common Stock since the consummation of the Offer until such Merger Consideration is paid. Any additional consideration paid or payable pursuant to Section 2.2(b) or Section 2.2(c) is referred to herein as "Additional Consideration". Section 2.3 Issuance of Parent Common Stock or Payment of Cash Consideration. (a) The manner in which each Share (other than Shares to be cancelled as set forth in Section 2.1(d)) shall be converted into Parent Common Stock or, if the Alternative Consideration contemplated by Section 2.2 hereof is applicable, the right to receive the Alternative Consideration in the Merger shall be as set forth in this Section 2.3. (b) No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates representing Shares, no dividend or distribution with respect to shares shall be payable on or with respect to any fractional share and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of Parent. In lieu of any such fractional share of Parent Common Stock, Parent shall pay to each former stockholder of the Company who otherwise would be entitled to receive a fractional share of Parent Common Stock an amount in cash determined by 15 multiplying (i) the Average Parent Share Price on the date on which the Effective Time occurs by (ii) the fractional interest in a share of Parent Common Stock to which such holder would otherwise be entitled. (c) Parent shall designate a bank or trust company to act as agent for the holders of shares of Company Common Stock in connection with the Merger (the "Exchange Agent") to receive the shares of Parent Common Stock and the Cash Adjustment Amount, if any, or the Alternative Consideration, as the case may be, and any Additional Consideration to which holders of shares of Company Common Stock shall become entitled pursuant to this Article II. (d) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a Certificate whose shares were converted pursuant to this Article II into the right to receive the Merger Consideration (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange 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 the Merger Consideration and any Additional Consideration contemplated by Section 2.2(c). Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration and any Additional Consideration contemplated by Section 2.2(c) for each share of Company Common Stock formerly represented by such Certificate and the Certificate so surrendered shall forthwith be cancel- led. If payment of the Merger Consideration and any Additional Consideration contemplated by Section 2.2(c) 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 properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration and any Additional Consideration contemplated by 16 Section 2.2(c) to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. (e) Immediately following the Effective Time, Parent shall deliver, in trust, to the Exchange Agent, for the benefit of the holders of Shares, (i) certificates representing an aggregate number of shares of Parent Common Stock as nearly as practicable equal to the product of the Exchange Ratio and the number of Shares to be converted into Parent Common Stock as determined by this Article II plus, if applicable, the Cash Adjustment Amount multiplied by the number of Shares to be converted into Parent Common Stock as determined by this Article II or (ii) if the Alternative Consideration contemplated by Section 2.2 hereof is applicable, certificates representing an aggregate number of shares of Parent Common Stock as nearly as practicable equal to the product of the Adjusted Exchange Ratio and the number of Shares to be converted into Parent Common Stock as determined by this Article II, plus an amount of cash equal to the product of the Adjusted Alternative Cash Consideration and the number of Shares to be converted into the Adjusted Alternative Cash Consideration pursuant to this Article II. In addition, Parent shall deliver to the Exchange Agent the aggregate amount of any Additional Consideration to be paid to holders of Shares. As soon as practicable after the Effective Time, each holder of Shares converted into Parent Common Stock (plus the Cash Adjustment Amount, if applicable or any Additional Consideration, if applicable) or cash pursuant to this Article II, upon surrender to the Exchange Agent of one or more Certificates for such Shares for cancellation, shall be entitled to receive either certificates representing the number of shares of Parent Common Stock into which such Shares shall have been converted in the Merger (plus the Cash Adjustment Amount, if applicable, or any Additional Consideration, if applicable) or, in case the Alternative Consideration contemplated by Section 2.2 is applicable the cash (including any Additional Consideration, if applicable) and certificates representing the number of shares of Parent Common Stock into which such Shares shall have been converted in the Merger. No divi- dends or distributions that have been declared will be paid to persons entitled to receive certificates for 17 shares of Parent Common Stock until such persons surrender their Certificates for Shares, at which time all such dividends shall be paid. In no event shall the persons entitled to receive such dividends be entitled to receive interest on such dividends. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of Shares for any Parent Common Stock, Alternative Consideration or dividends thereon delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) At any time following nine months after the Effective Time, the Surviving Corporation shall be entitled to require the Exchange Agent to deliver to it any shares of Parent Common Stock or funds (including any interest received with respect thereto) which had been made available to the Exchange Agent and which have not been disbursed to holders of Certificates, and there- after such holders shall be entitled to look to the Surviving Corporation and Parent (subject to abandoned property, escheat or other similar laws) only with respect to the Merger Consideration payable or issuable upon due surrender of their Certificates, without any interest thereon. Section 2.4 Treatment of Stock Options. (a) Effective as of the Effective Time, each option granted by the Company to purchase shares of Company Common Stock that is outstanding and unexercised immediately prior thereto (the "Company Stock Options"), shall cease to represent a right to acquire shares of Company Common Stock and shall be converted automatically into an option to purchase shares of Parent Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the Company 1992 Long-Term Incentive Compensation Plan, as amended and the Company 1992 Non-Employee Directors' Stock Option Plan, as amended (together the "Option Plans"), and the agreements evidencing grants thereunder). The number of shares of Parent Common Stock subject to, and the option price and terms and conditions of, the new option shall be determined in a manner that preserves both (i) the aggregate gain (or loss) on the Company Stock Option immediately prior to the Effective Time and (ii) the ratio of the exercise price per share subject to the Company Stock Option to the fair market value (determined immediately prior to the Effective Time) per share sub- 18 ject to such option, provided that any fractional shares of Parent Common Stock resulting from such determination shall be rounded down to the nearest share. Effective as of the Effective Time, the Surviving Corporation shall assume each Company Stock Option agreement, each as amended, as provided herein. The adjustment provided herein with respect to any Company Stock Options that are "incentive stock options" (as defined in section 422 of the Code) shall be and is intended to be effected in a manner that is consistent with section 424(a) of the Code. The duration, vesting and other terms of the new options shall be the same as the Company Stock Options that they replace, except that all references to the Company shall be deemed to be references to Parent. In the event that a holder of a Company Stock Option is terminated without Cause (as defined in Section 5.5(a) of this Agreement) within 12 months of the Effective Time, then such holder's new option shall become 100% exercisable as of such date of termination. (b) Notwithstanding Section 2.4(a) above, outstanding vested options under the Long Term Incentive Plan (LTIP) held by Covered Executives (as defined in Section 5.5(a) hereof), including options that become vested in connection with a "Change in Control" under the terms of existing award agreements under the LTIP, shall, effective as of the Effective Time become exercisable under a cashless exercise procedure made available by the Company (subject to applicable law and any administrative procedures and policies deemed appropriate by the Company). Individuals subject to Section 16 of the Exchange Act shall be provided with a cash compensation arrangement providing such individuals with the opportunity to receive a cash payment approximating the benefits that would be deprived by reason of Section 16 of the Exchange Act. (c) Effective as of the Effective Time, the Options Plans shall terminate and the provisions in any other plan, program, agreement or arrangement, providing for the issuance or grant of any other interest in re- spect of the capital stock of the Company or any of its Subsidiaries shall be deleted. Furthermore, the Company shall take all actions necessary to ensure that following the Effective Time, no holder of Company Stock Options or any participant in the Option Plans or any other plans, programs, agreements or arrangements shall have any right 19 thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary of either of the foregoing. Section 2.5 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Shares on the records of the Company. If, after the Effective Time, Certificates representing Shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for cash or certificates representing Parent Common Stock pursuant to this Article II. Section 2.6 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, in the event the Alternative Consideration or any Additional Consideration contemplated by Section 2.2 hereof is applicable or in the event that Parent elects to pay any Cash Adjustment Amount, Shares which immediately prior to the Effective Time are held by stockholders who have properly exercised and perfected appraisal rights under Section 262 of the DGCL (the "Dissenting Shares"), shall not be converted into the right to receive the Merger Consideration, but the holders of Dissenting Shares shall be entitled to receive such consideration as shall be determined pursuant to Section 262 of 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, without any interest thereon, and such Shares shall no longer be Dissenting Shares. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: Section 3.1 Organization. Each of the Company and its Subsidiaries is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and has all requisite corporate 20 or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not, in the aggre- gate, have a material adverse effect on the Company and its Subsidiaries taken as a whole. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner (excluding such partnerships where such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or con- trolled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. As used in this Agreement, any reference to any event, change or effect having a material adverse effect on or with respect to any entity (or group of entities taken as a whole) means such event, change or effect, individually or in the aggregate with such other events, changes, or effects, which is materially adverse to the financial condition, business, results of operations, assets, liabilities, properties or prospects of such entity. If "material adverse effect" is used with respect to more than one entity, it shall mean such events, changes or effects with respect to all such entities taken as a whole. Section 3.1 of the Disclosure Schedule delivered by the Company to Parent on or prior to the date hereof (the "Company Disclosure Schedule") sets forth a complete list of the Company's Subsidiaries. 21 Section 3.2 Capitalization. (a) The authorized capital stock of the Company consists of 100,000,000 Shares and 25,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). As of the date hereof, (i) 66,587,990 shares of Company Common Stock are issued and outstanding, 700,000 shares of Company Common Stock are held in the Company's treasury, 1,096,101 shares of Company Common Stock are reserved for issuance under the Company's 401(k) Savings Plan, 2,002,220 shares of Company Common Stock are reserved for issuance under the Company's 1993 Employee Stock Purchase Plan and 3,561,377 shares of Company Common Stock are reserved for issuance pursuant to options previously granted pursuant to the Company Stock Option Plans, (ii) no shares of Preferred Stock are issued and outstanding, and (iii) no Shares or shares of Preferred Stock are issued and held in the treasury of the Company. All the outstanding shares of the Company's capital stock are, and all shares which may be issued pursuant to the Company Stock Option Plans will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable. Except as disclosed in Section 3.2(a) of the Company Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness having voting rights (or convertible into securities having such rights) ("Voting Debt") of the Company or any of its Subsidiaries issued and outstanding. Except as set forth above and except for the transactions contemplated by this Agreement and the Stock Option Agreement, as of the date hereof, (i) there are no shares of capital stock of the Company authorized, issued or outstanding and (ii) there are no existing options, warrants, calls, pre-emptive rights, subscriptions or other rights, convertible securities, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or any of its Subsidiaries, obligating the Company or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Voting Debt of, or other equity interest in, the Company or any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligations of the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, convertible security, agreement, arrangement or commitment. Except as disclosed in 22 Section 3.2(a) of the Company Disclosure Schedule, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Shares or the capital stock of the Company or any subsidiary or affiliate of the Company or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any Subsidiary or any other entity. Except as permitted by this Agreement, following the Merger, neither the Company nor any of its Subsidiaries will have any obligation to issue, transfer or sell any shares of its capital stock pursuant to any employee benefit plan or otherwise. (b) Except as disclosed in Section 3.2(b) of the Company Disclosure Schedule, all of the outstanding shares of capital stock of each of the Subsidiaries are beneficially owned by the Company, directly or indirectly, and all such shares have been validly issued and are fully paid and nonassessable and are owned by either the Company or one of its Subsidiaries free and clear of all liens, charges, security interests, options, claims or encumbrances of any nature whatsoever. (c) Except for the Zell/Chilmark Stockholder Agreement, there are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the capital stock of the Company or any of the Subsidiaries. None of the Company or its Subsidiaries is required to redeem, repurchase or otherwise acquire shares of capital stock of the Company, or any of its Subsidiaries, respectively, as a result of the transactions contemplated by this Agreement. The Company has delivered to Parent a letter agreement which causes the termination, as of the consummation of the Offer, of the Stockholder Agreement by and between Zell/Chilmark and the Company dated as of June 1, 1992 the Registration Rights Agreement by and between Zell/Chilmark Fund, L.P. and the Company dated as of June 1, 1992 and the Registration Rights Agreement by and between Magten Asset Management Corporation ("Magten") and the Company, dated as of January 20, 1993 (such agreements being referred to herein as the "Existing Company/Stockholder Agreements"). (d) At the Effective Time, the number of shares of Company Common Stock outstanding shall not exceed 73,247,688. 23 Section 3.3 Corporate Authorization; Validity of Agreement; Company Action. (a) The Company has full corporate power and authority to execute and deliver this Agreement and the Stock Option Agreement, and, subject to obtaining any necessary approval of its stockholders as contemplated by Section 1.7(a) hereof with respect to the Merger, to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and the Stock Option Agreement, and the consummation by it of the transactions contemplated hereby and thereby, have been duly and validly authorized by its Board of Directors and, except in the case of this Agreement for obtaining the approval of its stockholders as contemplated by Section 1.7(a) hereof with respect to the Merger, no other corporate action or proceedings on the part of the Company is necessary to authorize the execution and delivery by the Company of this Agreement and the Stock Option Agreement, and the consummation by it of the transactions contemplated hereby and thereby. This Agreement and the Stock Option Agreement has been duly executed and delivered by the Company and, assuming this Agreement and the Stock Option Agreement constitutes a valid and binding obligation of Parent and Sub, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) The Board of Directors of the Company has duly and validly approved and taken all corporate action required to be taken by the Board of Directors for the consummation of the transactions contemplated by this Agreement (including, without limitation, the Offer, the acquisition of Shares pursuant to the Offer and the Merger, the Stock Option Agreement, the Zell/Chilmark Stockholder Agreement and the termination of the Existing Company/Stockholder Agreements), including, but not limited to, all actions necessary to render the provisions of Section 203 of the DGCL inapplicable to such transactions. 24 Section 3.4 Consents and Approvals; No Violations. Except as disclosed in Section 3.4 of the Company Disclosure Schedule, and except for all filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the DGCL, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and for the approval of this Agreement by the Company's stockholders and the filing and recordation of the Certificate of Merger as required by the DGCL, neither the execution, delivery or performance of this Agreement and the Stock Option Agreement, nor the consummation by the Company of the transactions contemplated hereby or thereby nor compliance by the Company with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws or similar organizational documents of the Company or of any of its Subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity"), except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Company and its Subsidiaries and would not, or would not be reasonably likely to, materially impair the consummation of the Offer or the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement or the ability of the Company to consummate the Merger or the other transactions contemplated hereby or thereby, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, guar- antee, other evidence of indebtedness (collectively, the "Debt Instruments"), lease, license, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound and which either has a term of more than one year or involves the payment or receipt of money in excess of $300,000 (a "Company Agreement") or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its Subsidiaries or any of their properties or assets, except in the case 25 of clause (iii) or (iv) for such violations, breaches or defaults which would not, individually or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, and which would not, or would not be reasonably likely to, materially impair the consummation of the Offer, the Stock Option Agreement or the Zell/Chilmark Stockholder Agreement or the ability of the Company to consummate the Merger or the other transactions contemplated hereby or thereby. Section 3.5 SEC Reports and Financial Statements. The Company has filed with the SEC, and has heretofore made available to Parent true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it and its Subsidiaries since May 30, 1992 under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Company SEC Documents"). As of their respective dates or, if amended, as of the date of the last such amendment, the Company SEC Documents, including, without limitation, any financial statements or schedules included therein (a) did not contain any untrue statement of a material fact or omit 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 (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Each of the consolidated financial state- ments included in the Company SEC Documents have been prepared from, and are in accordance with, the books and records of the Company and/or its consolidated Subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of the Company and its consolidated Subsidiaries as at the dates thereof or for the periods presented therein. 26 Section 3.6 Absence of Certain Changes. Except to the extent disclosed in the Company SEC Documents filed prior to the date of this Agreement or as otherwise disclosed to Parent in Section 3.6 of the Company Disclosure Schedule, from June 3, 1995 through the date of this Agreement, the Company and its Subsidiaries have conducted their respective businesses and operations in the ordinary course of business consistent with past practice. From June 3, 1995 through the date of this Agreement, there has not occurred (i) any events, changes, or effects (including the incurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which would be reasonably likely to have, individually or in the aggregate, a material adverse effect on the Company and its Subsidiaries; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the equity interests of the Company or of any of its Subsidiaries, other than dividends paid by wholly owned Subsidiaries; or (iii) any material change by the Company or any of its Subsidiaries in accounting principles or methods, except insofar as may be required by a change in GAAP. Except as set forth on Schedule 3.6 of the Company Disclosure Schedule, from June 3, 1995 through the date of this Agreement, neither the Company nor any of its Subsidiaries has taken any of the actions prohibited by Section 5.1 hereof. Section 3.7 No Undisclosed Liabilities. Except (a) to the extent disclosed in the Company SEC Documents filed prior to the date of this Agreement and (b) for liabilities and obligations incurred in the ordinary course of business consistent with past practice, during the period from June 3, 1995 through the date of this Agreement, neither the Company nor any of its Subsidiaries have incurred any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on the Company and its Subsidiaries or would be required to be reflected or reserved against on a consolidated balance sheet of the Company and its Subsidiaries (including the notes thereto) prepared in accordance with GAAP as applied in preparing the June 3, 1995 consolidated balance sheet of the Company and its Subsidiaries. Section 3.7 of the Company Disclosure Schedule sets forth each instrument evidencing indebtedness of the Company and its Subsidiaries which 27 will accelerate or become due or payable, or result in a right of redemption or repurchase on the part of the holder of such indebtedness, or with respect to which any other payment or amount will become due or payable, in any such case with or without due notice or lapse of time, as a result of this Agreement, the Merger or the other transactions contemplated hereby. Section 3.8 Information in Proxy Statement/Prospectus. The Proxy Statement/Prospectus (or any amendment thereof or supplement thereto), at the date mailed to the Company's stockholders, on the date filed with the SEC and at the time of the Special Meetings, will not 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, provided, however, that no representation is made by the Company with respect to statements made therein based on information supplied by Parent or Sub for inclusion in the Proxy Statement/Prospectus. None of the information supplied by the Company for inclusion or incorporation by reference in the Registration Statement will, at the date it becomes effective and at the time of the Special Meetings 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. Subject to the proviso set forth in the second preceding sentence, the Proxy Statement/Prospectus will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. Section 3.9 Employee Benefit Plans; ERISA. (a) As of the date of this Agreement, except as set forth in Section 3.9(a) of the Company Disclosure Schedule: there are no material employee benefit plans, arrangements, practices, contracts or agreements (including, without limitation, employment agreements, change of control employment agreements and severance agreements, incentive compensation, bonus, stock option, stock appreciation rights and stock purchase plans) of any type (including but not limited to plans described in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by the Company, 28 any of its Subsidiaries or any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Company would be deemed a "controlled group" within the meaning of section 4001(a)(14) of ERISA, or with respect to which the Company or any of its Subsidiaries has or may have a liability, other than those listed on Section 3.9(a) of the Company Disclosure Schedule (the "Benefit Plans"). Except as disclosed in Section 3.9(a) of the Company Disclosure Schedule (or as otherwise permitted by this Agreement): (1) neither the Company nor any ERISA Affiliate has any formal plan or commitment, whether legally binding or not, to create any additional Benefit Plan or modify or change any existing Benefit Plan that would affect any employee or terminated employee of the Company or any ERISA Affiliate; and (2) since September 31, 1995, there has been no change, amendment, modification to, or adoption of, any Benefit Plan. Section 3.9(a) of the Company Disclosure Schedule contains a list of each material employment, termination, severance, incentive and deferred compensation agreement or arrangement that is a Benefit Plan, and the date of execution of each such agreement or arrangement. (b) Except as disclosed in Section 3.9(b) of the Company Disclosure Schedule, under the applicable laws of all jurisdictions within the United States of America and all foreign jurisdictions, with respect to any Benefit Plan, there are no material amounts accrued but unpaid as of the most recent balance sheet date that are not reflected on that balance sheet prepared in accordance with GAAP. (c) With respect to each Benefit Plan, except as disclosed on Schedule 3.9(c) of the Company Disclosure Schedule and as would not have a material adverse effect on the Company and its Subsidiaries: (i) if intended to qualify under section 401(a), 401(k) or 403(a) of the Code, such plan so qualifies, and its trust is exempt from taxation under section 501(a) of the Code; (ii) such plan has been administered in accordance with its terms and applicable law; (iii) no breaches of fiduciary duty have occurred; (iv) no disputes are pending, or, to the knowledge of the Company, threatened; (v) no prohibited transaction (within the meaning of Section 406 of ERISA) has occurred; (vi) no lien imposed under the Code or ERISA exists or is likely to exist; and (vii) all contributions and premiums due (including any extensions 29 for such contributions and premiums) have been made in full. (d) Except as disclosed in Section 3.9(d) of the Company Disclosure Schedule, none of the Benefit Plans has incurred any "accumulated funding deficiency," as such term is defined in section 412 of the Code, whether or not waived. (e) Except as disclosed on Section 3.9(e) of the Company Disclosure Schedule: (i) neither the Company nor any ERISA Affiliate has incurred any liability under Title IV of ERISA since the effective date of ERISA that has not been satisfied in full except as would not have or would not reasonably be likely to have a material adverse effect on the Company and its Subsidiaries (including sections 4063-4064 and 4069 of ERISA) and, to the knowledge of the Company, no basis for any such liability exists; (ii) neither the Company nor any ERISA Affiliate maintains (or contributes to), or has maintained (or has contributed to) within the last six years, any employee benefit plan that is subject to Title IV of ERISA; and (iii) there is no pending dispute between the Company or any ERISA Affiliate concerning payment of contributions or payment of withdrawal liability payments. (f) With respect to each Benefit Plan that is a "welfare plan" (as defined in section 3(1) of ERISA), except as specifically disclosed in Section 3.9(f) of the Company Disclosure Schedule, no such plan provides medical or death benefits with respect to current or former employees of the Company or any of its Subsidiaries beyond their termination of employment, other than on an employee-pay-all basis, and each such welfare plan may be amended or terminated by the Company or any of its Subsidiaries at any time with respect to such former or current employees. (g) With respect to each Benefit Plan that is intended to provide special tax treatment to participants (including sections 79, 105, 106, 125, 127 and 129 of the Code), to the Company's knowledge, such Benefit Plan has satisfied all of the material requirements for the receipt of such special tax treatment since January 1, 1992. 30 (h) Except as specifically set forth in Section 3.9(h) of the Company Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not (i) entitle any individual to severance pay or any tax "gross-up" payments with respect to the imposition of any tax pursuant to Section 4999 of the Code or accelerate the time of payment or vesting, or in- crease the amount, of compensation or benefits due to any individual with respect to any Benefit Plan, or (ii) constitute or result in a prohibited transaction under section 4975 of the Code or section 406 or 407 of ERISA with respect to any Benefit Plan. (i) Except as disclosed on Section 3.9(i) of the Company Disclosure Schedule, neither the Company, any Benefits Affiliate nor any "administrator" as that term is defined in section 3(16) of ERISA, has any liability with respect to or connected with any Benefit Plan for excise taxes payable under the Code or civil penalties payable under ERISA and, to the Company's knowledge, no basis for any such liability exists. (j) Except as disclosed on Schedule 3.9(j) of the Company Disclosure Schedule, there is no Benefit Plan that is a "multiemployer plan," as such term is defined in section 3(37) of ERISA, or which is covered by section 4063 or 4064 of ERISA. (k) With respect to each Benefit Plan except Plans in which employees of Parent or its Affiliates do not participate and except Multiemployer Plans from which the Company has withdrawn, the Company has delivered or made available to Parent accurate and complete (with de minimis omissions) copies of all plan texts, summary plan descriptions, summaries of material modifications, trust agreements and other related agreements including all amendments to the foregoing; the two most recent annual reports; the most recent annual and periodic accounting of plan assets; the most recent determination letter received from the United States Internal Revenue Service (the "Service"); and the two most recent actuarial reports, to the extent any of the foregoing may be applicable to a particular Benefit Plan. 31 (l) With respect to each Benefit Plan that is a "group health plan" as such term is defined in section 5000(b) of the Code, except as specifically set forth in Section 3.9(l) of the Company Disclosure Schedule, to the Company's knowledge, each such Benefit Plan complies and has complied with the requirements of Part 6 of Title I of ERISA and Sections 4980B and 5000 of the Code except where the failure to so comply would not have a material adverse effect on the Company and its Subsidiaries. (m) There are no material plans, arrangements, practices, contracts or agreements (including change of control agreements, severance agreements, retirement agreements, stock option or purchase agreements, medical or death benefit agreements) maintained by the Company or an ERISA Affiliate or with respect to which the Company or any of its Subsidiaries has a material liability to a director or former director (as a director) of the Company or an ERISA Affiliate other than those listed on Section 3.9(m) of the Company Disclosure Schedule or disclosed in the Company's most recent proxy statement (the "Director Plans"). Neither the Company nor any ERISA Affiliate has any formal plan or commitment, whether legally binding or not, to create any Director Plan or modify or change any existing Director Plan that would affect any director or former director of the Company or any ERISA Affiliate. Section 3.10 Litigation. Except to the extent disclosed in the Company SEC Documents filed prior to the date of this Agreement or on Section 3.10 of the Company Disclosure Schedule, there is no suit, claim, action, proceeding or investigation pending or, to the best knowledge of the Company, threatened against or affecting, the Company or any of its Subsidiaries which, individually or in the aggregate, is reasonably likely to have a material adverse effect on the Company and its Subsidiaries, or would, or would be reasonably likely to, materially impair the consummation of the Offer or the ability of the Company to consummate the Merger or the other transactions contemplated hereby or thereby. Section 3.11 No Default. The business of the Company and each of its Subsidiaries is not being conducted in default or violation of any term, condition or provision of (a) its respective certificate of incorpora- 32 tion or by-laws or similar organizational documents, (b) any Company Agreement or (c) except as disclosed in Section 3.11 of the Company Disclosure Schedule, any federal, state, local or foreign law, statute, regulation, rule, ordinance, judgment, decree, order, writ, injunction, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company or any of its Subsidiaries, excluding from the foregoing clauses (b) and (c), defaults or violations that would not have a material adverse effect on the Company and its Subsidiaries or would not, or would not be reasonably likely to, materially impair the consummation of the Offer or the ability of the Company to consummate the Merger or the other transactions contemplated hereby. No investigation or review by any Governmental Entity with respect to the Company or any of its Subsidiaries is pending or, to the best knowledge of the Company, threatened, nor to the best knowledge of the Company, has any Governmental Entity indicated an intention to conduct the same. Section 3.12 Taxes. (a) As of the date of this Agreement, except as set forth in Section 3.12 of the Company Disclosure Schedule: (i) the Company and its Subsidiaries have (I) duly filed (or there have been filed on their behalf) with the appropriate governmental authorities all Tax Returns (as hereinafter defined) required to be filed by them and such Tax Returns are true, correct and complete in all material respects, and (II) duly paid in full or made provision in accordance with GAAP (or there has been paid or provision has been made on their behalf) for the payment of all Taxes (as hereinafter defined) for all periods ending through the date hereof; (ii) the Company and its Subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and have, within the time and the manner prescribed by law, withheld and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws; (iii) no federal, state, local or foreign audits or other administrative proceedings or 33 court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company or its Subsidiaries and neither the Company nor its Subsidiaries has received a written notice of any pending audits or pro- ceedings; (iv) neither the Service nor any other taxing authority (whether domestic or foreign) has asserted, or to the best knowledge of the Company, is threatening to assert, against the Company or any of its Subsidiaries any deficiency or claim for Taxes; and (b) As of the date of this Agreement, except as set forth in Section 3.12 of the Company Disclosure Schedule: (i) there are no material liens for Taxes upon any property or assets of the Company or any Subsidiary thereof, except for liens for Taxes not yet due and payable and liens for Taxes that are being contested in good faith by appropriate proceedings; (ii) neither the Company nor any of its Subsidiaries has agreed to or is required to make any adjustment under Section 481(a) of the Code; (iii) the federal income Tax Returns of the Company and its Subsidiaries have been examined by the Service (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all periods as set forth on Section 3.12 of the Company Disclosure Schedule; (iv) neither the Company nor any of its Subsidiaries is a party to any material agreement providing for the allocation or sharing of Taxes; and (v) neither the Company nor any of its Subsidiaries has, with regard to any assets or property held or acquired by any of them, filed a consent to the application of 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 the Company or any of its Subsidiaries. 34 (c) "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, service, service use, license, net worth, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the Service or any taxing authority (whether domestic or foreign including, without limitation, any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States posses- sion)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. Section 3.13 Contracts. Each Company Agreement is valid, binding and enforceable and in full force and effect, except where failure to be valid, binding and enforceable and in full force and effect would not have a material adverse effect on the Company and its Subsidiaries, and there are no material defaults thereunder by the Company or its Subsidiaries or, to the best knowledge of the Company, by any other party thereto. Except as disclosed in Section 3.13 of the Company Disclosure Schedule, neither the Company nor any Subsidiary is a party to any agreement that expressly limits the ability of the Company or any Subsidiary or affiliate to compete in or conduct any line of business or compete with any person or in any geographic area or during any period of time. Section 3.14 Assets; Real Property. The assets, properties, rights and contracts, including, without limitation (as applicable), title or leaseholds thereto, of the Company and its Subsidiaries, taken as a 35 whole, are sufficient to permit the Company and its Subsidiaries to conduct their business as currently being conducted with only such exceptions as are immaterial to the Company and its Subsidiaries. All material real property owned by the Company and its Subsidiaries (the "Real Property") is owned free and clear of all liens, charges, security interests, options, claims, mortgages, pledges, easements, rights-of-way or other encumbrances and restrictions of any nature whatsoever, except as described in Section 3.14 of the Company Disclosure Schedule or those that do not materially adversely interfere with the use of such Real Property as currently used. Section 3.15 Environmental Matters. Except as disclosed in Section 3.15 of the Company Disclosure Schedule, as of the date of this Agreement, the Company is in material compliance with all applicable Environmental Laws and there are no Environmental Liabilities and Costs of the Company and its Subsidiaries that would have or are reasonably likely to have a material adverse effect on the Company and its Subsidiaries. For purposes of this Section 3.15, the following definitions shall apply: "Environmental Laws" means all applicable foreign, federal, state and local laws, common law, regulations, rules and ordinances relating to pollution or protection of health, safety or the environment. "Environmental Liabilities and Costs" means all liabilities, obligations, responsibilities, obligations to conduct cleanup, losses, damages, deficiencies, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigations and feasibility studies and responding to government requests for information or documents), fines, penalties, restitution and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future, resulting from any claim or demand, by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, joint and several liability, criminal or civil statute, under any Environmental Law, or arising from environmental, health or safety conditions, as a result of past or present 36 ownership, leasing or operation of any properties, owned, leased or operated by the Company or any of its Subsidiaries. Section 3.16 Reimbursement. The Company or its Subsidiaries, as the case may be, are parties to such agreements with third party payors, including Medicaid, health maintenance organizations, preferred provider organizations, insurance companies and other payment sources, which are necessary to conduct their respective businesses as of the date of this Agreement and a true and accurate list of all such agreements is set forth on Section 3.16 of the Company Disclosure Schedule. Section 3.17 Labor Relations. Except as set forth on Section 3.17 of the Company Disclosure Schedule, there is no labor strike, slowdown or work stoppage or lockout against the Company or any of its Subsidiaries, there is no unfair labor practice charge or complaint against or pending before the National Labor Relations Board (the "NLRB") which if decided adversely could have a material adverse effect on the Company and its Subsidiaries, taken as a whole, and there is no representation claim or petition pending before the NLRB and no question concerning representation exists with respect to the employees of the Company or its Subsidiaries. Section 3.18 Insurance. As of the date hereof, the Company and each of its Subsidiaries are insured by insurers, reasonably believed by the Company to be of recognized financial responsibility and solvency, against such losses and risks and in such amounts as are customary in the businesses in which they are engaged. All material policies of insurance and fidelity or surety bonds are in full force and effect. Descriptions of these plans and related liability coverage have been previously provided to Parent. Section 3.18 of the Company Disclosure Schedule contains a listing of all open workers compensation and general liability claims as of a recent date. These claims, individually or in the aggregate, would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. All necessary notifications of claims have been made to insurance carriers other than those which will not have a material adverse effect on the Company and its Subsidiar- ies, taken as a whole. 37 Section 3.19 Transactions with Affiliates. Except to the extent disclosed in the Company SEC Documents filed prior to the date of this Agreement, from May 29, 1993 through the date of this Agreement there have been no transactions, agreements, arrangements or understandings between the Company or its Subsidiaries, on the one hand, and the Company's affiliates (other than wholly-owned Subsidiaries of the Company) or other Persons, on the other hand, that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act. Section 3.20 Compliance with Law. The Company and its Subsidiaries have complied in all material respects with all laws, statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs and injunctions, of any court or governmental entity relating to any of the property owned, leased or used by them, or applicable to their business, including, but not limited to, equal employment opportunity, discrimination, occupational safety and health, environmental, interstate commerce, antitrust laws, ERISA and laws relating to Taxes (as defined in Section 3.12). The Company, with respect to each store location, has all permits and licenses (including, without limitation, pharmaceutical and liquor licenses and permits) necessary to carry on the business being conducted at each store location. Section 3.21 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock are the only votes of the holders of any class or series of the Company's capital stock necessary to approve the Merger. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: Section 4.1 Organization. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now 38 being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals would not have a material adverse effect on Parent and its Subsidiaries. Parent and each of its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a material adverse effect on Parent and its Subsidiaries. Section 4.2 Capitalization. (a) The authorized capital stock of Parent consists of 240,000,000 shares of Parent Common Stock and (b) 20,000,000 preferred shares, par value $1.00 per share (the "Parent Preferred Stock"). As of the date hereof, (i) 83,758,467 shares of Parent Common Stock are issued and outstanding, (ii) no shares of Parent Preferred Stock are issued and outstanding, (iii) 6,532,169 shares of Parent Common Stock are issued and held in the treasury of Parent, and (iv) 6,417,062 shares of Parent Common Stock are reserved for issuance under Parent's 1990 Omnibus Stock Incentive Plan (the "Parent Plan"). All of the outstanding shares of Parent's capital stock are, and all shares which may be issued pursuant to the exercise of outstanding options or pursuant to the Parent Plan will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable. Except for Parent's 6.75% Zero Coupon Convertible Subor- dinated Notes due July 24, 2006, there are no bonds, debentures, notes or other indebtedness having voting rights (or convertible into securities having such rights) ("Parent Voting Debt") of Parent or any of its Subsidiaries issued and outstanding. Except as set forth above, and except as set forth in Section 4.2 of the Disclosure Schedule delivered to the Company on or prior to the date hereof (the "Parent Disclosure Schedule") and except for transactions contemplated by this Agreement, as of the date hereof, (i) there are no shares of capital stock of Parent authorized, issued or outstanding and (ii) there are no existing options, warrants, calls, preemptive rights, subscriptions or other rights, convertible securities, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of Parent or any of its Subsidiaries, 39 obligating Parent or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Parent Voting Debt of, or other equity interest in, Parent or any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligations of Parent or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, convertible security, agreement, arrangement or commitment. There are no outstanding contractual obligations of Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Parent Common Stock or the capital stock of Parent or any subsidiary or affiliate of Parent or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any Subsidiary or any other entity. (b) There are no voting trusts or other agreements or understandings to which Parent or any of its Subsidiaries is a party with respect to the voting of the capital stock of Parent or its Subsidiaries. None of Parent or its Subsidiaries is required to redeem, repurchase or otherwise acquire shares of capital stock of Parent, or any of its Subsidiaries, respectively, as a result of the transactions contemplated by this Agreement. Section 4.3 Corporate Authorization; Validity of Agreement; Necessary Action. Each of Parent and Sub has full corporate power and authority to execute and deliver this Agreement, the Stock Option Agreement and the Zell/Chilmark Stockholder Agreement and, subject in the case of this Agreement to obtaining any necessary approval of Parent's stockholders as contemplated by Section 1.7(b) hereof with respect to the Merger, to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Parent and Sub of this Agreement and the consummation by Parent and Sub of the transactions contemplated hereby have been duly and validly authorized by their respective Boards of Directors and by Sub's sole stockholder and, except in the case of obtaining any necessary approval of Parent's stockholders as contemplated by Section 1.7(b) hereof, no other corporate action or proceedings on the part of Parent and Sub are necessary to authorize the execution and delivery by Parent and Sub of this Agreement and the 40 consummation by Parent and Sub of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and Sub, and, assuming this Agreement constitutes valid and binding obligations of the Company, constitutes valid and binding obligations of each of Parent and Sub, enforceable against them in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The shares of Parent Common Stock issued pursuant to the Merger, if any, will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Section 4.4 Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the Securities Act of 1933 (the "Securities Act"), the DGCL, the HSR Act, state blue sky laws and any applicable state takeover laws and the approval by Parent's stockholders of the issuance of Parent Common Stock in the Merger, neither the execution, delivery or performance of this Agreement by Parent and Sub nor the consummation by Parent and Sub of the transactions contemplated hereby nor compliance by Parent and Sub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws of Parent and Sub, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on Parent and its Subsidiaries or would not, or would not be reasonably likely to, materially impair the ability of Parent and Sub to consummate the Offer, the Merger or the other transactions contemplated hereby or thereby), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, guarantee, other 41 evidence of indebtedness, lease, license, contract, agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent, any of its Subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which would not have a material adverse effect on Parent and its Subsidiaries or would not, or would not be reasonably likely to, materially impair or the ability of Parent or Sub to consummate the Offer, the Merger or the other transactions contemplated hereby. Section 4.5 SEC Reports and Financial Statements. Parent has filed with the SEC, and has heretofore made available to the Company, true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it and its Subsidiaries since February 27, 1993 under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Parent SEC Documents"). As of their respective dates or, if amended, as of the date of the last such amendment, the Parent SEC Documents, including, without limi- tation, any financial statements or schedules included therein (a) did not contain any untrue statement of a material fact or omit 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 (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Each of the consolidated financial statements included in the Parent SEC Documents have been prepared from, and are in accordance with, the books and records of Parent and/or its consolidated Subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position and the consolidated results of operations and cash flows (and 42 changes in financial position, if any) of Parent and its consolidated Subsidiaries as at the dates thereof or for the periods presented therein. Section 4.6 Absence of Certain Changes. Except to the extent disclosed in the Parent SEC Documents filed prior to the date of this Agreement, from March 4, 1995 through the date of this Agreement, Parent and its Subsidiaries have conducted their respective businesses in the ordinary course of business consistent with past practice. From March 4, 1995 through the date of this Agreement, there has not occurred (i) any events, changes, or effects (including the incurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which would be reasonably likely to have, individually or in the aggregate, a material adverse effect on Parent and its Subsidiaries; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the equity interests of Parent or of any of its Subsidiaries other than regular quarterly cash dividends or dividends paid by wholly owned Subsidiaries; or (iii) any change by Parent or any of its Subsidiaries in accounting principles or methods, except insofar as may be required by a change in GAAP. Section 4.7 No Undisclosed Liabilities. Except (a) to the extent disclosed in the Parent SEC Documents filed prior to the date of this Agreement and (b) for liabilities and obligations incurred in the ordinary course of business consistent with past practice, during the period from March 4, 1995 through the date of this Agreement, neither Parent nor any of its Subsidiaries have incurred any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on Parent and its Subsidiaries or would be required to be reflected or reserved against on a consolidated balance sheet of Parent and its Subsidiaries (including the notes thereto) prepared in accordance with GAAP as applied in preparing the March 4, 1995 consolidated balance sheet of Parent and its Subsidiaries. Section 4.8 Information in Proxy Statement/Prospectus. The Registration Statement (or any amendment thereof or supplement thereto) will, at the 43 date it is filed with the SEC and as of the date it becomes effective and the Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) at the date mailed to Parent's stockholders and at the time of the Special Meetings, will not 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, provided, however, that no representation is made by Parent or Sub with respect to statements made therein based on information supplied by the Company for inclusion in the Registration Statement. None of the information supplied by Parent or Sub for inclusion or incorporation by reference in the Proxy Statement/Prospectus will, at the date mailed to stockholders and at the time of the Special Meetings, 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. Subject to the proviso set forth in the second preceding sentence, the Registration Statement will comply in all material respects with the provisions of the Securities Act and Exchange Act, respectively, and the rules and regulations thereunder. Section 4.9 Litigation. Except to the extent disclosed in the Parent SEC Documents filed prior to the date of this Agreement, as of the date of this Agreement, there is no suit, claim, action, proceeding or investigation pending or, to the best knowledge of Parent, threatened against or affecting, Parent or any of its Subsidiaries, which, individually or in the aggregate, is reasonably likely to have a material adverse effect on Parent and its Subsidiaries or would, or would be reasonably likely to, materially impair the ability of Parent or Sub to consummate the Offer, the Merger or the other transactions contemplated hereby. Section 4.10 Taxes. (a) As of the date of this Agreement, except as set forth in Section 4.10 of the Parent Disclosure Schedule: (i) Parent and its Subsidiaries have (I) duly filed (or there have been filed on their behalf) with the appropriate governmental authorities all Tax Returns required to be filed by them and such Tax Returns 44 are true, correct and complete in all material respects, and (II) duly paid in full or made provision in accordance with GAAP (or there has been paid or provision has been made on their behalf) for the payment of all Taxes (as hereinafter defined) for all periods ending through the date hereof; (ii) Parent and its Subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and have, within the time and the manner prescribed by law, withheld and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws; (iii) no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of Parent or its Subsidiaries and neither Parent nor its Subsidiaries has received a written notice of any pending audits or proceedings; and (iv) neither the Service nor any other taxing authority (whether domestic or foreign) has asserted, or to the best knowledge of Parent, is threatening to assert, against Parent or any of its Subsidiaries any deficiency or claim for Taxes. (b) As of the date of this Agreement, except as set forth in Section 4.10 of the Parent Disclosure Schedule: (i) there are no material liens for Taxes upon any property or assets of Parent or any Subsidiary thereof, except for liens for Taxes not yet due and payable and liens for Taxes that are being contested in good faith by appropriate proceedings; (ii) neither Parent nor any of its Subsidiaries has agreed to or is required to make any adjustment under Section 481(a) of the Code; (iii) the federal income Tax Returns of Parent and its Subsidiaries have been examined by the Service (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all periods through and including March 2, 45 1991 for Parent and October 31, 1987 for Perry Drug Stores, Inc.; (iv) neither Parent nor any of its Subsidiaries is a party to any material agreement providing for the allocation or sharing of Taxes; and (v) neither Parent nor any of its Subsidiaries has, with regard to any assets or property held or acquired by any of them, filed a consent to the application of 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 Parent or any of its Subsidiaries. Section 4.11 Compliance with Law. Parent and its Subsidiaries have complied in all material respects with all laws, statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs and injunctions, of any court or governmental entity relating to any of the property owned, leased or used by them, or applicable to their business, including, but not limited to, equal employment opportunity, discrimination, occupational safety and health, environmental, interstate commerce, antitrust laws, ERISA and laws relating to Taxes. Section 4.12 No Default. The business of Parent and each of its Subsidiaries is not being conducted in default or violation of any term, condition or provision of (a) its respective certificate of incorporation or by-laws or similar organizational documents, (b) any lease, license, contract, agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound and which either has a term of more than one year or involves the payment or receipt of money in excess of $300,000 (a "Parent Agree- ment") or (c) any federal, state, local or foreign law, statute, regulation, rule, ordinance, judgment, decree, order, writ, injunction, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to Parent or any of its Subsidiaries, excluding from the foregoing clauses (b) and (c), defaults or violations that would not have a material adverse effect on Parent and its Subsidiaries or would not, or would not be reasonably likely to, materially 46 impair the consummation of the Offer or the ability of Parent or Sub to consummate the Merger or the other transactions contemplated hereby. Except as set forth on Schedule 4.12 of the Parent Disclosure Schedule, no investigation or review by any Governmental Entity with respect to Parent or any of its Subsidiaries is pending or, to the best knowledge of Parent or Sub, threatened, nor to the best knowledge of Parent or Sub, has any Governmental Entity indicated an intention to conduct the same. Section 4.13 Financing. Either Parent or Sub has, or will have prior to the consummation of the Offer, sufficient funds available to purchase the Shares pursuant to the Offer. Section 4.14 Opinion of Financial Advisor. Parent has received an opinion from Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), dated as of a date which is on or prior to the date of this Agreement to the effect that, as of such date, the consideration to be paid by Parent in the Offer and the Merger, taken together, is fair to Parent from a financial point of view (the "Parent Fairness Opinion"). Parent has delivered to the Company a copy of the Parent Fairness Opinion, together with DLJ's authorization to include the Parent Fairness Opinion in the Offer Documents and the Proxy Statement/Prospectus. ARTICLE V COVENANTS Section 5.1 Interim Operations of the Company. The Company covenants and agrees that, (i) except as expressly provided in this Agreement, and (ii) during the period prior to the consummation of Offer, except with the prior written consent of Parent, and (iii) during the period following the consummation of the Offer and prior to the Effective Time, except with the authorization of the Board of Directors of the Company, including the affirmative vote of a majority of the Continuing Directors, and (iv) following consummation of the Offer and prior to the Effective Time, except for prepayments by Parent of indebtedness of the Company and the advancement of funds by Parent to the Company on the terms and condi- 47 tions, and at the interest rate, and for the purposes for which borrowing may be made, under the Company's existing credit facility: (a) the business of the Company and its Subsidiaries shall be conducted only in the ordinary course of business consistent with past practice and, to the extent consistent therewith, each of the Company and its Subsidiaries shall use its best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, employees, creditors and business partners; (b) the Company will not, directly or indirectly, split, combine or reclassify the outstanding Company Common Stock, or any outstanding capital stock of any of the Subsidiaries of the Company; (c) neither the Company nor any of its Subsidiaries shall: (i) amend its certificate of incorporation or by-laws or similar organizational documents; (ii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than dividends paid by the Company's Subsidiaries to the Company or its Subsid- iaries; (iii) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of the Company or its Subsidiaries, other than issuances pursuant to exercise of stock-based awards or options out- standing on the date hereof as disclosed in Section 3.2 or in Section 5.1(c) of the Company Disclosure Schedule; (iv) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any material assets other than (a) in the ordinary course of business consistent with past practice or (b) pursuant to existing agreements disclosed in Section 5.1(c) of the Company Disclosure Schedule; or (v) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (d) except as disclosed in Section 5.1(d) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries shall: (i) except as otherwise provided in this Agreement and except for normal, regularly scheduled increases for non-officer employees 48 consistent with past practice or pursuant to the terms of existing collective bargaining agreements, grant any increase in the compensation payable or to become payable by the Company or any of its Subsidiaries to any officer or employee (including through any new award made under, or the exercise of any discretion under, any Benefit Plan (ii) adopt any new, or amend or otherwise increase, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan agreement or arrangement; (iii) enter into any, or amend any existing, employment or severance agreement with or, grant any severance or termination pay to any officer, director, employee or consultant of the Company or any of its Subsidiaries; or (iv) make any additional contributions to any grantor trust created by the Company to provide funding for non-tax-qualified employee benefits or compensation; or (v) provide any severance program to any Subsidiary which does not have a severance program as of the date of this Agreement; (e) neither the Company nor any of its Subsidiaries shall modify, amend or terminate any of the Company Agreements or waive, release or assign any material rights or claims, except in the ordinary course of business consistent with past practice; (f) neither the Company nor any of its Subsidiaries shall permit any material insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated without notice to Parent, except in the ordinary course of business consistent with past practice; (g) except as set forth in Section 5.1(g) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries shall: (i) incur or assume any debt except for borrowings under existing credit facilities in the ordinary course consistent with past practice; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary course of business consistent with past practice; (iii) make any loans, advances or capital contributions to, or investments in, any other 49 person (other than to wholly owned Subsidiaries of the Company or customary loans or advances to employees in accordance with past practice); or (iv) enter into any material commitment (including, but not limited to, any leases, capital expenditure or purchase of assets) other than purchases of inventory in the ordinary course of business consistent with past practice; (h) neither the Company nor any of its Subsidiaries shall change any of the accounting principles used by it unless required by GAAP; (i) neither the Company nor any of its Subsidiaries shall pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, (x) reflected or reserved against in the consolidated financial statements (or the notes thereto) of the Company and its consolidated Subsidiaries, (y) incurred in the ordinary course of business consistent with past practice or (z) which are legally required to be paid, discharged or satisfied; (j) neither the Company nor any of its Subsidiaries will adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restruc- turing, recapitalization or other material reorganization of the Company or any of its Subsidiaries or any agreement relating to a Takeover Proposal (as defined in Section 5.6) (other than the Merger); (k) neither the Company nor any of its Subsidiaries will take, or agree to commit to take, any action that would make any representation or warranty of the Company contained herein inaccurate in any respect at, or as of any time prior to, the Effective Time; (l) neither the Company nor any of its Subsidiaries will 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 50 pursuant to such agreements, arrangements, or understandings existing on the date of this Agreement (which are set forth on Section 5.1(l) of the Company Disclosure Schedule); (m) close, shut down, or otherwise eliminate any of the Company's stores other than in the ordinary course of business consistent with past practice; (n) change the name of or signage at any of the Company's stores; (o) close, shut down, or otherwise eliminate any of the Company's distribution centers; (p) move the location, close, shut down or otherwise eliminate the Company's headquarters, or effect a general staff reduction at such headquarters; (q) change or modify in any material respect the Company's existing advertising program and policies; (r) except as set forth in Section 5.1(r) of the Company Disclosure Schedule, enter into any new lease (other than renewals of existing leases after consultation with Parent) or purchase or acquire or enter into any agreement to purchase or acquire any real estate; (s) neither the Company nor any of its Subsidiaries will incur any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on the Company and its Subsidiaries; and (t) neither the Company nor any of its Subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. Section 5.2 Treatment of Certain Indebtedness. The Company will cooperate with Parent, if Parent shall so request, to effect a defeasance of, and/or a repurchase by means of a debt tender offer (together with a 51 solicitation of consents to eliminate the restrictive covenants) of, the 9 1/8% Senior Notes due 2000 issued by the Company and the 10 1/8% Senior Notes due June 1, 2002 issued by Hook SupeRx, Inc., provided that any funds and all related out-of-pocket transaction expenses necessary to effect any such defeasance or repurchase shall be provided and borne by Parent, without any right of reimbursement. The Company and Parent will cooperate to effect such defeasance and/or repurchase in a manner which takes into account all relevant tax, accounting, corporate, structural, contractual and similar issues. Section 5.3 Access to Information. (a) To the extent permitted by applicable law, the Company shall (and shall cause each of its Subsidiaries to) afford to the officers, employees, accountants, counsel, financing sources and other representatives of Parent, access, during normal business hours, during the period prior to the Effective Time, to all of its and its Subsidiaries' properties, books, contracts, commitments and records (including any Tax Returns or other Tax related information pertaining to the Company and its Subsidiaries) and, during such period, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to Parent (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws and (ii) all other information concerning its business, properties and personnel as Parent may reasonably request (including any Tax Returns or other Tax related information pertaining to the Company and its Subsidiaries). Parent will hold any such information which is nonpublic in confidence in accordance with the provisions of the existing confidentiality agreement between the Company and Parent, dated August 17, 1995 (the "Confidentiality Agreement"). (b) To the extent permitted by applicable law, Parent shall (and shall cause each of its Subsidiaries to) afford to the officers, employees, accountants, counsel, financing sources and other representatives of the Company, access, during normal business hours, during the period prior to the Effective Time, to all of its and its Subsidiaries' properties, books, contracts, commitments and records (including any Tax Returns or other Tax related information pertaining to Parent and its Subsidiaries) and, during such period, Parent shall (and shall 52 cause each of its Subsidiaries to) furnish promptly to the Company (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of the federal securities laws and (b) all other information as the Company may reasonably request (including any Tax Returns or other Tax related information pertaining to Parent and its Subsidiaries). The Company will hold any such information which is nonpublic in confidence in accordance with the provisions of the Confidentiality Agreement. Section 5.4 Consents and Approvals. (a) The Company and Parent shall take all reasonable actions necessary to file as soon as practicable notifications under the HSR Act and to respond as promptly as practicable to any inquiries received from the Federal Trade Commission and the Anti-trust Division of the Department of Justice for additional information or documentation and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Entity in connection with antitrust matters. (b) Parent and the Company shall, and each shall cause each of its Subsidiaries to, subject to the preceding subsection, (i) cooperate with one another to prepare, as soon as practicable, all filings and other presentations in connection with seeking any regulatory approval from a Governmental Entity, exemption or other authorization necessary to consummate the transactions contemplated by this Agreement, (ii) prosecute such filings and other presentations with diligence, (iii) diligently oppose any objections to, appeals from or petitions to reconsider or reopen any such approval by per- sons not party to this Agreement, and (iv) take all such further action as in Parent's and the Company's judgment reasonably may facilitate obtaining any final order or orders approving such transactions consistent with this Agreement. (c) Each of the Company, Parent and Sub will take all reasonable actions necessary to comply promptly with all legal requirements (which actions shall include, without limitation, furnishing all information in connection with approvals of or filings with any Governmental Entity, including, without limitation, any 53 schedule, or reports required to be filed with the SEC), and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their Subsidiaries in connection with this Agreement and the transactions contemplated hereby. Each of the Company, Parent and Sub will, and will cause its Subsidiaries to, take all rea- sonable actions necessary to obtain any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by Parent, Sub, the Company or any of their Subsidiaries in connection with the Offer, the Merger or the taking of any action contemplated thereby or by this Agreement or the Stock- holders Agreements. Section 5.5 Employee Benefits. (a) Parent agrees to cause Surviving Corporation and its Subsidiaries to provide to certain employees of the Company payments and benefits, which are set forth in this Section 5.5(a) and which shall be effected, by means of individual agreements, negotiated in good faith by the parties hereto, reflecting the economic terms set forth in this Section 5.5. (i) EVA Plan Bonus As soon as practicable following the earlier of (A) the Effective Time and (B) the end of the Company's 1996 fiscal year, the Company shall pay, pursuant to the terms of the Company's Economic Value Added Incentive Plan (the "EVA Plan") as herein modified, bonuses for fiscal year 1996, calculated based on the Company's financial results as of February 10, 1996, and annualized to equal a bonus for a 12 month period. (ii) Severance Pay With respect to the executives of the Company listed on Schedule 5.5(a)(ii) attached hereto ("Covered Executives"), effective as soon as practicable following the Effective Time (or if later, the date of termination of employment of the Covered Executive), the Company shall pay to each Covered Executive severance payments (the "Severance Payments"), on a bi-weekly basis or at such other intervals as are consistent with Parent's executive payroll practices, based on one of the two 54 formulae set forth below, pursuant to elections made by each Covered Executive prior to the Effective Time: (A) Severance Payments equal to, on an annualized basis, "Base Pay" (as defined below), continuing for a period of three years with respect to Covered Executives who are listed as Group A Executives ("Group A Executives") on Schedule 5.5(a)(ii)(A) of the Company Disclosure Schedule and for a period of 18 months with respect to Covered Executives listed as Group B Executives ("Group B Executives") on Schedule 5.5(a)(ii)(A) of the Company Disclosure Schedule. For purposes of this Section 5.5(a), Base Pay shall mean the highest base pay paid to the Covered Executive during any one of the 1994, 1995 or 1996 fiscal years, provided that the base pay for the 1996 fiscal year shall be calculated on an annualized basis; or (B) Severance Payments equal to, on an annualized basis, "Base Plus Bonus Pay" (as defined below), continuing for a period of two years with respect to Group A Executives, and for a period of one year with respect to Group B Executives. For purposes of this Section 5.5(a), Base Plus Bonus Pay shall mean Base Pay plus the amount that would have been paid to the executive under the EVA Plan for fiscal year 1995 as the targeted bonus (the "1995 Target Bonus"). In lieu of the Severance Payments described in clauses (A) and (B) above, Messrs. Hoven and Mastrian shall receive Severance Payments, continuing for three years, equal to, on an annualized basis, Base Plus Bonus Pay. The period during which a Covered Executive continues to receive Severance Payments shall be referred to in this Section 5.5(a) as the "Severance Period" for such Covered Executive. During the Severance Period, each Covered Executive shall continue to receive, at the Company's expense, continuation of benefits described in Section 6(a)(ii) of the Covered Executive's employment agreement with the Company on terms at least as favorable to the Covered Executive as is currently in effect, which bene- 55 fits may be provided by covering such Covered Executive under benefit plans and programs maintained by Parent provided, further however, that to the extent any such Covered Executive receives comparable benefits from, and at the expense of, a subsequent employer, such benefits from the Company shall cease. Notwithstanding anything in this Agreement to the contrary, the Severance Payments described in clauses (A) or (B) above shall be paid to a Covered Executive only if such Covered Executive is actively employed by the Company immediately prior to the Effective Time. In the event that a Covered Executive that continues employment with the Company following the Effective Time is terminated prior to the expiration of the Severance Period that would have applied had such Covered Executive been terminated effective as of the Effective Time, then such Covered Executive shall be entitled to receive the Severance Payments determined pursuant to this Section 5.5(a). Each employee, other than any Covered Executives, of the Company, who is covered by the Company's severance pay plan as in effect on November 1, 1995 (each, a "Severance-Eligible Employee") and who is employed by the Company immediately prior to the Effective Time and terminated for other than "Cause," as defined below, within 12 months following the Effective Time, shall be entitled to receive bi-weekly severance payments, consistent with Parent's payroll practices, for a six-month period commencing on such Severance-Eligible Employee's date of termination of employment, equal to, on an annualized basis, such Severance-Eligible Employee's Base Pay; provided, however, that such payments shall be reduced (but not below zero), by the amount of compensation such Severance-Eligible Employee receives from a subsequent employer to the extent that such SeveranceEligible Employee is employed during such six-month period. For purposes of this Agreement, "Cause" shall mean the conviction of an employee or executive (as the case may be) for the commission of a felony, including the entry of a guilty or nolo contendere plea, any willful, grossly negligent or fraudulent action or inaction by an employee or executive, as the case may be, or the 56 employee's or executive's willful and continued failure to substantially perform an employee's or executive's assigned duties. (iii) SERP Benefits Each Company employee who is (A) covered by the Company's Supplemental Executive Retirement Plan ("SERP") and (B) actively employed by the Company, in either case, immediately prior to the Effective Time (each, a "SERP Executive") shall be eligible to receive benefits under the SERP based on the terms of the SERP, as modified herein. For each SERP Executive (i) the amount of service taken into account for purposes of calculating benefits and vesting under the SERP shall be equal to the SERP Executive's service with the Company prior to the Effective Time plus the Covered Executive's Severance Period, if any, and (ii) compensation for each SERP Executive for purposes of the SERP shall include one-half of the 1995 Target Bonus for such SERP Executive. (iv) Gross-Up; Cap With respect to the eight Executives listed on Section 5.5(a)(iv) of the Company Disclosure Schedule, the Company shall provide such executives with a cash gross-up payment to make such executives whole for the excise taxes imposed on all benefits and other amounts paid or payable to such executive on account of the transactions contemplated by this Agreement as a result of the application of sections 280G and 4999 of the Code. With respect to all other employees of the Company who are entitled to benefits and other amounts paid or payable to such executive on account of the transactions contemplated by this Agreement as a result of the application of sections 280G and 4999 of the Code, the Company shall not be obligated to pay or provide to any such employee any payments or benefits to the extent that such payments or benefits would constitute a "parachute payment" within the meaning of section 280G(b)(2)(A) of the Code. (v) ESPP The Company shall amend the Company's Employee Stock Purchase Plan to provide that the option period 57 that is in effect as of the date hereof shall cease as soon as practicable following the date hereof. (vi) Outplacement The Company shall provide outplacement services from a recognized outplacement provider selected by Parent to all employees of the Company as of the Effective Time who were based in Twinsburg, Ohio as of the Effective Time, and are terminated without Cause within one year of the Effective Time. (b) Parent agrees to cause Surviving Corporation and its Subsidiaries to provide to all active employees of the Company who continue to be employed by the Company as of the Effective Time ("Continuing Employees") employee benefits comparable to those benefits provided to similarly situated employees of Parent (which benefits may be provided by covering Company employees under benefit plans maintained by Parent for employees of Parent who perform similar duties). In addition, with respect to medical benefits provided to Continuing Employees as of the Effective Time, Parent agrees to cause Surviving Corporation and its Subsidiaries to waive waiting periods and pre-existing condition requirements under such plans, and to give Continuing Employees credit for any copayments and deductibles actually paid by such employees under the Company's medical plans during the calendar year in which the Closing occurs. In addition, service with the Company shall be recognized for purposes of eligibility under Parent welfare plans as well as for purposes of Parent's programs or policies for vacation pay and sick pay. Section 5.6 No Solicitation. (a) The Company (and its Subsidiaries, and affiliates over which it exercises control) will not, and the Company (and its Subsidiaries, and affiliates over which it exercises control) will use their best efforts to ensure that their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents do not, directly or indirectly: (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal (as defined below) of the Company or any Subsidiary or an inquiry with respect thereto, or, (ii) in the event of an unsolicited Takeover 58 Proposal for the Company or any Subsidiary or affiliate of the Company, engage in negotiations or discussions with, or provide any information or data to, any corporation, partnership, person or other entity or group (other than Parent, any of its affiliates or representatives) (each, a "Person") relating to any Takeover Proposal, except in the case of clause (ii) above to the extent that (x) the Takeover Proposal is a bona fide written proposal submitted to the Company's Board of Directors and (y) the Company's Board of Directors deter- mines, after having received the oral or written opinion of outside legal counsel to the Company, that the failure to engage in such negotiations or discussions or provide such information would result in a breach of the Board of Directors' fiduciary duties under applicable law. The Company shall notify Parent and Sub orally and in writing of any such offers, proposals, inquiries or Takeover Proposals (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), within 24 hours of the receipt thereof, and shall thereafter inform Parent on a reasonable basis of the status and content of any discussions or negotiations with such a third party, including any material changes to the terms and conditions thereof. The Company shall, and shall cause its Subsidiaries and affiliates over which it exercises control, and will use best efforts to ensure their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents to, immediately cease and cause to be terminated all discussions and negotiations that have taken place prior to the date hereof, if any, with any parties conducted heretofore with respect to any Takeover Proposal relating to the Company. Nothing contained in this Section 5.6 shall prohibit the Company or its Board of Directors from taking and disclosing to its stockholders a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or making such disclosure as may be required by applicable law. (b) As used in this Agreement, "Takeover Proposal" when used in connection with any Person shall mean any tender or exchange offer involving the capital stock of such Person, any proposal for a merger, consolidation or other business combination involving such Person or any Subsidiary of such Person, any proposal or offer to acquire in any manner a substantial equity 59 interest in, or a substantial portion of the business or assets of, such Person or any Subsidiary of such Person, any proposal or offer with respect to any recapitalization or restructuring with respect to such Person or any Subsidiary of such Person or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to such Person or any Subsidiary of such Person other than pursuant to the transactions to be effected pursuant to this Agreement. Section 5.7 Additional Agreements. Subject to the terms and conditions herein provided (including, but not limited to, Section 5.4) each of the parties hereto agrees to use its reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable laws and regulations or otherwise, or to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the Merger and the other transactions contemplated by this Agreement. 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 the Company and Parent shall use their reasonable efforts to take, or cause to be taken, all such necessary actions. Section 5.8 Publicity. So long as this Agreement is in effect, neither the Company nor Parent nor affiliates which either of them control shall issue or cause the publication of any press release or other public statement or announcement with respect to this Agreement, the Stock Option Agreement or the Zell/Chilmark Stockholder Agreement or the transactions contemplated hereby or thereby without the prior consultation of the other party, except as may be required by law or by obligations pursuant to any listing agreement with a national securities exchange, provided that each party will use its best efforts to consult with the other party prior to any such issuance. Section 5.9 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence, or non-occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty contained in this Agreement to be 60 untrue or inaccurate in any material respect at or prior to the Effective Time and (b) any material failure of the Company or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.10 Directors' and Officers' Insurance and Indemnification. Parent agrees that at all times after the Effective Time, it shall cause the Surviving Corporation and its Subsidiaries to indemnify, each person who is now, or has been at any time prior to the date hereof, an employee, agent, director or officer of the Company or of any of the Company's Subsidiaries, successors and assigns (individually an "Indemnified Party" and collectively the "Indemnified Parties"), to the fullest extent permitted by law, with respect to any claim, liability, loss, damage, judgment, fine, penalty, amount paid in settlement or compromise, cost or expense, including reasonable fees and expenses of legal counsel, (whenever asserted or claimed) ("Indemnified Liability") based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring at or prior to the Effective Time whether commenced, asserted or claimed before or after the Effective Time, including liability arising under the Securities Act, the Exchange Act or state law. Parent shall, and shall cause the Surviving Corporation to, maintain in effect for not less than four years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries on the date hereof (provided that Parent may substitute therefor policies having at least the same coverage and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as insured) with respect to matters existing or occurring at or prior to the Effective Time; provided, however, that if the aggregate annual premiums for such insurance during such period shall exceed 200% of the per annum rate of the aggregate premium currently paid by the Company and its Subsidiaries for such insurance on the date of this Agreement, then Parent shall cause the Surviving Corporation to, and the Surviving Corporation shall, provide the maximum coverage that shall then be 61 available at an annual premium equal to 200% of such rate. Parent agrees to pay all expenses (including fees and expenses of counsel) that may be incurred by any Indemnified Party in successfully enforcing the indemnity or other obligations under this Section 5.10. The rights under this Section 5.10 are in addition to rights that an Indemnified Party may have under the Certificate of Incorporation, By-laws, other similar organizational documents of the Company or any of its Subsidiaries or the DGCL. The rights under this Section 5.10 shall survive consummation of the Merger and are expressly intended to benefit each Indemnified Party. Parent agrees to cause Surviving Corporation and any of its Subsidiaries (or their successors) to keep in effect the provisions of its Certificate of Incorporation or By-laws or similar organizational documents providing for indemnification to the fullest extent provided by law. Section 5.11 Rule 145 Affiliates. At least 40 days prior to the Closing Date, the Company shall deliver to Parent a letter identifying, to the best of the Company's knowledge, all persons who are, at the time of the Company Special Meeting, deemed to be "affiliates" of the Company for purposes of Rule 145 under the Securities Act ("Company Affiliates"). The Company shall use its best efforts to cause each Person who is identified as a Company Affiliate to deliver to Parent at least 30 days prior to the Closing Date an agreement substantially in the form of Exhibit C to this Agreement. Section 5.12 Cooperation. Parent and the Company shall together, or pursuant to an allocation of responsibility to be agreed upon between them, coordinate and cooperate (a) with respect to the timing of the Special Meetings, (b) in determining whether any action by or in respect of, or filing with, any Governmental Entity is required, or any actions, consents approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement, (c) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith and timely seeking to obtain any such actions, consents approvals or waivers. As soon as possible following the commencement of the Offer, the Company shall cooperate with Parent in the preparation and filing of the Proxy Statement/Prospectus 62 with the Commission, including, but not limited to providing legal, financial, and accounting information concerning the Company and assisting in the preparation of all financial and pro forma financial information required to be included in such Proxy Statement/Prospectus. Subject to the terms and conditions of this Agreement, Parent and the Company will each use its best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after the Registration Statement is filed, and Parent and the Company shall, subject to applicable law, confer on a regular and frequent basis with one or more representatives of one another to report operational matters of significance to the Merger and the general status of ongoing operations insofar as relevant to the Merger, provided that the parties will not confer on any matter to the extent inconsistent with law. Section 5.13. Proxy Statement/Prospectus. As soon as practicable following the consummation of the Offer, Parent and the Company shall prepare and file with the SEC the Proxy Statement/Prospectus and each shall use its best efforts to have the Proxy Statement/Prospectus cleared by the SEC as promptly as practicable. As soon as practicable following such clearance Parent shall prepare and file with the SEC the Registration Statement, of which the Proxy Statement/Prospectus will form a part, and shall use its best efforts to have the Registration Statement declared effective by the SEC as promptly as practicable thereafter. Parent and the Company shall cooperate with each other in the preparation of the Proxy Statement/Prospectus, and each will provide to the other promptly copies of all correspondence between it or any of its representatives and the SEC. Each of the Company and Parent shall furnish all information concerning it required to be included in the Registration Statement and the Proxy Statement/Prospectus, and as promptly as practicable after the effectiveness of the Registration Statement, the Proxy Statement/Prospectus will be mailed to the stockholders of the Company and Parent. No amendment or supplement to the Registration Statement or the Proxy Statement/Prospectus will be made without the approval of each of the Company and Parent, which approval will not be unreasonably withheld or delayed. Each of the Company and Parent will advise the other promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any amend- 63 ment thereto or any supplement or amendment to the Proxy Statement/Prospectus has been filed, or the issuance of any stop order, or the suspension of the qualification of the Parent Common Stock to be issued in the Merger for offering or sale in any jurisdiction, or of any request by the SEC or the NYSE for amendment of the Registration Statement or the Proxy Statement/Prospectus. Section 5.14 New York State Real Property Transfer and Gains Taxes. Sub or the Surviving Corporation shall pay or cause to be paid any New York State and New York City Real Property Transfer or Gains Taxes incurred in connection with the Offer and the Merger. Section 5.15 Confidentiality/Standstill Agreement. The parties hereto agree that the Confidentiality Agreement shall be hereby amended to provide that any provision therein which in any manner limits, restricts or prohibits the voting or acquisition of Shares by Parent or any of its affiliates or the representation of Parent's designees on the Company's Board of Directors or which in any manner would be inconsistent with this Agreement or the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement or the transactions contemplated hereby and thereby shall terminate as of the date hereof. The Company agrees not to take any action that would impede, bar, restrict or otherwise interfere in any manner with Parent's rights under the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement, including, without limitation, Parent's right to exercise the option granted to Parent pursuant to the Stock Option Agreement. The provisions of this Section 5.15 shall survive any termination of this Agreement. Section 5.16 Stock Exchange Listing. The Parent shall use its best efforts to list prior to the Effective Time on the New York Stock Exchange, Inc. ("NYSE") and the Pacific Stock Exchange, subject to official notice of issuance, the shares of Parent Common Stock to be issued in the Merger. 64 ARTICLE VI CONDITIONS Section 6.1 Conditions to the Obligations of Each Party. The obligations of the Company, on the one hand, and Parent and Sub, on the other hand, to consummate the Merger are subject to the satisfaction (or, if permissible, waiver by the party for whose benefit such conditions exist) of the following conditions: (a) this Agreement shall have been adopted by the stockholders of the Company in accordance with the DGCL; (b) no court, arbitrator or governmental body, agency or official shall have issued any order, decree or ruling which remains in force and there shall not be any statute, rule or regulation, restraining, enjoining or prohibiting the consummation of the Merger; (c) the Registration Statement shall have become effective under the Securities Act and no stop order suspending effectiveness of the Registration Statement shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the SEC; and (d) Parent, Sub or their affiliates shall have purchased Shares pursuant to the Offer. ARTICLE VII TERMINATION Section 7.1 Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the Merger contemplated herein may be abandoned at any time prior to the Effective Time, whether before or after stockholder approval hereof: (a) By the mutual consent of the Board of Directors of Parent and the Board of Directors of the Company. 65 (b) By either of the Board of Directors of the Company or the Board of Directors of Parent: (i) if Parent or Sub has not purchased Shares in accordance with the terms of the Offer on or prior to April 29, 1996; provided, however, that the right to terminate this Agreement under this Section 7.1(b)(i) shall not be available to any party whose failure to fulfill any obligations under this Agreement has been the cause of, or resulted in, the failure to satisfy the conditions to the Offer; provided further, however, that Parent shall not have the right to terminate this Agreement under this Section 7.1(b)(i) if Parent or Sub purchases any Shares in connection with the Offer after April 29, 1996; or (ii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable. (c) By the Board of Directors of the Company: (i) if, prior to the purchase of Shares pursuant to the Offer, the Board of Directors of the Company shall have (A) withdrawn, or modified or changed in a manner adverse to Parent or Sub its approval or recommendation of the Offer, this Agreement or the Merger in order to approve and permit the Company to execute a definitive agreement relating to a Takeover Proposal, and (B) determined, after having received the oral or written opinion of outside independent legal counsel to the Company, that the failure to take such action as set forth in the preceding clause (A) would result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that the Company shall have given Parent and Sub at least thirty-six hours advance actual notice of any termination pursuant to this Section 7.1(c)(i) and shall have 66 made the payment referred to in Section 7.3 hereof; or (ii) if prior to the purchase of Shares pursuant to the Offer, Parent or Sub (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or (y) breaches its representations and warranties in any material respect and such breach would have or would be reasonably likely to have a material adverse effect on Parent and its Subsidiaries; provided, however, that if any such breach is cured, the Company may not terminate this Agreement pursuant to this Section 7.1(c)(ii); or (iii) if Parent or Sub shall have terminated the Offer, or the Offer shall have expired, without Parent or Sub, as the case may be, purchasing any shares of Company Common Stock pursuant thereto; provided that the Company may not terminate this Agreement pursuant to this Section 7.1(c)(iii) if the Company is in material breach of this Agreement; or (iv) if, due to an occurrence that if occurring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Annex A hereto, Parent, Sub or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided, that the Company may not terminate this Agreement pursuant to this Section 7.1(c)(iv) if the Company is in material breach of this Agreement. (d) By the Board of Directors of Parent: (i) if, due to an occurrence that if occurring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Annex A hereto, Parent, Sub or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided that Parent may not terminate this 67 Agreement pursuant to this Section 7.1(d)(i) if Parent or Sub is in material breach of this Agreement; or (ii) if (A) prior to the purchase of Shares pursuant to the Offer, the Board of Directors of the Company shall have withdrawn, or modified or changed in a manner adverse to Parent or Sub its approval or recommendation of the Offer, this Agreement or Merger or shall have recommended a Takeover Proposal or other business combination, or the Company shall have entered into an agreement in principle (or similar agreement) or definitive agreement providing for a Takeover Proposal or other business combination with a person or entity other than Parent, Sub or their Subsidiaries (or the Board of Directors of the Company resolves to do any of the foregoing), or (B) prior to the consummation of the Offer, it shall have been publicly disclosed or Parent or Sub shall have learned that any person, entity or "group" (as that term is defined in Section 13(d)(3) of the Exchange Act) (an "Acquiring Person"), other than Parent, Sub or Zell/Chilmark Fund, L.P. or Magten or FMR Corp. (including any of FMR Corp.'s affiliates) shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 14.9% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 14.9% of any class or series of capital stock of the Company (including the Shares); or (iii) if Parent or Sub, as the case may be, shall have terminated the Offer, or the Offer shall have expired without Parent or Sub, as the case may be, purchasing any Shares thereunder, provided that Parent may not terminate this Agreement pursuant to this Section 7.1(d)(iii) if Parent or Sub is in material breach of this Agreement. Section 7.2 Effect of Termination. In the event of the termination of this Agreement as provided in Section 7.1, written notice thereof shall forthwith be 68 given to the other party or parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void, and there shall be no liability on the part of Parent, Sub or the Company except (A) for fraud or for material breach of this Agreement and (B) as set forth in Sections 5.15, 7.3, 8.1 and 8.2 hereof. Section 7.3 Termination Fee. If (w) the Board of Directors of the Company shall terminate this Agreement pursuant to Section 7.1(c)(i) hereof, (x) the Board of Directors of Parent shall terminate this Agreement pursuant to Section 7.1(d)(ii)(A) hereof, (y) the Board of Directors of Parent shall terminate this Agreement pursuant to Section 7.1(d)(ii)(B) and within nine months of such termination, an Acquiring Person shall acquire or beneficially own a majority of the then outstanding Shares or shall have obtained representation on the Company's Board of Directors or shall enter into a defin- itive agreement with the Company with respect to a Takeover Proposal or similar business combination, or (z) the Board of Directors of Parent shall terminate this Agreement pursuant to Section 7.1(d)(i) or Section 7.1(d)(iii) hereof, in each case due to (I) a material breach of the representations and warranties of the Company set forth in this Agreement or (II) a material breach of, or failure to perform or comply with, by the Company any material obligation, covenant or agreement contained in this Agreement, then in any such case as described in clause (w), (x), (y) or (z) (each such case of termination being referred to as a "Trigger Event"), the Company shall pay to Parent (not later than the date of termination of this Agreement in the case of clauses (w), (x) and (z) above) an amount equal to $45 million. ARTICLE VIII MISCELLANEOUS Section 8.1 Fees and Expenses. Except as otherwise provided in Section 7.3 hereof and except for expenses incurred in connection with printing the Offer Documents, Schedule 14D-9, Proxy Statement/Prospectus and the Registration Statement, as well as the filing fees relating thereto and relating to the filing under the HSR Act, which costs shall be shared equally by Parent and 69 the Company, all costs (other than the filing fee for registration of the Parent Common Stock which will be paid by Parent) and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses. Section 8.2 Finders' Fees. (a) Except for Morgan Stanley & Co. Incorporated, a copy of whose engagement agreement has been provided to Parent and whose fees will be paid by the Company, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company or any of its Subsidiaries who might be entitled to any fee or commission from the Company or any of its Subsidiaries upon consummation of the transactions contemplated by this Agreement. (b) Except for Donaldson, Lufkin & Jenrette Securities Corporation, a copy of whose engagement agreement has been provided to the Company and whose fees will be paid by Parent, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Parent or any of its Subsidiaries who might be entitled to any fee or commission from Parent or any of its Subsidiaries upon consummation of the transactions contemplated by this Agreement. Section 8.3 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented in any and all respects, whether before or after any vote of the stockholders of the Company contemplated hereby, by written agreement of the parties hereto, pursuant to action taken by their respective Boards of Directors (which, in the case of the Company, shall include the affirmative vote of a majority of the Continuing Directors), at any time prior to the Closing Date with respect to any of the terms contained herein; provided, however, that after the approval of this Agreement by the stockholders of the Company, no such amendment, modification or supplement shall reduce or change the consideration to be received by the Company's stockholders in the Merger. Section 8.4 Nonsurvival of Representations and Warranties. None of the representations and warranties 70 in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement shall survive the Effective Time. Section 8.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by an overnight courier service, such as FedEx, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Chief Executive Officer Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5905 with a copy to: Nancy A. Lieberman, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Telephone No.: (212) 735-3000 Telecopy No.: (212) 735-2000 and (b) if to the Company, to: Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, Ohio 44087 Attention: Chief Executive Officer Telephone No.: (216) 425-9811 Telecopy No.: (216) 487-1679 71 with a copy to: Michael K.L. Wager, Esq. Benesch, Friedlander, Coplan & Aronoff 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Telephone No.: 216-363-4500 Telecopy No.: 216-363-4588 Section 8.6 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation". The phrases "the date of this Agreement", "the date hereof", and terms of similar import, unless the context otherwise requires, shall be deemed to refer to November , 1995. As used in this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule l2b-2 of the Exchange Act. Section 8.7 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership. This Agreement, the Zell/Chilmark Stockholder Agreement, the Stock Option Agreement and the Confidentiality Agreement, as modified hereby (including the exhibits hereto and the documents and the instruments referred to herein and therein): (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Sections 5.5 and 5.10 with respect to the obligations of the Company or the Surviving Corporation thereunder, are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 72 Section 8.9 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 8.10 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to the remedy of specific performance of the terms hereof, in addition to any other remedy at law or equity. Section 8.11 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. Section 8.12 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned Subsidiary of Parent; provided, however, that no such assignment shall relieve Parent from any of its obligations hereunder. 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 8.13 Joint and Several Liability. Parent and Sub hereby agree that they will be jointly and severally liable for all covenants, agreements, obligations and representations and warranties made by either of them in this Agreement. 73 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. RITE AID CORPORATION By: /s/ Martin L. Grass ---------------------------- Name: Martin L. Grass Title: Chairman of the Board and Chief Executive Officer OCEAN ACQUISITION CORPORATION By: /s/ Martin L. Grass ---------------------------- Name: Martin L. Grass Title: President REVCO D.S., INC. By: /s/ D. Dwayne Hoven ----------------------------- Name: D. Dwayne Hoven Title: President and Chief Executive Officer ANNEX A CONDITIONS TO THE TENDER OFFER Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) Sub's rights to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Merger Agreement), Sub 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 (relating to Sub's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares, and may terminate the Offer as to any Shares not then paid for, if (i) any applicable waiting period under the HSR Act has not expired or terminated prior to the expiration of the Offer, (ii) the Minimum Condition has not been satisfied, or (iii) at any time on or after November 17, 1995 and prior to the acceptance for payment of any Shares, any of the following events shall occur or shall be determined by Sub to have occurred: (a) there shall be instituted, pending or threatened any action or proceeding by any government or governmental authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Parent or Sub or the consummation by Parent or Sub of the Merger, seeking to obtain material damages relating to the Merger Agreement, the Zell/Chilmark Stockholder Agreement, the Stock Option Agreement or any of the transactions contemplated thereby or otherwise seeking to prohibit directly or indirectly the transactions contemplated by the Offer or the Merger, or challenging or seeking to make illegal the transactions contemplated by the Zell/Chilmark Stockholder Agreement, the Stock Option Agreement or otherwise directly or indi- rectly to restrain, prohibit or delay the transactions contemplated by the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement, (ii) seeking to restrain, A-1 prohibit or delay Parent's, Sub's or any of their subsidiaries' ownership or operation of all or any portion (other than an immaterial portion) of the business or assets of the Company or its subsidiaries, or to compel Parent or any of its subsidiaries to dispose of or hold separate all or any portion (other than an immaterial portion) of the business or assets of the Company or Parent or their respective subsidiaries, (iii) seeking to impose or confirm material limitations on the ability of Parent, Sub or any of their subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Parent, Sub or any of their subsidiaries or affiliates on all matters properly presented to the Company's stockholders, or (iv) seeking to require divestiture by Parent, or Sub or any of their subsidiaries of any Shares; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, judgment, order or decree enacted, enforced, entered, promulgated, issued or deemed applicable to the Offer or the Merger, by any court, government or governmental authority or agency, domestic or foreign, that, directly or indirectly, results in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above; or (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange for a period in excess of three hours, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, (iv) any limitation (whether or not mandatory) by any foreign or United States governmental authority or agency on the extension of credit by banks or other financial institutions, (v) any decline in either the Dow Jones Industrial Average or the Standard & Poor's Index of 500 Industrial Companies by an amount in excess of 20% measured from the close of business on November 29, 1995, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or A-2 (d) the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct in any material respect as of the date of consummation of the Offer as though made on or as of such date, except (i) for changes specifically permitted by the Merger Agreement and (ii) those representations and warranties that address matters only as of a particu- lar date which are true and correct as of such date, or the Company shall have breached or failed in any material respect to perform or comply with any material obligation, agreement or covenant required by the Merger Agreement to be performed or complied with by it; or (e) the Merger Agreement shall have been terminated in accordance with its terms; or (f) any party to the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement other than Sub and Parent shall have breached or failed to perform any of its agreements under such agreements or breached any of its representations and warranties in such agreements or any such agreement shall not be valid, binding and enforceable, except for such breaches or failures or failures to be valid, binding and enforceable that do not materially and adversely affect the benefits expected to be received by Parent and Sub under the Merger Agreement, the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement; or (g) (i) it shall have been publicly disclosed or Parent or Sub shall have otherwise learned that any person, entity or "group" (as defined in Section 13(d)(3) of the Exchange Act), other than Zell/Chilmark Fund, L.P. or Magten Asset Management Corporation, or FMR Corp. (including any of FMR Corp.'s affiliates) Parent or its affiliates or any group of which any of them is a member, shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 14.9% of any class or series of capital stock of the Company (including the Shares), 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 14.9% of any class or series of capital stock of the Company (including the Shares); or (ii) any person, entity or group shall have entered into a definitive agreement or agreement in principle with the A-3 Company with respect to a merger, consolidation or other business combination with the Company; or (h) a tender or exchange offer for some or all of the Shares or proposal for a Takeover Proposal shall have been publicly proposed to be made or shall have been made by another person or entity; (i) the Board of Directors of the Company shall have withdrawn, or modified or changed in a manner adverse to Parent or Sub (including by amendment of the Schedule 14D-9), its approval or recommendation of the Offer, the Merger Agreement, or the Merger, or recommended another proposal or offer, or shall have resolved to do any of the foregoing; or (j) there shall have occurred any event, change or effect (including the incurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) which has, individually or in the aggregate, a material adverse effect (as defined in the Merger Agreement) on the Company and its Subsidiaries; which in the sole judgment of Parent or Sub, in any such case, and regardless of the circumstances (including any action or inaction by Parent or Sub giving rise to such condition) makes it inadvisable to proceed with the Offer or with such acceptance for payment or payments. The foregoing conditions are for the sole benefit of Parent and Sub and may be asserted by Parent or Sub regardless of the circumstances giving rise to any such condition or may be waived by Parent or Sub in whole or in part at any time and from time to time in their sole discretion. The failure by Parent or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to other facts and circumstances; and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. A-4 EXHIBIT C Form of Affiliate Agreement Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Ladies and Gentlemen: The undersigned is a holder of shares of Common Stock, par value $.01 per share (the "Company Common Stock"), of Revco D.S., Inc., a Delaware corporation (the "Company"). The undersigned may receive shares of Common Stock, par value $1.00 per share (the "Parent Common Stock"), of Rite Aid Corporation, a Delaware corporation ("Parent"), in connection with the merger of Ocean Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), with and into the Company, with the Company continuing as the surviving corporation (the "Merger"). The undersigned acknowledges that the undersigned may be deemed an "affiliate" of the Company as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145") of the rules and regulations under the Securities Act of 1933, as amended (the "Act"). Execution of this Agreement by the undersigned should not be construed as an admission of "affiliate" status or as a waiver of any rights the undersigned may have to object to any claim that the undersigned is such an affiliate on or after the date of this Agreement. If in fact the undersigned were an affiliate of the Company under the Act, the undersigned's ability to sell, transfer or otherwise dispose of any Parent Common Stock received by the undersigned in exchange for any shares of Company Common Stock pursuant to the Merger may be restricted unless such transaction is registered under the Act or an exemption from such registration is available. The undersigned understands that such exemptions are limited and the undersigned has obtained advice of counsel as to the nature and conditions of such exemptions, including information with respect to the applicability to the sale of such securities of Rules 144 and 145(d) promulgated under the Act. A. The undersigned hereby represents to and covenants with Parent that the undersigned will not sell, transfer or otherwise dispose of any Parent Common Stock received by the undersigned in exchange for shares of Company Common Stock pursuant to the Merger except (i) pursuant to an effective registration statement under the Act, (ii) by a sale made in conformity with the provisions of Rule 145 (and otherwise in accordance with Rule 144 under the Act if the undersigned is an affiliate of Parent and if so required at the time) or (iii) in a transaction which, in the opinion of independent counsel reasonably satisfactory to Parent or as described in a "no-action" or interpretive letter from the Staff of the Securities and Exchange Commission (the "Commission"), is not required to be registered under the Act. B. The undersigned understands that Parent is under no obligation to register the sale, transfer or other disposition of Parent Common Stock by the undersigned or on behalf of the undersigned under the Act or, except as provided in paragraph F.1 below, to take any other action necessary in order to make compliance with an exemption from such registration available. C. The undersigned also understands that stop transfer instructions will be given to Parent's transfer agents with respect to the Parent Common Stock issued to the undersigned and that there will be placed on the certificates for the Parent Common Stock issued to the undersigned, or any substitutions therefor, a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED NOVEMBER 29, 1995 BETWEEN THE REGISTERED HOLDER HEREOF AND RITE AID CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF RITE AID CORPORATION." D. The undersigned also understands that unless a sale or transfer is made in conformity with the provisions of Rule 145, or pursuant to a registration statement, Parent reserves the right to put the following legend on the certificates issued to the undersigned's transferee: 2 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT 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, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." E. In the event of a sale of Parent Common Stock pursuant to Rule 145, the undersigned will supply Parent with evidence of compliance with such Rule, in the form of customary seller's and broker's Rule 145 representation letters or as Parent may otherwise reasonably request. The undersigned understands that Parent may instruct its transfer agent to withhold the transfer of any Parent Common Stock disposed of by the undersigned in a manner inconsistent with this letter. F. By Parent's acceptance of this Agreement, Parent hereby agrees with the undersigned as follows: 1. For so long as to the extent necessary to permit the undersigned to sell the Parent Common Stock pursuant to Rule 145 and, to the extent applicable, Rule 144 under the Act, Parent shall (a) use its reasonable best efforts to (i) file, on a timely basis, all reports and data required to be filed with the Commission by it pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 Act") and (ii) furnish to the undersigned upon request a written statement as to whether Parent has complied with such reporting requirements during the 12 months preceding any proposed sale of Parent Common Stock by the undersigned under Rule 145 and Rule 144. Parent has filed all reports required to be filed with the Commission under Section 13 of the 1934 Act during the preceding 12 months. 2. It is understood and agreed that the legends set forth in paragraph C and D above shall be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Act or this Agreement. 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 the undersigned acquired Parent Common Stock re- 3 ceived in the Merger and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii) three years shall have elapsed from the date the undersigned acquired the Parent Common Stock received in the Merger and the provisions of Rule 145(d)(3) are then applicable to the undersigned, (iii) the Parent has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Parent, or a "no action" letter obtained from the staff of the Commission, to the effect that the Parent Common Stock subject thereto may be transferred free of the restrictions imposed by Rule 144 or 145 under the Act, or (iv) in the event of a sale of Parent Common Stock received by the undersigned in the Merger which has been registered under the Act or made in conformity with the provisions of Rule 145; and, in the case of (i) and (ii) above, Parent has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Parent, or a "no action" letter obtained from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Act no longer apply to the undersigned. The undersigned acknowledges that it has carefully reviewed this letter and understands the requirements hereof and the limitations imposed upon the distribution, sale, transfer or other disposition of Parent Common Stock received by the undersigned in the Merger. Very truly yours, ------------------------- Name Accepted this __ day of _______________ 199_, by RITE AID CORPORATION By: --------------------------- Name: Title: 4 EX-99.(C)(2) 13 STOCKHOLDER AGREEMENT STOCKHOLDER AGREEMENT AGREEMENT, dated as of November 29, 1995, by and among Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and Zell/Chilmark Fund, L.P., a Delaware limited partnership (referred to herein as the "Stockholder"). W I T N E S S E T H: WHEREAS, immediately prior to the execution of this Agreement, Parent, Sub and Revco D.S., Inc., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"), pursuant to which Sub will be merged with and into the Company (the "Merger"); WHEREAS, in furtherance of the Merger, Parent and the Company desire that as soon as practicable but in no event later than five business days) after the execution of the Merger Agreement, Sub shall commence an offer (the "Offer") to purchase for cash not less than 35,144,833 shares and up to all of the issued and outstanding Company Common Stock (as defined in Section 1 hereof) at a price of $27.50 per share of Company Common Stock; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent has required that the Stockholder agree, and the Stockholder has agreed, to enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Certain Definitions. Capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement. For purposes of this Agreement: (a) "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. (b) "Company Common Stock" shall mean at any time the common stock, $.01 par value, of the Company. (c) "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. 2. Tender of Shares. (a) The Stockholder hereby agrees to validly tender (or cause the record owner of such shares to tender), and not to withdraw, pursuant to and in accordance with the terms of the Offer, not later than prior to the expiration of the Offer pursuant to Section 1.1 of the Merger Agreement and Rule 14d-2 under the Exchange Act, 13,102,288 shares of Company Common Stock (the "Ex- isting Shares" and together with any shares of Company Common Stock acquired by the Stockholder in any capacity after the date hereof and prior to the termination of this Agreement whether upon the exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities, or by means of purchase, dividend, distribution, gift, bequest, inheritance or as a successor in interest in any capacity or otherwise, the "Shares") Beneficially Owned by the Stockholder. The Stockholder hereby acknowledges and agrees that Parent's and Sub's obligation to accept for payment and pay for the Shares in the Offer, is subject to the 2 terms and conditions of the Offer. The parties agree that the Stockholder will, for all Shares tendered by the Stockholder in the Offer and accepted for payment and paid for by Sub, receive the same per share consideration paid to other shareholders who have tendered into the Offer. (b) The transfer by the Stockholder of the Shares to Sub in the Offer shall pass to and unconditionally vest in Sub good and valid title to the Shares, free and clear of all claims, liens, restrictions, security interests, pledges, limitations and encumbrances whatsoever. (c) The Stockholder hereby agrees to permit Parent and Sub to publish and disclose in the Offer Documents and, if approval of the Company's shareholders is required under applicable law, the Registration Statement and the Proxy Statement/Prospectus (including all documents and schedules filed with the SEC) its identity and ownership of Company Common Stock and the nature of its commitments, arrangements and understandings under this Agreement. 3. Voting of Company Common Stock. The Stockholder hereby agrees that during the period commencing on the date hereof and continuing until the first to occur of (i) the Effective Time or (ii) termination of this Agreement in accordance with its terms, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the holders of Company Common Stock, however called, or in connection with any written consent of the holders of Company Common Stock, the Stockholder shall vote (or cause to be voted) the Shares held of record or Beneficially Owned by the Stockholder (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval and adoption of the terms thereof and each of the other actions contemplated by the Merger Agreement and this Agreement and any actions required in furtherance thereof and hereof; (ii) against any action or agreement that would result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or this Agreement; and (iii) except as otherwise agreed to in writing in advance by Parent, against the following actions (other than the Merger and the 3 transactions contemplated by this Agreement and the Merger Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its Subsidiaries; (B) any sale, lease or transfer of a material amount of assets of the Company or its Subsidiaries, or a reorganization, restructuring, recapitalization, special dividend, dissolution or liquidation of the Company or its Subsidiaries; or (C)(1) any change in a majority of the persons who constitute the board of directors of the Company; (2) any change in the present capitalization of the Company including any proposal to sell a substantial equity interest in the Company and its Subsidiaries; (3) any amendment of the Company's Certificate of Incorporation or By-laws; (4) any other change in the Company's corporate structure or business; or (5) any other action which, in the case of each of the matters referred to in clauses (C)(1), (2), (3) or (4), is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or materially adversely affect the Offer, the Merger and the transactions contemplated by this Agreement and the Merger Agreement. The Stockholder shall not enter into any agreement or understanding with any person or entity the effect of which would be inconsistent or violative of the provisions and agreements contained in this Section 3. 4. Stockholder Covenant. Except as contemplated by this Agreement, the Stockholder shall not for a period of six months following the termination of this Agreement (other than as a result of a breach by Parent or Sub) enter into, execute, or be a party to any agreement or understanding, written or otherwise, with any Person whereby the Stockholder (i) grants or otherwise gives to such Person an option or right to purchase or acquire any or all of the Shares other than sales made in open market transactions; (ii) agrees or covenants to vote or to grant a proxy to vote any or all of the Shares held of record or Beneficially Owned by the Stockholder, at any meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the holders of Company Common Stock, however called, or in connection with any written consent of the holders of Company Common Stock; or (iii) agrees or covenants to tender any or all of the Shares held of record or Beneficially Owned by the Stockholder into any tender offer or exchange offer relating to the Company Common Stock. 4 5. Covenants, Representations and Warranties of Stockholder. The Stockholder hereby represents and warrants to, and agrees with, Parent and Sub as follows: (a) Ownership of Shares. The Stockholder is the record and Beneficial Owner of the Existing Shares. On the date hereof, the Existing Shares constitute all of the Shares owned of record or Beneficially Owned by the Stockholder. The Stockholder has sole voting power and sole power to issue instructions with respect to the matters set forth in Sections 2 and 3 hereof, sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Existing Shares with no limi- tations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. (b) Corporate Authorization. This Agreement has been duly and validly executed and delivered by the Stockholder and constitutes a valid and binding agreement enforceable against the Stockholder in accordance with its terms except to the extent (i) such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) No Conflicts. Except for filings, authorizations, consents and approvals as may be required under the HSR Act, the Exchange Act and the Securities Act (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by the Stockholder and the consummation by the Stockholder of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by the Stockholder, the consummation by the Stockholder of the transactions contemplated hereby or compliance by the Stockholder with any of the provisions hereof shall (A) conflict with or result in any breach of the organizational documents of the Stockholder, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise 5 to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Stockholder is a party or by which the Stockholder or any of its properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to the Stockholder or any of its properties or assets. (d) No Encumbrances. Except as applicable in connection with the transactions contemplated by Sections 2, 3 and 4 hereof, the Shares and the certificates representing such Shares are now, and at all times during the term hereof, will be, held by the Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. (e) No Finder's Fees. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transac- tions contemplated hereby based upon arrangements made by or on behalf of the Stockholder. (f) No Solicitation. Stockholder shall not, and shall cause its affiliates and officers, directors, employees, partners, investment bankers, attorneys, accountants and other agents and representatives of Stockholder and such affiliates (such affiliates, officers, directors, employees, partners investment bankers, attorneys, accountants, agents and representatives of any Person are hereinafter collectively referred to as the "Representatives" of such Person) not to, directly or indirectly (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal (as defined in the Merger Agreement) of the Company or any affiliate or any inquiry with respect thereto, or (ii) in the event of an unsolicited Takeover Proposal for the Company or any affiliate of the Company, engage in negotiations or discussions 6 with, or provide any information or data to, any Person (other than Parent, any of its affiliates or representatives) relating to any Takeover Proposal. Stockholder shall notify Parent and Sub orally and in writing of any such offers, proposals, or inquiries relating to the purchase or acquisition by any Person of the Shares (including, without limitation, the terms and conditions thereof and the identity of the Person making it), within 24 hours of the receipt thereof. Stockholder shall, and shall cause its Representatives to, immediately cease and cause to be terminated any and all existing activities, discussions or negotiations, if any, with any parties conducted heretofore with respect to any Takeover Proposal relating to the Company, other than discussions or negotiations with Parent and its affiliates. Notwithstanding the restrictions set forth in this Section 5(f), any Person who is an officer or director of the Company may exercise his fiduciary duties in his capacity as a director or officer of the Company consistent with the terms of the Merger Agreement. (g) Restriction on Transfer, Proxies and NonInterference. Except as applicable in connection with the transactions contemplated by Sections 2 and 3 hereof, the Stockholder shall not, directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Shares or any interest therein; (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney, deposit the Shares into a voting trust or enter into a voting agreement with respect to the Shares; or (iii) take any action that would make any representation or warranty of the Stockholder contained herein untrue or incorrect or would result in a breach by the Stockholder of their obligations under this Agreement or a breach by the Company of its obligations under the Merger Agreement. (h) Reliance by Parent. The Stockholder understands and acknowledges that Parent is entering into, and causing Sub to enter into, the Merger Agreement in reliance upon the Stockholder's execution and delivery of this Agreement. 7 (i) Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. (j) Distribution of Shares of Parent Common Stock. Upon the consummation of the Merger, the Stockholder shall within 90 days thereafter either distribute the shares of Parent Common Stock (as defined in the Merger Agreement) to each of the limited partners of Zell/Chilmark Fund, L.P. or sell or otherwise dispose of such shares of Parent Common Stock, in each case in accordance with the governing documents thereto and applicable law; provided that no such sale or other disposition shall be made if immediately following such sale or other disposition the acquiror of such Parent Common Stock, together with the acquiror's affiliates and any members of a group of which the acquiror is a party, would Beneficially Own in the aggregate 4.9% or more of the Parent Common Stock then outstanding. 6. Representations and Warranties of Parent and Sub. Parent and Sub hereby represent and warrant to Stockholder as follows: (a) Organization. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power or other power and authority to execute and deliver this Agreement and perform their respective obligations hereunder. The execution and delivery by Parent and Sub of this Agreement and the performance by Parent and Sub of their respective obligations hereunder have been duly and validly authorized by the Board of Directors of each of Parent and Sub and no other corporate proceedings on the part of Parent or Sub are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) Corporate Authorization. This Agreement has been duly and validly executed and delivered by Parent and Sub and constitutes a valid and binding agreement of each of Parent and Sub enforceable against each 8 of Parent and Sub in accordance with its terms except to the extent (i) such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) No Conflicts. Except for filings, authorizations, consents and approvals as may be required under the HSR Act, the Exchange Act and the Securities Act (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Parent or Sub and the consummation by Parent or Sub of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Parent of Sub, the consummation by Parent or Sub of the transactions contemplated hereby or compliance by Parent or Sub with any of the provisions hereof shall (A) conflict with or result in any breach of the certificate of incorporation or by-laws of Parent or Sub, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent or Sub is a party or by which Parent or Sub or any of their respective properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to Parent or Sub or any of their respective properties or assets. (d) No Finder's Fee. Except for Donaldson, Lufkin & Jenrette Securities Corporation, no broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Parent or Sub. 9 7. Stop Transfer; Legend. (a) The Stockholder agrees with, and covenants to, Parent that the Stockholder shall not request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of the Shares, unless such transfer is made in compliance with this Agreement (including the provisions of Section 2 hereof). In the event of a stock dividend or distribution, or any change in the Company Common Stock by reason of any stock dividend, split-up, recapitalization, combination, exchange of shares or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged and appropriate adjustments shall be made to the terms and provisions of this Agreement. (b) The Stockholder shall promptly after the date hereof surrender to the Company all certificates representing the Shares, and the Company shall place the following legend on such certificates: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT, DATED AS OF NOVEMBER 29, 1995 BY AND AMONG RITE AID CORPORATION, OCEAN ACQUISITION CORPORATION AND ZELL/CHILMARK FUND, L.P. WHICH AMONG OTHER THINGS RESTRICTS THE TRANSFER AND VOTING THEREOF." 8. Termination. Except as otherwise provided herein, the covenants and agreements contained herein with respect to the Shares shall terminate upon the earlier of (i) the consummation of the Merger and (ii) the termination of the Merger Agreement in accordance with its terms except, that the covenant and agreement set forth in Section 4 hereof shall survive for six months after such termination (other than a termination as a result of a breach by Parent or Sub). 9. Confidentiality. The Stockholder recognizes that successful consummation of the transactions contemplated by this Agreement may be dependent upon confidentiality with respect to the matters referred to herein. In this connection, pending public disclosure thereof, the Stockholder hereby agrees not to disclose or 10 discuss such matters with anyone not a party to this Agreement (other than its counsel and advisors, if any) without the prior written consent of Parent, except for filings required pursuant to the Exchange Act and the rules and regulations thereunder or disclosures its counsel advises are necessary in order to fulfill its obligations imposed by law, in which event such Stockholder shall give notice of such disclosure to Parent as promptly as practicable so as to enable Parent to seek a protective order from a court of competent jurisdiction with respect thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement and the Merger Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Binding Agreement. The Stockholder agrees that this Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any person or entity to which legal or Beneficial Ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, the Stockholder's heirs, distributees, guardians, administrators, executors, legal representatives, or successors or other transferees (for value or otherwise) and any other successors in interest. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party, provided that Parent may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. (d) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execu- 11 tion and delivery of a written agreement executed by the parties hereto. (e) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if given) by hand delivery or telecopy (with a confirmation copy sent for next day delivery via courier service, such as Federal Express), or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to Stockholder: Zell/Chilmark Fund, L.P. Two North Riverside Plaza Suite 1500 Chicago, Illinois 60606 Attention.: Sheli Z. Rosenberg Telephone No.: (312) 984-9711 Telecopy No.: (312) 984-0317 copy to: Michael K.L. Wager, Esq. Benesch, Friedlander, Coplan & Aronoff 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Telephone No.: (216) 363-4500 Telecopy No.: (216) 363-4588 If to Parent Rite Aid Corporation or Sub: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention.: Chief Executive Officer Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5905 copy to: Nancy A. Lieberman, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Telephone No.: (212) 735-3000 Telecopy No.: (212) 735-2000 12 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. (f) 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. (g) Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (h) Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (i) No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 13 (j) No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (k) Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (l) Jurisdiction. Each party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); provided, however, that such consent to jurisdiction is solely for the purpose referred to in this paragraph (l) and shall not be deemed to be a general submission to the jurisdiction of said Court or in the State of Delaware other than for such purposes. Each party hereto hereby waives any right to a trial by jury in connection with any such action, suit or proceeding. (m) Descriptive Headings. The descriptive headings used 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. (n) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. 14 IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this Agreement to be duly executed as of the day and year first above written. RITE AID CORPORATION By: /S/ Martin L. Grass ----------------------------- Name: Martin L. Grass Title: Chairman of the Board and Chief Executive Officer OCEAN ACQUISITION CORPORATION By: /s/ Martin L. Grass ----------------------------- Name: Martin L. Grass Title: President ZELL/CHILMARK FUND, L.P. By: ZC Limited Partnership, general partner By: ZC Partnership, general partner By: CZ Inc., a partner By: ------------------------------ Name: Sheli Z. Rosenberg Title: Vice President IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this Agreement to be duly executed as of the day and year first above written. RITE AID CORPORATION By: ----------------------------- Name: Title: OCEAN ACQUISITION CORPORATION By: /s/ ----------------------------- Name: Title: ZELL/CHILMARK FUND, L.P. By: ZC Limited Partnership, general partner By: ZC Partnership, general partner By: ZC Inc., a partner By: /s/ Sheli Z. Rosenberg ------------------------------ Name: Sheli Z. Rosenberg Title: Vice President EX-99.(C)(3) 14 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT AGREEMENT, dated as of November 29, 1995, by and among Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and Revco D.S., Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, immediately prior to the execution of this Agreement, Parent, Sub and the Company, have entered into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"), pursuant to which Sub will be merged with and into the Company (the "Merger"); WHEREAS, in furtherance of the Merger, Parent and the Company desire that as soon as practicable (but in no event later than five business days) after the execution of the Merger Agreement, Sub shall commence an offer (the "Offer") to purchase for cash not less than 35,144,833 shares and up to all of the issued and outstanding Company Common Stock (as defined in Section 1 hereof), or such greater number of shares as equals 50.1% of the shares outstanding on a fully diluted basis as of the expiration of the Offer, at a price of $27.50 per share of Company Common Stock; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent and Sub have required that the Company agree, and the Company has agreed, to enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Certain Definitions. Capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement. For purposes of this Agreement: a. "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. b. "Company Common Stock" shall mean at any time the common stock, $.01 par value, of the Company. c. "Person" shall mean an individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or other entity. 2. Grant of Stock Option. In order to induce Parent and Sub to enter into the Merger Agreement, the Company hereby grants to Parent an unconditional, irrevocable option (a "Stock Option") to purchase up to 13,251,010 fully paid and nonassessable shares of Company Common Stock at a purchase price of $27.50 per share (the "Purchase Price"), or such other number of shares of Company Common Stock as equals 19.9% of the Company's issued and outstanding shares of Company Common Stock at the time of exercise of the Stock Option; provided that in no event shall the number of shares of Company Common Stock for which the Stock Option is exercisable exceed 19.9% of the shares of Company Common Stock issued and outstanding at the time of exercise of the Stock Option (the "Option Shares"). The number of shares of Company Common Stock that may be received upon the exercise of the Stock Option is subject to adjustments as herein set forth. 3. Exercise of Stock Option. (a) Upon (x) the occurrence of a Trigger Event (as defined in Section 2 7.3 of the Merger Agreement), or (y) the occurrence of the condition set forth in clause (h) of Annex A to the Merger Agreement, the Stock Option shall become immediately exercisable, in whole or in part, and remain exercisable in whole or in part until the later of (i) the date which is six months after the date the Stock Option first became exercisable and (ii) the fifth business day following expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") (the "Option Period"). (b) In the event that Parent is entitled to and wishes to exercise the Stock Option, Parent shall, during the Option Period, send a written notice (the "Notice") to the Company identifying the place and date for the closing of such purchase and the number of Option Shares to be purchased. Upon the giving by Parent to the Company of the Notice and the tender of the aggregate Purchase Price at the closing so specified, Parent shall be deemed to be the holder of record of the shares of Company Common Stock issuable upon such exercise, not- withstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Company Common Stock shall not then be actually delivered to Parent. The Company shall pay all expenses, and any and all United States federal, state and local taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates under this Section 3 in the name of Parent or its assignee, transferee or designee. 4. Sale of Option Shares. If, at any time following the exercise of the Option, Parent shall either (i) transfer, sell or otherwise dispose of any or all of the Option Shares, including, without limitation, by means of tender or exchange of any or all of the Option Shares pursuant to a tender or exchange offer involving the capital stock of the Company, or (ii) convert such Option Shares into cash, capital stock, other securities or any other consideration of any third party in a merger any recapitalization or restructuring or similar business combination transaction (a "Business Combination Transaction"), Parent shall pay to the Company within five days the amount equal to the Profit (as defined below) Parent shall receive, if any, pursuant to such Disposition or Business Combination Transaction. "Profit", for purposes 3 of this Agreement, shall equal (i) the product of (a) the number of Option Shares Parent transfers, sells, tenders, exchanges or otherwise disposes of pursuant to a Disposition or a Business Combination Transaction by (b) the excess of the per Share consideration received by Parent pursuant to such Disposition or Business Combination Transaction valuing any non-cash consideration at its fair market value on the date of such consummation (not including any increase in such aggregate per Share consideration after the date thereof) over the Purchase Price. For purposes hereof, the fair market value of any non-cash consideration shall be the closing price or the last sale price, or, in case no such sale takes place on the day of consummation of such Business Combination Transaction, the average of the closing bid and asked prices, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which such consideration is listed or admitted to trading or, if such consideration is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if not so determinable, the fair value of such consideration on such date shall be determined in good faith by the Board of Directors of Parent. 5. Covenants, Representations and Warranties of the Company. The Company hereby represents and warrants to, and agrees with, Parent and Sub as follows: a. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power or other power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder have been duly and validly authorized by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. 4 b. Corporate Authorization. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding agreement enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. c. Authorized Stock. The Company has taken all necessary corporate and other action to authorize, reserve and permit it to issue, and, at all times from the date hereof until the obligation to deliver the Option Shares upon the exercise of the Stock Option terminates, will have reserved for issuance, upon exercise of the Stock Option, shares of Company Common Stock necessary for Parent to exercise the Stock Option, and the Company will take all necessary corporate action to (x) authorize and reserve for issuance all additional shares of Company Common Stock or other securities which may be issued pursuant to Section 7 upon exercise of the Stock Option and (y) protect the rights of Parent against dilution. The shares of Company Common Stock to be issued upon due exercise of the Stock Option, including all additional shares of Company Common Stock or other securities which may be issuable pursuant to Section 7, upon issuance pursuant hereto, shall be duly and validly issued, fully paid and nonassessable, and shall be delivered free and clear of all liens, claims, charges and encumbrances of any kind or nature whatsoever, including any preemptive rights of any stockholder of the Company. d. No Conflicts. Except for filings, authorizations, consents and approvals as may be required under the HSR Act, the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"), (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by the Company, the consummation by the Company of the transactions con- 5 templated hereby or compliance by the Company with any of the provisions hereof shall (A) conflict with or result in any breach of any applicable organizational documents applicable to the Company or any of its subsidiaries, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, can- cellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, pledge, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Company or any subsidiary is a party or by which the Company or any subsidiary or any of their respective properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to the Company or any of its subsidiaries or any of its properties or assets. e. Reliance by Parent. The Company understands and acknowledges that Parent is entering into, and causing Sub to enter into, the Merger Agreement in reliance upon the Company's execution and delivery of this Agreement. f. Further Assurances. From time to time, at the other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. g. Listing on New York Stock Exchange. Upon the exercise of the Stock Option, the Company shall use its best efforts to promptly list on the New York Stock Exchange, Inc. (the "NYSE"), subject to official notice of issuance, the shares of Company Common Stock to be issued pursuant to this Agreement. 6. Representations and Warranties of Parent and Sub. Parent and Sub hereby represent and warrant to the Company as follows: a. Organization. Each of Parent and Sub is a corporation duly organized, validly existing and in good 6 standing under the laws of the State of Delaware, has all requisite corporate power or other power and authority to execute and deliver this Agreement and perform their respective obligations hereunder. The execution and delivery by Parent and Sub of this Agreement and the performance by Parent and Sub of their respective obligations hereunder have been duly and validly authorized by the Board of Directors of each of Parent and Sub and no other corporate proceedings on the part of Parent or Sub are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. b. Corporate Authorization. This Agreement has been duly and validly executed and delivered by Parent and Sub and constitutes a valid and binding agreement of each of Parent and Sub enforceable against each of Parent and Sub in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. c. No Conflicts. Except for filings, authorizations, consents and approvals as may be required under the HSR Act, the Exchange Act and the Securities Act (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Parent or Sub and the consummation by Parent or Sub of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Parent of Sub, the consummation by Parent or Sub of the transactions contemplated hereby or compliance by Parent or Sub with any of the provisions hereof shall (A) conflict with or result in any breach of any applicable organizational documents applicable to Parent or Sub, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, 7 contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent or Sub is a party or by which Parent or Sub or any of their respective properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to Parent or Sub or any of their respective properties or assets. 7. Adjustment Upon Changes in Capitalization. In the event of any change in Company Common Stock by reason of stock dividends, split-ups, recapitalizations, combinations, exchanges of shares or the like, the type and number of shares of Company Common Stock subject to the Stock Option and the Purchase Price shall be appropriately adjusted and proper provision shall be made so that, in the event that any additional shares of Company Common Stock are issued or otherwise become outstanding as a result of any such change after the date of this Agreement (other than pursuant to this Agreement), the number of shares of Company Common Stock subject to the Stock Option shall be adjusted so that, after such issuance and together with shares of Company Common Stock previously issued pursuant to the exercise of the Stock Option (as adjusted on account of any of the foregoing change in Company Common Stock), it equals 19.9% of the number of shares of Company Common Stock then issued and outstanding. Nothing contained in this Section 7 shall be deemed to authorize the Company to breach any provision of the Merger Agreement. 8. Registration Rights. The Company shall, if requested by Parent at any time and from time to time within three years of the first exercise of the Stock Option, promptly prepare, file and keep current a registration statement under the Securities Act in order to permit the sale or other disposition of the shares of Company Common Stock that have been acquired by or are issuable to Parent upon exercise of the Stock Option in accordance with the intended method of sale or other disposition stated by Parent, including a "shelf" registration statement under Rule 415 of the Securities Act or any successor provision, and the Company shall use its best efforts to qualify such shares or other securities under any applicable state securities laws. Parent shall provide all information reasonably requested by the Company for inclusion in any registration statement to be 8 filed hereunder. The Company will use its best efforts to cause such registration statement first to become effective and then to remain effective for such period not in excess of 180 days from the day such registration statement first becomes effective or such shorter time as may be reasonably necessary to effect such sales or other dispositions. Parent shall have the right to demand one such registration. The Company shall bear the costs of such registration (including, but not limited to, the Company's attorneys' fees, printing costs and filing fees, except for underwriting discounts or commissions, brokers' fees and the fees and disbursements of Parent's counsel related thereto). If requested by Parent, in connection with such registration, the Company will become a party to any underwriting agreement relating to the sale of such shares, but only to the extent of obligating itself in respect of representations, warranties, indemnities, and other agreements customarily included in such underwriting agreements. Upon receiving any request from the Company or assignee thereof under this Section 8, the Company agrees to send a copy thereof to Parent and to any assignee thereof known to the Company, in each case by promptly mailing the same, postage prepaid, to the address of record of the person entitled to receive such copies. 9. Termination. Except as otherwise provided herein, the covenants and agreements contained herein with respect to the Option Shares shall terminate upon the earlier of (i) the consummation of the Merger and (ii) the expiration of the Option Period. 10. Miscellaneous. a. Entire Agreement. Except as otherwise expressly provided herein, this Agreement contains the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities 9 under or by reason of this Agreement, except as expressly provided herein. b. Assignment. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party, provided that Parent may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. c. Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the parties hereto. d. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if given) by hand delivery or telecopy (with a confirmation copy sent for next day delivery via courier service, such as Federal Express), or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to the Company: Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, Ohio 44087 Attention.: Chief Executive Officer Telephone No.: (216) 425-9811 Telecopy No.: (216) 487-1679 copy to: Michael K.L. Wager, Esq. Benesch, Friedlander, Coplan & Aronoff 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Telephone No.: 216-363-4500 Telecopy No.: 216-363-4588 10 If to Parent Rite Aid Corporation or Sub: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention.: Chief Executive Officer Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5905 copy to: Nancy A. Lieberman, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Telephone No.: (212) 735-3000 Telecopy No.: (212) 735-2000 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. e. 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. f. Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 11 g. Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. h. No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. i. No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. j. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. k. Jurisdiction. Each party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); provided, however, that such consent to jurisdiction is solely for the purpose referred to in this paragraph (l) and shall not be deemed to be a general submission to the jurisdiction of said Court or in the State of Delaware other than for such purposes. Each party hereto hereby waives any right to a trial by jury in connection with any such action, suit or proceeding. l. Descriptive Headings. The descriptive headings used 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. 12 m. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. 13 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be duly executed as of the day and year first above written. RITE AID CORPORATION By: /s/ Martin L. Grass ------------------------------ Name: Martin L. Grass Title: Chairman of the Board and Chief Executive Officer OCEAN ACQUISITION CORPORATION By: /s/ Martin L. Grass ------------------------------ Name: Martin L. Grass Title: President REVCO D.S., INC. By: ------------------------------ Name: D. Dwayne Hoven Title: President and Chief Executive Officer IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be duly executed as of the day and year first above written. RITE AID CORPORATION By: /s/ ------------------------------ Name: Title: OCEAN ACQUISITION CORPORATION By: /s/ ------------------------------ Name: Title: REVCO D.S., INC. By: /s/ D. Dwayne Hoven ------------------------------ Name: D. Dwayne Hoven Title: President and Chief Executive Officer EX-99.(C)(4) 15 CONFIDENTIALITY AGREEMENT REVCO D.S., INC. 1925 ENTERPRISE PARKWAY TWINSBURG, OHIO 44087 August 17, 1995 Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Gentlemen: In order to allow you to evaluate a business combination (the "Proposed Transaction") with Revco D.S., Inc. (the "Company"), the Company will deliver to you, as promptly as practicable after your execution and delivery to the Company of this letter agreement, certain information about its operations and financial condition. All information about the Company or the Proposed Transaction furnished by the Company or any of its Representatives (as hereinafter defined) to you or any of your Representatives after the date hereof is referred to herein as "Proprietary Information." Proprietary Information does not include, however, information which (a) is or becomes generally available to the public other than as a result of a disclosure by you or any of your Representatives, (b) was available to you or any of your Representatives on a non-confidential basis prior to its disclosure to you or any of your Representatives by the Company or any of its Representatives or (c) becomes available to you or any of your Representatives on a non-confidential basis from a person (other than the Company) who is not known by you to be bound by a confidentiality agreement with the Company or to be otherwise prohibited from transmitting the information to you. As used in this letter agreement, the term "Representative" means, as to any person, such person's affiliates and its and their respective directors, officers, employees, agents, advisors (including, without limitation, financial advisors, counsel and accountants) and controlling persons. As used in this letter agreement, the term "person" shall be broadly interpreted to Rite Aid Corporation August 17, 1995 Page 2 include, without limitation, any individual, corporation partnership, joint venture or other entity. Unless otherwise agreed to in writing by the Company, you agree (a) to keep all Proprietary Information confidential, and not to disclose or reveal any Proprietary Information to any person other than those of your Representatives who are actively and directly participating in the evaluation of the Company and the Proposed Transaction on your behalf and to insure that such persons observe the terms of this letter agreement as if they were a party hereto in your place, (b) not to disclose to any person (other than those of your Representatives who are actively and directly participating in your evaluation of the Company or the Proposed Transaction) any information about the Proposed Transaction, or the terms and conditions of any other facts relating thereto, including, without limitation, the fact that discussions are taking place with respect thereto or the status thereof, or the fact that the Proprietary Information has been made available to you or your Representatives and (c) to return all Proprietary Information at the end of discussions concerning the Proposed Transaction. Notwithstanding anything to the contrary contained in this letter agreement, in the event that you or any of your Representatives are requested pursuant to, or required by, applicable law, regulation, legal process or regulatory authority to disclose any Proprietary Information concerning the Company or the Proposed Transaction, you agree that you will provide the Company with prompt notice of such request or requirement in order to enable the Company (i) to seek an appropriate protective order or other remedy, (ii) to consult with you with respect to the Company's taking steps to resist or narrow the scope of such request or legal process or (iii) to waive compliance, in whole or in part, with the terms of this letter agreement. If, in such event, the Company has not provided you with a protective order or other remedy or waiver of the terms of this letter agreement in sufficient time for you or your Representative to avoid unlawful non-disclosure of such Proprietary Information or such other information, you or such Representative may 2 Rite Aid Corporation August 17, 1995 Page 3 disclose such Proprietary Information or such other information pursuant to such law, regulation, or in such legal process, or to such regulatory authority, as the case may be, without liability to the Company or any of its Representatives. You agree that for a period of eighteen months commencing on the date hereof, except with respect to the Proposed Transaction or as otherwise specifically authorized in writing by the Company, neither you, nor any of your Representatives as a principal, will propose or publicly announce or otherwise disclose an intent to propose, or enter into or agree to enter into, singly or with any other person or directly or indirectly, (i) any form of business combination, acquisition or other transaction relating to the Company or any affiliate thereof, or (ii) any form of restructuring, recapitalization or similar transaction with respect to the Company or any such affiliate, nor except as aforesaid during such period will you or any such Representative as a principal (1) acquire, or offer, propose or agree to acquire, by purchase or otherwise, any securities of the Company, any direct or indirect options or other rights to acquire any such securities ("Company Securities"), (2) make, or in any way participate in, any solicitation of proxies with respect to any Company Securities (including by the execution of action by written consent), become a participant in any election contest with respect to the Company, seek to influence any person with respect to any Company Securities or demand a copy of the Company's list of its stockholders or other books and records relating to holders of Company Securities, (3) participate in or encourage the formation of any partnership, syndicate or other group which owns or seeks or offers to acquire beneficial ownership of any Company Securities or which seeks to affect control of the Company or for the purpose of circumventing any provision of this letter or (4) otherwise act, alone or in concert with others (including by providing financing for another person), to seek or to offer to control or influence, in any manner, the management, Board of Directors or policies or operations of the Company. 3 Rite Aid Corporation August 17, 1995 Page 4 It is understood and agreed that, except as may be specifically set forth hereafter in a definitive written agreement providing for the Proposed Transaction, the Company will not be deemed to make or have made any representation or warranty, express or implied, as to the accuracy or the completeness of any Proprietary Information. The Company will have no liability to you or your Representatives as a result of the use, whether or not authorized, of any Proprietary Information by you or your Representatives. No failure or delay by the Company in exercising any right, power or privilege hereunder shall operate as a waiver hereof, nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege hereunder. In the event that a breach of this Agreement by you or any of your Representatives, you agree to indemnify the Company from any costs and expenses, including reasonable expenses, it may incur in connection with the enforcement of this letter agreement. Further, you understand and agree that, without prejudice to any rights or remedies otherwise available to the Company, the Company will be entitled to equitable relief, including injunctive relief and/or specific performance, if you or any of your Representatives breach any provision of this letter agreement. Your obligations under this Agreement shall terminate eighteen months from the date of this letter agreement. The interpretation and enforcement of this letter agreement shall be governed by the laws of the State of Ohio, without reference to the conflict of law principles thereof. Any assignment of this letter agreement by either party without the prior written consent of the other party shall be void. 4 Rite Aid Corporation August 17, 1995 Page 5 This letter agreement contains the entire agreement between the Company and you concerning the confidentiality of the Proprietary Information and the other matters addressed herein, and no modification of this letter agreement or waiver of the terms and conditions hereof shall be binding upon the Company or you, unless approved in writing by each of the Company and you. This letter agreement shall be binding upon and shall inure to the benefit of each party hereto. Please confirm your agreement with the foregoing by executing and returning to the undersigned the duplicative copy of this letter agreement enclosed herewith. Very truly yours, REVCO D.S., INC. By: /s/ D. Dwayne Hoven --------------------------- D. Dwayne Hoven President and Chief Executive Officer ACCEPTED, ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN RITE AID CORPORATION BY: /s/ Franklin C. Brown -------------------------- TITLE: Executive Vice President 5 EX-99.(G) 16 SILVERT ACTION IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - --------------------------------------- EVELYN SILVERT,, C.A. No. 14717 Plaintiff, v. REVCO D.S. INC., CARL A. BELLINI, LIVIO M. BORGHESE, ROD F. DAMMEYER, TALTON R. EMBRY, BEN EVANS, JOHN V. GUTTAG, D. DWAYNE HOVEN, WALTER B. REINHOLD, SHELI Z. ROSENBERG, DAVID M. SCHULTE, THOMAS O. THORSEN, SAM ZELL and RITE AID CORP., Defendants. - --------------------------------------- CLASS ACTION COMPLAINT Plaintiff, by her attorneys, alleges upon information and belief, except with respect to her ownership of common stock of Revco D.S. Inc. ("Revco") as follows: PARTIES 1. Plaintiff is the owner of shares of defendant Revco. 2. Revco D.S. Inc. is a Delaware corporation with executive offices at 1925 Enterprise Parkway, Twinsburg, Ohio 44087-2271. Revco operates retail drug stores, typically featuring prescription and over-the-counter drugs, health and beauty aids, toiletries, vitamins, tobacco products and sundries. As of October 4, 1995, Revco had approximately 67,149,458 shares of common stock outstanding. 3. Defendant Carl A. Bellini is Executive Vice President, Chief Operating Officer and a director of Revco. 4. Defendant Livio M. Borghese is a director of Revco. 5. Defendant Rod F. Dammeyer is a director of Revco. 6. Defendant Talton R. Embry is a director of Revco. 7. Defendant Ben Evans is a director of Revco. 8. Defendant John V. Guttag is a director of Revco. 9. Defendant D. Dwayne Hoven is Chief Executive Officer, President and a director of Revco. 10. Defendant Walter B. Reinhold is a director of Revco. 11. Defendant Sheli Z. Rosenberg is a director of Revco. 12. Defendant David M. Schulte is a director of Revco. Schulte is, and has since 1990, together with defendant Sam Zell, acted as a general partner of affiliates of Zell Chilmark Fund, L.P. 2 13. Defendant Thomas O. Thorsen is a director of Revco. 14. Defendant Sam Zell is a director of Revco. Zell, individually and/or through Zell Chilmark Fund, L.P., owns and/or controls approximately 19.52% of Revco's common stock. Revco pays certain fees to Zell Chilmark Fund, L.P. and/or its affiliates. 15. The foregoing Directors of Revco (collectively the "Director Defendants"), owe fiduciary duties to Revco and its public shareholders. 16. Rite Aid Corp. ("Rite Aid") is a Delaware corporation with executive offices at 30 Hunter Lane, Camp Hill, Pennsylvania 17011-2404. Rite Aid operates retail drug stores, discount automotive parts stores, discount book stores, dry cleaning establishments, and specialized laboratories. As of September 2, 1995, Rite Aid had approximately 85,750,467 shares of common stock outstanding. Rite Aid knowingly and substantially participated in and is benefitting from breaches of fiduciary duties alleged herein, and therefore is liable as an aider and abettor thereof. CLASS ACTION ALLEGATIONS 17. Plaintiff brings this action on her own behalf and as a class action on behalf of all shareholders of 3 defendant Revco (except defendants herein and any person, firm, trust, corporation or other entity related to or affiliated with any of the defendants) or their successors in interest, who have been or will be adversely affected by the conduct of defendants alleged herein. 18. This action is properly maintainable as a class action for the following reasons: (a) The class of shareholders for whose benefit this action is brought is so numerous that joinder of all class members is impracticable. As of October 4, 1995, there were over 67 million shares of Revco common stock outstanding owned by shareholders scattered throughout the United States. (b) There are questions of law and fact which are common to members of the Class and which predominate over any questions affecting any individual members. The common questions include, inter alia, the following: i. Whether one or more of the defendants has engaged in a plan and scheme to entrench and/or enrich themselves at the expense of defendant Revco's public stockholders in the sale of Revco; ii. Whether the Director Defendants have engaged in a proper process to ensure maximization of Revco shareholder value; 4 iii. Whether the Director Defendants have breached fiduciary duties owed by them to plaintiff and members of the Class, and/or have aided and abetted in such breaches, by virtue of their participation and/or acquiescence and by their other conduct complained of herein; iv. Whether the Director Defendants have wrongfully failed adequately to seek a purchaser of Revco at the highest available price and, instead, have agreed to allow the valuable assets of Revco to be acquired by Rite Aid at an unfair and inadequate price and without paying an appropriate premium to Revco's public shareholders; v. Whether the structure of Rite Aid's acquisition of Revco is wrongfully coercive and/or will wrongfully impede maximization of Revco shareholder value; vi. Whether plaintiff and the other members of the Class will be irreparably damaged by the conduct and transactions complained of herein; and vii. Whether defendants have breached or aided and abetted the breaches of the fiduciary and other common law duties owed by them to plaintiff and the other members of the Class. 19. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are 5 typical of the claims of the other members of the Class and plaintiff has the same interest as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. 20. Defendants have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate injunctive relief with respect to the Class as a whole. 21. The prosecution of separate actions by individ- ual members of the Class could 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 the other members not parties to the adjudications. 22. Plaintiff anticipates that there will not be any difficulty in the management of this litigation. 23. For the reasons stated herein, a class action is superior to other available methods for the fair and efficient adjudication of this action. 6 SUBSTANTIVE ALLEGATIONS 24. On November 30, 1995, it was announced that Revco and Rite Aid agreed for Rite Aid to acquire Revco (the "Transaction"). Under the terms of the Transaction, Rite Aid will commence a first-step cash tender offer at $27.50 cash per Revco share for at least 50.1% of the Revco shares outstanding, and the remaining shares of Revco will be acquired by Rite Aid in a second-step merger in exchange for Rite Aid stock. 25. However, reportedly the value of the Rite Aid common stock that will be exchanged for the Revco shares in the second-step merger will be determined from 15 random days within the 40 day period leading up to the Revco shareholder vote on the merger. If the average market value of Rite Aid stock during the selected days is $27.50, the share exchange will be one-for-one. If Rite Aid stock value is above or below $27.50 per share, the amount paid to Revco shareholders will be adjusted up or down but only to reflect 50% of the divergence from the $27.50 price. Rite Aid will not issue less than .91666 or more than 1.125 of its shares for each Revco share. If the average value of Rite Aid stock is less than $27.50, Rite Aid will have the additional option of delivering one of its shares plus cash equal to 50% of the 8 decrease in Rite Aid's share price. In no event will more than $2.75 per Revco share be paid in cash. Further, if all other conditions of the merger are satisfied, but Rite Aid shareholders do not approve the issuance of Rite Aid stock pursuant to the merger, each Revco share will be converted into the right to receive a combination of cash and Rite Aid common stock representing an aggregate of 19.9% of Rite Aid's outstanding shares. 26. Moreover, further impeding maximization of Revco shareholder value, the Director Defendants have agreed to and Revco has granted Rite Aid an option to purchase 19.9% of Revco's shares under certain circumstances for $27.50 per share (the "Lock-Up"). 27. On November 29, 1995, Revco's shares closed at $25.50 per share. Thus, even the $27.50 per share tender offer price represents less than an 8% premium over the pre-announcement closing price of Revco. 28. Defendants, acting in concert, have violated fiduciary duties owed to the public shareholders of Revco and put certain of defendants' own personal interests and the interests of defendant Rite Aid ahead of the interests of the Revco public shareholders. 29. The Director Defendants apparently failed to (1) undertake an adequate evaluation of Revco's worth as a 8 potential merger/acquisition candidate; (2) take adequate steps to enhance Revco's value and/or attractiveness as a merger/acquisition candidate; or (3) effectively expose Revco to the marketplace in an effort to create an active and open auction for Revco. Instead, defendants have agreed to a sale of Revco to Rite Aid pursuant to terms which will coerce Revco shareholders to tender into the tender offer and impede maximization of shareholder value through their conduct including the Lock-Up. 30. While the Director Defendants should continue to seek out other possible purchasers of the assets of Revco or its stock in a manner designed to obtain the best transaction reasonably available for Revco's shareholders, or seek to enhance the value of Revco for all its current shareholders, they have instead resolved wrongfully to allow Rite Aid to obtain the valuable assets of Revco at an inadequate price which disproportionately benefits Rite Aid, and have wrongfully agreed to the Lock-Up further impeding maximization of shareholder value. 31. These tactics pursued by the defendants are, and will continue to be, wrongful, unfair and harmful to Revco's public shareholders. These maneuvers by the defendants will deny members of the Class an appropriate premium in the sale of Revco and the opportunity to share appropriately 9 in the true value of Revco's assets, future earnings and businesses. 32. In contemplating, planning and/or effecting the foregoing, defendants are not acting in good faith toward plaintiff and the Class, and defendants have breached, and are breaching, their fiduciary duties to plaintiff and the Class. 33. Because the Director Defendants (and those acting in concert with them) dominate and control the business and corporate affairs of Revco and because they are in possession of private corporate information concerning Revco's businesses and future prospects, there exists an imbalance and disparity of knowledge and economic power between the defendants and the public shareholders of Revco. 34. By reason of the foregoing acts, practices and course of conduct, the Director Defendants have failed to exercise loyalty, good faith and due care toward Revco and its public shareholders. 35. As a result of the actions of the Defendants, plaintiff and the Class have been and will be damaged and have been and will be impeded from obtaining the highest value available for their shares of Revco common stock. 36. Unless enjoined by this Court, the Director Defendants will continue to breach fiduciary duties owed to 10 plaintiff and the Class, all to the irreparable harm of the Class. 37. Plaintiff has no adequate remedy at law. WHEREFORE, plaintiff demands judgment as follows: A. Declaring that this action may be maintained as a class action; B. Declaring that the proposed Transaction is unfair, unjust and inequitable to plaintiff and the other members of the Class; C. Enjoining preliminarily and permanently the defendants from taking any steps necessary to accomplish or implement the proposed Transaction that is not fair and equitable, and enjoining any improper device or transaction which will impede maximization of shareholder value; D. Requiring defendants to compensate plaintiff and the members of the Class for all losses and damages suffered and to be suffered by them as a result of the acts and transactions complained of herein, together with prejudgment and post-judgment interest; E. Awarding plaintiff the costs and disbursements of this action, including reasonable attorneys', accountants', and experts' fees; and 11 F. Granting such other and further relief as may be just and proper. Dated: November 30, 1995 CHIMICLES, JACOBSEN & TIKELLIS ------------------------------ Pamela S. Tikellis James C. Strum Robert J. Kriner, Jr. One Rodney Square P.O. Box 1035 Wilmington, DE 19899 (302) 656-2500 Attorneys for Plaintiff OF COUNSEL: WOLF HALDENSTEIN ADLER FREEMAN & HERZ, LLP Jeffrey C. Smith, Esquire 270 Madison Avenue, 9th Floor New York, New York 10016 (212) 545-4600 FARUQUI & FARUQUI, LLP 415 Madison Avenue New York, New York 10017 (212) 986-1074 12 -----END PRIVACY-ENHANCED MESSAGE-----