-----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, Q/ELnxqvfywCdAwDPFpqAzBLsg1lJUyF4DG6oTt0KD+NEI3BD6vFU6w3AtRTT0jn ZMNmYwFuho0ZaI/u031Xqg== 0000950123-96-006059.txt : 19961031 0000950123-96-006059.hdr.sgml : 19961031 ACCESSION NUMBER: 0000950123-96-006059 CONFORMED SUBMISSION TYPE: SC 14D1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19961030 SROS: NASD GROUP MEMBERS: RDS ACQUISITION INC. GROUP MEMBERS: REVCO D S INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BIG B INC CENTRAL INDEX KEY: 0000352720 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341527876 STATE OF INCORPORATION: AL FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-34305 FILM NUMBER: 96649930 BUSINESS ADDRESS: STREET 1: 2600 MORGAN ROAD S E CITY: BIRMINGHAM STATE: AL ZIP: 35023 BUSINESS PHONE: 2054243421 MAIL ADDRESS: STREET 1: P O BOX 10168 CITY: BIRMINGHAM STATE: AL ZIP: 35202 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BIG B INC CENTRAL INDEX KEY: 0000352720 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341527876 STATE OF INCORPORATION: AL FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 14D1/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-34305 FILM NUMBER: 96649931 BUSINESS ADDRESS: STREET 1: 2600 MORGAN ROAD S E CITY: BIRMINGHAM STATE: AL ZIP: 35023 BUSINESS PHONE: 2054243421 MAIL ADDRESS: STREET 1: P O BOX 10168 CITY: BIRMINGHAM STATE: AL ZIP: 35202 FILED BY: 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/A 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: 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/A 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 SC 14D1/A 1 AMENDMENT #14 TO SCHEDULE 14D-1 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 14 TO SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND STATEMENT ON SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 BIG B, INC. (Name of Subject Company) ------------------------ RDS ACQUISITION INC. REVCO D.S., INC. (Bidders) ------------------------ COMMON STOCK, PAR VALUE $0.001 PER SHARE (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) (Title of Class of Securities) 0888917106 (CUSIP Number of Classes of Securities) ------------------------ JACK A. STAPH, ESQ. SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL REVCO D.S., INC. 1925 ENTERPRISE PARKWAY TWINSBURG, OH 44087 (216) 487-1667 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Bidders) ------------------------ COPY TO: RICHARD HALL, ESQ. CRAVATH, SWAINE & MOORE WORLDWIDE PLAZA 825 EIGHTH AVENUE NEW YORK, NEW YORK 10019-7475 (212) 474-1293 CALCULATION OF FILING FEE* - -------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE* - -------------------------------------------------------------------------------- $381,961,817 $76,393 - -------------------------------------------------------------------------------- * For purposes of calculating the amount of the filing fee only. The amount assumes the purchase of 22,142,714 shares of Common Stock, par value $0.001 per share (including the associated Common Stock purchase rights), which, based on the information provided by the Subject Company, represents all the shares of Common Stock (including the associated Common Stock purchase rights) outstanding as of October 24, 1996, plus the number of shares of Common Stock (including the associated Common Stock purchase rights) currently issuable upon the exercise of all options to purchase Common Stock (including the associated Common Stock purchase rights) and upon conversion of Big B, Inc.'s 6.5% Convertible Subordinated Debentures Due 2003. As set forth below, $66,031 of the filing fee was previously paid.
[X] Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Amount Previously Paid: $66,031 Filing Party: RDS Acquisition Inc. Form or Registration No.: Schedule 14D-1 Revco D.S., Inc. and Schedule 13D Date Filed: September 10, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 RDS Acquisition Inc. (the "Purchaser") and Revco D.S., Inc. ("Parent") hereby amend and supplement their Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D (as amended prior to the date hereof, the "Schedule 14D-1"), originally filed on September 10, 1996, with respect to their offer to purchase all outstanding shares of Common Stock, par value $0.001 per share, including the associated common stock purchase rights, of Big B, Inc., an Alabama corporation (the "Company"), as set forth in this Amendment No. 14. Capitalized terms not defined herein have the meanings assigned thereto in the Schedule 14D-1. Item 1. Security and Subject Company. (b) The Purchaser has filed as Exhibit (a)(16) to this Amendment No. 14 a Supplement to the Offer to Purchase dated October 29, 1996 (the "Supplement"), amending and supplementing the Offer to Purchase. The Purchaser previously amended the Offer to increase the Offer Price to $17.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, as amended and supplemented, including by the Supplement, and in the related Letter of Transmittal (which, together with any amendments or supplements from time to time thereto, collectively constitute the "Offer"). The related Letter of Transmittal is attached hereto as Exhibit (a)(17). The information set forth in "Introduction" and Section 1 ("Amended Terms of the Offer; Expiration Date") of the Supplement is incorporated herein by reference. (c) The information set forth in Section 3 ("Price Range of the Shares; Dividends on the Shares") of the Supplement is incorporated herein by reference. Item 3. Past Contacts, Transactions or Negotiations with the Subject Company. (a) The information set forth in Section 6 ("Contacts and Transactions with the Company; Background of the Amended Offer") and Section 7 ("Purpose of the Offer and the Merger; The Operative Agreements") of the Supplement is incorporated herein by reference. (b) The information set forth in Section 6 ("Contacts and Transactions with the Company; Background of the Amended Offer") and Section 7 ("Purpose of the Offer and the Merger; The Operative Agreements") of the Supplement is incorporated herein by reference. The Merger Agreement (as defined in the Supplement) and the Support Agreement (as defined in the Supplement) are attached hereto as Exhibits (c)(7) and (c)(8), respectively. Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder. (a) - (e) The information set forth in Section 7 ("Purpose of the Offer and the Merger; The Operative Agreements") of the Supplement is incorporated herein by reference. Item 6. Interest in Securities of the Subject Company. (a) and (b) The information set forth in "Introduction", Section 4 ("Certain Information Concerning the Company"), Section 6 ("Contacts and Transaction with the Company; Background of the Offer"), and Section 7 ("Purpose of Offer and the Mergers; The Operative Agreements") 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 "Introduction", Section 6 ("Contacts and Transaction with the Company; Background of the Amended Offer"), and Section 7 ("Purpose of the Offer and the Mergers; The Operative Agreements") of the Supplement is incorporated herein by reference. Item 9. Financial Statements of Certain Bidders. The information set forth in "Introduction" and Section 5 ("Certain Information Concerning the Purchaser and Parent") of the Supplement is incorporated herein by reference. 1 3 Item 10. Additional Information. (a) The information set forth in Section 7 ("Purpose of the Offer and the Merger; The Operative Agreements") of the Supplement is incorporated herein by reference. (e) The information set forth in Section 6 ("Contacts and Transactions with the Company; Background of the Amended Offer") and Section 9 ("Shareholder Litigation") of the Supplement is incorporated herein by reference. (f) The information set forth in the Supplement and the Letter of Transmittal is incorporated herein by reference. Item 11. Material to be Filed as Exhibits. (a)(16) Supplement to the Offer to Purchase. (a)(17) Letter of Transmittal. (a)(18) Notice of Guaranteed Delivery. (a)(19) Letter to Brokers, Dealers, Banks, Trust Companies and other Nominees. (a)(20) Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and other Nominees. (a)(21) Form of Summary Advertisement dated October 29, 1996. (c)(7) Agreement and Plan of Merger dated as of October 27, 1996, among Parent, the Purchaser and the Company. (c)(8) Support Agreement dated as of October 27, 1996, among Parent, the Purchaser and Anthony J. Bruno, Arthur M. Jones, Sr., James A. Bruno, Vincent J. Bruno and certain entities associated with Vincent J. Bruno. 2 4 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment No. 14 is true, complete and correct. Dated: October 29, 1996 REVCO D.S., INC., by /s/ JACK A. STAPH ---------------------------------- Name: Jack A. Staph Title: Senior Vice President, Secretary and General Counsel RDS ACQUISITION INC., by /s/ JACK A. STAPH ---------------------------------- Name: Jack A. Staph Title: Vice President and Secretary 3 5 EXHIBIT INDEX
PAGE ----- Exhibit (a)(16) Supplement to the Offer to Purchase.................................. Exhibit (a)(17) Letter of Transmittal................................................ Exhibit (a)(18) Notice of Guaranteed Delivery........................................ Exhibit (a)(19) Letter to Brokers, Dealers, Banks, Trust Companies and other Nominees............................................................. Exhibit (a)(20) Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and other Nominees................................................... Exhibit (a)(21) Form of Summary Advertisement dated October 29, 1996................. Exhibit (c)(7) Agreement and Plan of Merger dated as of October 27, 1996, among Parent, the Purchaser and the Company................................ Exhibit (c)(8) Support Agreement dated as of October 27, 1996, among Parent, the Purchaser and certain shareholders of the Company consisting of Anthony J. Bruno, Arthur M. Jones, Sr., James A. Bruno, Vincent J. Bruno and certain entities associated with Vincent J. Bruno..........
EX-99.A16 2 SUPPLEMENT TO THE OFFER TO PURCHASE 1 SUPPLEMENT TO THE OFFER TO PURCHASE DATED SEPTEMBER 10, 1996 RDS ACQUISITION INC., a Wholly Owned Subsidiary of REVCO D.S., INC., Has Increased the Price of Its Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Common Stock Purchase Rights) of BIG B, INC. TO $17.25 NET PER SHARE - ------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. - ------------------------------------------------------------------------------- THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE THAT NUMBER OF SHARES OF COMMON STOCK (TOGETHER WITH THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS, THE "SHARES") OF BIG B, INC. (THE "COMPANY") THAT WOULD REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE (THE "MINIMUM TENDER CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER CONDITIONS. SEE THE INTRODUCTION AND SECTIONS 1 AND 8 OF THIS SUPPLEMENT. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DULY ADOPTED THE MERGER AGREEMENT, INCLUDING THE PLAN OF MERGER CONTAINED THEREIN, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, AND RECOMMENDED THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's Shares should either (i) complete and sign the Letter of Transmittal (or a copy thereof) in accordance with the instructions in the Letter of Transmittal, have such shareholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such copy), or, in the case of a book-entry transfer effected pursuant to the procedures set forth in Section 2 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and any other required documents to the Depositary and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or such copy) or deliver such Shares pursuant to the procedures for book-entry transfer set forth in Section 2 of the Offer to Purchase or (ii) request such shareholder's broker, dealer, bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such shareholder desires to tender such Shares. If a shareholder desires to tender Shares and such shareholder's certificates for Shares are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis, or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such shareholder's tender of Shares may be effected by following the procedures for guaranteed delivery set forth in Section 2 of the Offer to Purchase. Questions and requests for assistance may be directed to Salomon Brothers Inc, the Dealer Manager, or to D.F. King & Co., Inc., the Information Agent, at their respective addresses and telephone numbers set forth on the back cover of this Supplement. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and all other tender offer materials may be obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks and trust companies, and will be furnished promptly at the Purchaser's expense. ------------------------ The Dealer Manager for the Offer is: SALOMON BROTHERS INC ------------------------ OCTOBER 29, 1996 2 TABLE OF CONTENTS Introduction......................................................................... 1 The Amended Offer.................................................................... 2 1. Amended Terms of the Offer; Expiration Date.................................... 2 2. Procedures for Tendering Shares................................................ 3 3. Price Range of the Shares; Dividends on the Shares............................. 4 4. Certain Information Concerning the Company..................................... 5 5. Certain Information Concerning the Purchaser and Parent........................ 13 6. Contacts and Transactions with the Company; Background of the Amended Offer.... 14 7. Purpose of the Offer and the Merger; The Operative Agreements.................. 21 8. Amended Conditions of the Offer................................................ 33 9. Shareholder Litigation......................................................... 35 10. Miscellaneous.................................................................. 35
i 3 TO THE HOLDERS OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE COMPANY: INTRODUCTION The following information amends and supplements the Offer to Purchase dated September 10, 1996, as amended and supplemented to the date hereof (the "Offer to Purchase"), of RDS Acquisition Inc., a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Revco D.S., Inc., a Delaware corporation ("Parent"). Pursuant to this Supplement, the Purchaser is now offering to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended (the "Rights Agreement"), between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights, being collectively herein referred to, unless the context otherwise requires, as the "Shares"), at a price of $17.25 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, this Supplement, and in the related Letter of Transmittal (which, together with any amendments or supplements from time to time hereto or thereto, collectively constitute the "Offer"). All references herein to the Rights shall include all benefits that may inure to holders of the Rights pursuant to the Rights Agreement. See Section 4 of this Supplement. Except as otherwise set forth in this Supplement and in the revised Letter of Transmittal, the terms and conditions previously set forth in the Offer to Purchase remain applicable in all respects to the Offer. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1 OF THIS SUPPLEMENT) THAT NUMBER OF SHARES (THE "MINIMUM NUMBER OF SHARES") THAT WOULD REPRESENT AT LEAST A MAJORITY OF THE FULLY DILUTED SHARES (AS DEFINED IN SECTION 8 OF THIS SUPPLEMENT) (THE "MINIMUM TENDER CONDITION"). SUBJECT TO OBTAINING THE CONSENT OF THE COMPANY, THE PURCHASER RESERVES THE RIGHT, SUBJECT TO THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), TO WAIVE OR REDUCE THE MINIMUM TENDER CONDITION AND TO ELECT TO PURCHASE, PURSUANT TO THE OFFER, FEWER THAN THE MINIMUM NUMBER OF SHARES. SEE SECTIONS 1 AND 8 OF THIS SUPPLEMENT. Based on representations and warranties of the Company contained in the Merger Agreement (as defined below), as of October 24, 1996, (i) there were 18,757,034 Shares issued and outstanding, (ii) there were 86,500 Shares subject to outstanding options and (iii) the Company's 6.5% Convertible Subordinated Debentures Due 2003 (the "Convertible Debentures") were convertible into Shares at a price of $12.20 per Share, which represents 81.9672 Shares per $1,000 aggregate principal amount and an aggregate of not more than 3,299,180 Shares, subject to adjustment. Based on the foregoing, there are currently 22,142,714 Shares outstanding on a fully diluted basis, which means that the number of Shares needed to satisfy the Minimum Tender Condition is 11,071,358 Shares. However, the actual Minimum Number of Shares will depend on the facts as they exist on the date of purchase. THE OFFER IS NO LONGER SUBJECT TO THE RIGHTS CONDITION DESCRIBED IN THE OFFER TO PURCHASE. THE OFFER REMAINS SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS DESCRIBED HEREIN IN ADDITION TO THE MINIMUM TENDER CONDITION. SEE SECTION 8 OF THIS SUPPLEMENT. The Purchaser is not offering to purchase the Convertible Debentures. However, in lieu of converting the Convertible Debentures in order to tender Shares, holders of Convertible Debentures may deliver certificates for Convertible Debentures that are convertible into the number of Shares being tendered. See Section 2 of the Offer to Purchase. 1 4 Parent, the Purchaser and the Company have entered into an Agreement and Plan of Merger dated as of October 27, 1996 (the "Merger Agreement"), which provides for, among other things, (i) an increase in the price per Share to be paid pursuant to the Offer from $15 per Share to $17.25 per Share, net to the seller in cash, without interest thereon, (ii) the amendment of the conditions to the Offer to eliminate the Rights Condition, (iii) the amendment and restatement of certain other conditions to the Offer, including the Minimum Tender Condition, as set forth in their entirety in Section 8 of this Supplement and (iv) the merger of the Purchaser or another subsidiary of Parent with the Company (the "Merger") following the purchase of Shares pursuant to the Offer. In the Merger, each Share (other than Shares held in treasury of the Company, Shares owned by Parent, the Purchaser or any other subsidiary of Parent or Shares held by shareholders who properly exercise their dissenters' rights under Alabama law) will be converted into the right to receive $17.25 per Share in cash, without interest thereon. In addition, the Purchaser has entered into a Support Agreement dated as of October 27, 1996 (the "Support Agreement") with certain holders of Shares who are executive officers and directors of the Company and certain related entities (the "Shareholders"). Pursuant to the Support Agreement, the Shareholders, who own in the aggregate not less than 1,187,486 Shares (representing approximately 6.3% of the outstanding Shares), have agreed, among other things, to vote all Shares then beneficially owned by them in favor of the Merger, if a shareholder vote is required to approve the Merger. Because of restrictions imposed by Section 16 of the Exchange Act, a number of shareholders have informed Parent that they do not expect to tender their Shares pursuant to the Offer. See Section 7 of this Supplement. The Merger Agreement and the Support Agreement, together, are referred to in this Supplement as the "Operative Agreements." THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DULY ADOPTED THE MERGER AGREEMENT, INCLUDING THE PLAN OF MERGER CONTAINED THEREIN, APPROVED THE OFFER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDED THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") has delivered to the Board of Directors of the Company its opinion that, as of October 27, 1996, the proposed cash consideration to be received by the holders of Shares (other than Parent and its affiliates) pursuant to the Offer and the Merger is, taken as a whole, fair to such holders from a financial point of view. THIS SUPPLEMENT SHOULD BE READ IN CONJUNCTION WITH THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL, COPIES OF WHICH MAY BE OBTAINED AT THE PURCHASER'S EXPENSE IN THE MANNER SET FORTH ON THE BACK COVER OF THIS SUPPLEMENT. THE OFFER TO PURCHASE AND THIS SUPPLEMENT CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. THE AMENDED OFFER 1. AMENDED TERMS OF THE OFFER; EXPIRATION DATE The price per Share to be paid pursuant to the Offer has been increased from $15 to $17.25 per Share, net to the seller in cash, without interest thereon. 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 promptly after the Expiration Date accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with Section 3 of the Offer to Purchase. The term "Expiration Date" means 9:00 A.M., New York City time, on Friday, November 15, 1996, unless and until the Purchaser, in accordance with the Merger Agreement, extends the period of time during which the Offer is open, 2 5 in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, expires. All shareholders whose Shares are accepted for payment pursuant to the Offer will receive the increased Offer Price in respect of each Share so accepted. All references to the Offer and the Offer Price in the Offer to Purchase, this Supplement and any letter of transmittal are deemed to refer to the Offer as amended as described above and the foregoing increased Offer Price, respectively. THE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM TENDER CONDITION AND THE OTHER CONDITIONS SET FORTH IN SECTION 8 OF THIS SUPPLEMENT. Subject to the applicable rules and regulations of the Commission and the provisions of the Merger Agreement, the Purchaser reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events or facts set forth in Section 8 of this Supplement shall have occurred, to (a) extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (b) amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw such shareholder's Shares as provided in Section 3 of the Offer to Purchase. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN PAYMENT FOR TENDERED SHARES. 2. PROCEDURES FOR TENDERING SHARES Procedures for tendering Shares (including by holders of Convertible Debentures (as defined below)) are set forth in Section 2 of the Offer to Purchase, as amended and supplemented hereby. Tendering shareholders may continue to use the original BLUE Letter of Transmittal and the original GREY Notice of Guaranteed Delivery previously circulated with the Offer to Purchase or may use the revised PINK Letter of Transmittal and the revised BLUE Notice of Guaranteed Delivery circulated with this Supplement. Although the Letter of Transmittal previously circulated with the Offer to Purchase refers only to the Offer to Purchase, shareholders using such document to tender their Shares will nevertheless receive the increased Offer price of $17.25 per Share for each Share validly tendered and not properly withdrawn and accepted for payment pursuant to the Offer, subject to the conditions of the Offer. In the Merger Agreement, the Company represented, among other things, that it has taken or will take all necessary action to (i) render the Rights inapplicable to the Offer, the Merger and the other transactions contemplated by the Operative Agreements, and (ii) ensure that a Distribution Date (as defined in Section 4 of this Supplement) does not occur by reason of the announcement or consummation of the Offer, the Merger or any of the other transactions contemplated by the Operative Agreements. Accordingly, Rights will continue to be evidenced by the certificates for Shares. Unless separate certificates for Rights are issued, a tender of Shares will also constitute a tender of the associated Rights. SHAREHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN THEIR SHARES PURSUANT TO THE OFFER ARE NOT REQUIRED TO TAKE ANY FURTHER ACTION, EXCEPT AS MAY BE REQUIRED BY THE PROCEDURE FOR GUARANTEED DELIVERY IF SUCH PROCEDURE WAS UTILIZED. IF SHARES ARE ACCEPTED FOR PAYMENT AND PAID FOR BY THE PURCHASER PURSUANT TO THE OFFER, SUCH SHAREHOLDERS WILL RECEIVE, SUBJECT TO THE CONDITIONS OF THE OFFER, THE INCREASED OFFER PRICE OF $17.25 PER SHARE, WITHOUT INTEREST THEREON, LESS ANY APPLICABLE WITHHOLDING TAXES. SEE SECTION 3 OF THE OFFER TO PURCHASE FOR THE PROCEDURES FOR WITHDRAWING SHARES TENDERED PURSUANT TO THE OFFER. 3 6 3. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES The Shares are included in the Nasdaq National Market and are traded under the symbol BIGB. The following table sets forth, for each of the periods indicated, the high and low sales quotations per Share as reported by the Nasdaq National Market and the Dow Jones News Retrieval Service and the dividends paid on the Shares as set forth in the Company 10-K and the Company 10-Q.
SALES QUOTATION ------------- FISCAL YEAR HIGH LOW DIVIDENDS - ------------------------------------------------------------------ ---- --- --------- 1995 Quarter ended May 7, 1994....................................... $ 12 1/2 $ 9 7/8 $0.04 Quarter ended July 30, 1994..................................... $ 12 1/8 $10 5/8 $0.04 Quarter ended October 22, 1994.................................. $ 12 1/8 $10 3/8 $0.04 Quarter ended January 28, 1995.................................. $ 14 1/2 $11 1/2 $0.04 1996 Quarter ended May 8, 1995....................................... $ 15 1/4 $13 $0.04 Quarter ended July 29, 1995..................................... $ 15 1/8 $13 3/4 $0.05 Quarter ended October 26, 1995.................................. $ 16 1/8 $14 1/4 $0.05 Quarter ended February 3, 1996.................................. $ 14 3/4 $ 7 1/2 $0.05 1997 Quarter ended May 11, 1996...................................... $ 11 7/8 $ 9 1/4 $0.05 Quarter ended August 3, 1996.................................... $ 11 1/2 $ 7 7/8 $0.05 Quarter ending November 2 (through October 28, 1996)............ $ 17 1/4 $ 9 7/8 $0.05
On September 6, 1996, the last full trading day before the first public announcement of the Purchaser's intention to make the Offer, the last reported sale price of the Shares on the Nasdaq National Market was $12 5/8 per Share. On September 9, 1996, the last full trading day before the commencement of the Offer, the last reported sale price of the Shares on the Nasdaq National Market was $15 7/8 per Share. The average closing price for Shares for the 90-calendar day period ended September 6, 1996 was $9.61. On October 25, 1996, the last full trading day before the first public announcement of the execution of the Merger Agreement, the last reported sale price of the Shares on the Nasdaq National Market was $16 9/16 per Share. Shareholders are urged to obtain current market quotations for the Shares. 4 7 4. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is an Alabama corporation with its principal offices at 2600 Morgan Road, S.E., Bessemer, Alabama 35023. According to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996 (the "Company 10-K") filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's principal line of business is operating a chain of drug stores in five states in the southeastern United States. Set forth below is certain supplemental selected consolidated financial information with respect to the Company and its subsidiaries excerpted from the information contained in the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996 (the "Company 10-Q") filed with the Commission under the Exchange Act and in the Company 10-K filed with the Commission under the Exchange Act. More comprehensive financial information is included in the Offer to Purchase, the Company 10-K, the Company 10-Q and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to the Company 10-K, the Company 10-Q and such other documents and all the financial information (including any related notes) contained therein. Additional information with respect to the Company and its position with respect to the Offer is set forth in the Solicitation/Recommendation Statement on Schedule 14D-9, as amended (the "Schedule 14D-9"), filed by the Company with the Commission under the Exchange Act. The Company 10-K, the Company 10-Q, the Schedule 14D-9 and such other documents should be available for inspection and copies thereof should be obtainable in the manner set forth in Section 8 of the Offer to Purchase under "Available Information", except that the Schedule 14D-9 will not be available at the regional offices of the Commission. 5 8 BIG B, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL SIX MONTHS FISCAL YEAR ENDED ENDED ------------------------------------ -------------------- FEBRUARY 3, JANUARY 28, JANUARY 29, AUGUST 3, JULY 29, 1996 1995 1994 1996 1995 ---------- ---------- ---------- --------- -------- (53 WEEKS) (52 WEEKS) (52 WEEKS) (UNAUDITED) SUMMARY OF EARNINGS DATA: Net sales............................ $737,146 $668,205 $595,712 $ 381,987 $354,742 Cost of products sold................ 521,186 460,925 412,560 269,611 247,115 Income before taxes.................. 4,724 23,775 18,434 5,311 12,877 Net income........................... 2,624 15,097 11,752 3,336 8,047 NET INCOME PER COMMON SHARE: Primary.............................. $ 0.15 $ 0.97 $ 0.76 $ 0.18 $ 0.47 Fully diluted........................ $ 0.15 $ 0.89 $ 0.72 $ 0.18 $ 0.44 BALANCE SHEET DATA: (1) Total current assets................. $214,456 $199,762 $ 223,853 Total assets......................... 298,836 273,492 306,519 Total current liabilities............ 68,452 79,092 77,251 Total liabilities.................... 153,588 166,759 158,899 Total stockholders' equity........... $145,248 $106,733 $ 147,620 - --------------- (1) At period end.
Certain Company Financial Projections During the course of inviting parties, including Parent, to express an interest in acquiring the Company, the Company made available certain information to Parent, including historical and projected financial information. Such information, which the Company indicated it was making available to other interested parties, included, among other things, five-year financial projections prepared by the Company, portions of which are set forth on the following pages. 6 9 BIG B, INC. COMPANY PROJECTIONS (IN THOUSANDS)
PROJECTED FISCAL YEARS ------------------------------------------------------------------------ INCOME STATEMENT 1997 1998 1999 2000 2001 - ---------------------------------------------- ---------- ---------- ------------ ------------ ------------ Net Sales..................................... $794,697.0 $890,000.0 $1,000,000.0 $1,123,595.5 $1,262,466.9 Cost of Sales................................. 560,261.0 627,450.0 705,000.0 792,134.8 890,039.1 ---------- ---------- ----------- ----------- ----------- Gross Profit................................ 234,436.0 262,550.0 295,000.0 331,460.7 372,427.7 Selling & Administrative Expenses............. 207,910.0 232,225.0 259,159.0 289,550.6 323,444.0 Add Back: Depreciation and Existing Amortization................................ (12,544.0) (13,819.0) (15,201.0) (17,079.8) (19,190.8) ---------- ---------- ----------- ----------- ----------- EBITDA...................................... 39,070.0 44,144.0 51,042.0 58,989.9 68,174.5 Depreciation and Existing Amortization........ 12,544.0 13,819.0 15,201.0 17,079.8 19,190.8 Goodwill Amortization (30 Years).............. 0.0 0.0 0.0 0.0 0.0 Amortization of Transaction Costs (5 Years)... 0.0 0.0 0.0 0.0 0.0 ---------- ---------- ----------- ----------- ----------- EBIT........................................ 26,526.0 30,325.0 35,841.0 41,910.1 48,983.3 Interest Expense: Existing Long-Term Debt and Capital Leases.... 4,915.6 1,386.2 666.1 624.4 604.5 Other Interests Expenses (Income)........... (606.9) (965.4) (1,177.1) (2,266.2) (3,323.6) ---------- ---------- ----------- ----------- ----------- Net Cash Interest Expense................. 4,308.7 420.8 (511.1) (1,641.7) (2,719.1) Other Non-Operating Expense (Inc.)............ 0.0 0.0 0.0 0.0 0.0 ---------- ---------- ----------- ----------- ----------- Income Before Income Taxes................ 22,217.3 29,904.2 36,352.1 43,551.8 51,702.8 Income Taxes.................................. 8,176.0 11,004.7 13,377.6 16,027.1 19,026.6 Cumulative Effect of Accounting Charges & Minority Interests.......................... 0.0 0.0 0.0 0.0 0.0 Preferred Dividend............................ 0.0 0.0 0.0 0.0 0.0 ---------- ---------- ----------- ----------- ----------- Net Income Available to Common................ $ 14,041.3 $ 18,899.5 $ 22,974.5 $ 27,524.8 $ 32,676.2 ========== ========== =========== =========== ===========
7 10 BIG B, INC. COMPANY PROJECTIONS (IN THOUSANDS)
PROJECTED FISCAL YEARS ------------------------------------------------------------------ BALANCE STATEMENT 1997 1998 1999 2000 2001 - --------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Cash and Equivalents............................... $ 23,785.8 $ 14,831.3 $ 32,253.9 $ 58,392.2 $ 74,551.5 Notes and Accounts Receivable, Net................. 22,251.5 24,030.0 26,000.0 28,089.9 31,561.7 Inventories........................................ 173,680.9 181,960.5 190,350.0 198,033.7 222,509.8 Other Current Assets............................... 11,443.6 12,816.0 14,400 0 16,179.8 18,179.5 ---------- ---------- ---------- ---------- ---------- Total Current Assets............................. 231,161.8 233,637.8 263,003.9 300,695.5 346,802.4 Fixed Assets....................................... 135,822.0 150,822.0 165,822.0 180,822.0 195,822.0 Less: Accumulated Depreciation..................... 60,391.0 74,210.0 89,411.0 106,490.8 125,681.5 ---------- ---------- ---------- ---------- ---------- Net Fixed Assets................................. 75,431.0 76,612.0 76,411.0 74,331.2 70,140.5 Other Assets....................................... 8,155.0 8,155.0 8,155.0 $ 8,155.0 $ 8,155.0 ---------- ---------- ---------- ---------- ---------- TOTAL ASSETS..................................... $314,747.8 $318,404.8 $347,569.9 $383,181.8 $425,097.9 ========== ========== ========== ========== ========== Accounts Payable................................... $ 52,664.9 $ 59,607.8 $ 66,975.0 $ 76,044.9 $ 85,443.8 Accrued Expenses................................... 17,244.9 19,313.0 21,700.0 24,382.0 27,395.5 Income Taxes Payable............................... 0.0 0.0 0.0 0.0 0.0 Other Current Liabilities.......................... 0.0 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- ---------- Total Current Liabilities........................ 69,909.5 78,920.8 88,675.0 100,427.0 112,839.3 Existing Long-Term Debt and Capital Leases......... 32,072.0 10,581.0 9,913.0 9,300.0 9,300.0 ---------- ---------- ---------- ---------- ---------- Total Long-Term Debt and Capital Leases............ 32,072.0 10,581.0 9,913.0 9,300.0 9,300.0 Deferred Liabilities............................... 10,569.5 11,837.0 13,300.0 14,943.8 16,790.8 Other Liabilities.................................. 6,357.6 7,120.0 8,000.0 8,988.8 10,099.7 Stockholders' Equity: Common Stock and Paid in Capital................. 114,895.0 114,895.0 114,895.0 114,895.0 114,895.0 Retained Earnings................................ 80,944.3 95,051.0 112,786.9 134,627.2 161,173.1 Treasury Stock................................... 0.0 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- ---------- Total Stockholders' Equity......................... 195,839.3 209,946.0 227,681.9 249,522.2 276,068.1 ---------- ---------- ---------- ---------- ---------- TOTAL LIABILITIES & EQUITY......................... $314,747.8 $318,404.8 $347,569.9 $383,181.8 $425,097.9 ========== ========== ========== ========== ==========
8 11 BIG B, INC. COMPANY PROJECTIONS (IN THOUSANDS)
PROJECTED FISCAL YEARS ------------------------------------------------------------------ CASH FLOW STATEMENT 1997 1998 1999 2000 2001 - --------------------------------------------------- ---------- ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATIONS Net Income Available to Common..................... $ 14,041.3 $ 18,899.5 $ 22,974.5 $ 27,524.8 $ 32,676.2 Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities: Deferred Liability............................... 3,620.5 1,267.5 1,463.0 1,643.8 1,847.0 Change in Other Liabilities...................... 1,341.6 762.4 880.0 988.8 1,111.0 Depreciation and Existing Amortization........... 12,544.0 13,819.0 15,201.0 17,079.8 19,190.8 ---------- ---------- ---------- ---------- ---------- Reconciliation Sub Total....................... 17,506.0 15,849.0 17,544.0 19,712.4 22,148.7 Change in Current Assets Except Cash........... 6,588.9 (11,430.4) (11,943.5) (11,553.4) (29,947.6) Change in Current Liabilities Except Debt...... 7,214.5 9,011.3 9,754.5 11,752.0 12,412.3 ---------- ---------- ---------- ---------- ---------- Net Source (Use) of Cash Provided by Working Capital........................................ 13,803.4 (2,419.1) (2,189.3) 198.6 (17,535.3) ---------- ---------- ---------- ---------- ---------- Net Cash Provided by Operations.................... $ 45,350.8 $ 32,329.3 $ 38,329.3 $ 47,435.7 $ 37,289.6 ---------- ---------- ---------- ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES Acquisition of Property and Equipment............ (11,750.0) (15,000.0) (15,000.0) (15,000.0) (15,000.0) ---------- ---------- ---------- ---------- ---------- Net Cash Used for Investments...................... $(11,750.0) $(15,000.0) $(15,000.0) $(15,000.0) $(15,000.0) ---------- ---------- ---------- ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES Net Borrowings (Repayments) Under Existing Debt.. (6,606.0) (21,491.0) (688.0) (613.0) 0.0 Payment of Dividends............................. (3,700.0) (4,792.8) (5,238.6) (5,684.5) (6,310.3) ---------- ---------- ---------- ---------- ---------- Net Cash Used for Financing........................ $(10,306.0) $(26,283.5) $ (5,906.0) $ (6,297.5) $ (6,130.3) ---------- ---------- ---------- ---------- ---------- Total Net Cash Provided (Used)..................... $ 23,294.8 $ (8,954.5) $ 17,422.6 $ 26,138.3 $ 16,159.3 Beginning Cash Balance............................. $ 491.0 $ 23,785.8 $ 14,831.3 $ 32,253.9 $ 58,392.2 ---------- ---------- ---------- ---------- ---------- ENDING CASH BALANCE................................ $ 23,785.8 $ 14,831.3 $ 32,253.9 $ 58,392.2 $ 74,551.5 ========== ========== ========== ========== ==========
9 12 Parent was advised that the foregoing projections represent the Company's management's outlook for the balance of fiscal year 1997 and for the full fiscal years 1998-2001 and that the following information represents certain important information and assumptions underlying the projections.
ACTUAL PROJECTED ------------------- ------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 ------- ------- ------- ------- ------- ------- ------- INCOME STATEMENT DATA: Same store sales growth............ 7.1% 5.5% 5.0% 6.0% 7.0% 6.0% 6.0% Gross margin....................... 29.3% 27.5% 29.5% 29.5% 29.5% 29.5% 29.5% EBITDA margin...................... 6.1% 3.1% 4.9% 5.0% 5.1% 5.3% 5.4% BALANCE SHEET DATA: Inventory turn rate................ 3.7 3.0 3.2 3.4 3.7 4.0 4.0 Days in payables................... 43.3 33.8 34.3 34.7 34.7 35.0 35.0 CASH FLOW STATEMENT DATA: Capital expenditures............... $22,685 $21,896 $11,750 $15,000 $15,000 $15,000 $15,000 (in thousands) STORE DATA: Store openings..................... 13 17 25 30 35 40 45 Total stores in operation.......... 367 384 409 439 474 514 559
Parent was advised that the foregoing forecasts assume that the Convertible Debentures are converted into Shares at the end of the current fiscal year. The Company does not as a matter of course make public any projections as to future performance or earnings, and the projections set forth above are included in this Supplement only because the information was provided to Parent. The Company projections were not prepared with a view to public disclosure or compliance with the published guidelines of the Commission or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The Company's internal operating projections are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to various interpretations and periodic revisions based on actual experience and business developments. The projections were based on a number of assumptions, certain of which are described above, that are beyond the control of the Company, the Purchaser or Parent or their respective financial advisors, including economic forecasting (both general and specific to the Company's business) that is inherently uncertain and subjective. None of the Company, the Purchaser or Parent or their respective financial advisors assumes any responsibility for the accuracy of any of the projections. The inclusion of the foregoing projections should not be regarded as an indication that the Company, the Purchaser, Parent or any other person who received such information considers it an accurate prediction of future events. Neither the Company nor Parent intends to update, revise or correct such projections if they become inaccurate (even in the short term). Shareholder Rights Plan According to information disclosed by the Company in the Schedule 14D-9, on September 20, 1996, the Board of Directors of the Company adopted the Rights Agreement. Pursuant to the Rights Agreement, the Rights were distributed as a dividend at the rate of one Right for each Share held by shareholders of record as of the close of business on October 3, 1996. Each Right entitles the registered holder to purchase from the Company one Share at a purchase price of $40.00 per Share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement. On October 27, 1996, the Board of Directors met and unanimously duly adopted the Merger Agreement, including the Plan of Merger contained therein, approved the Offer, determined that the Offer and the Merger are fair to and in the best interests of the shareholders of the Company and recommended that the shareholders of the Company accept the Offer and tender their Shares 10 13 pursuant to the Offer. The Company has also represented, among other things, that (a) the Offer Price and the other terms of the Offer have been determined by a majority of the members of the Board of Directors of the Company who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person (each as defined in the Rights Agreement), after receiving advice from one or more investment banking firms, to be (x) at a price which is fair to shareholders (taking into account all factors that such members of the Board of Directors of the Company deem relevant including prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (y) otherwise in the best interests of the Company and its shareholders, and such determination remains in full force and effect and (b) it has taken or will take all necessary action to (i) render the Rights inapplicable to the Offer, the Merger and the other transactions contemplated by the Operative Agreements, and (ii) ensure that a Distribution Date (as defined below) does not occur by reason of the announcement or consummation of the Offer, the Merger or any of the other transactions contemplated by the Operative Agreements. A copy of the Rights Agreement as originally executed on September 20, 1996, and the amendment thereto dated as of October 27, 1996, have been or will be filed by the Company as exhibits to the Schedule 14D-9. The following summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. The Rights are currently attached to all Certificates representing Shares, and no separate Rights Certificate have been distributed. The Rights will separate from Shares and a distribution date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the outstanding Shares (the "Stock Acquisition Date") or (ii) such date as the Board of Directors of the Company shall determine during the pendency of a tender or exchange offer that would result in a person or group beneficially owning 10% or more of such outstanding Shares (the earlier of (i) and (ii), the "Distribution Date"). The foregoing notwithstanding, the definition of "Acquiring Person" does not include any member of the Bruno family (consisting of Anthony J. Bruno, Vincent J. Bruno, James A. Bruno and any of their siblings, lineal descendants, lineal descendants of such siblings, any of their respective spouses, or any trust established for any of their benefit) who might otherwise be an Acquiring Person by reason of any deemed beneficial ownership arising from arrangements that may be entered into among members of such family. The amendment dated as of October 27, 1996 to the Rights Agreement exempted Parent and the Purchaser from the definition of "Acquiring Person" to the extent of (i) any acquisition of Shares arising by virtue of the Support Agreement and (ii) any acquisitions of Shares pursuant to the Offer. Until the Distribution Date, (i) the Rights will be evidenced by the certificates for Shares and will be transferred with and only with such certificates for Shares, (ii) new certificates for Shares will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for outstanding Shares will also constitute the transfer of the Rights associated with the Shares represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire, unless earlier redeemed by the Company as described below, at the close of business on the earlier of (i) June 30, 1997 or (ii) the consummation date of a transaction (including the Merger) pursuant to which the Company merges or consolidates with another entity, which transaction shall have been approved by the Board of Directors of the Company if at the time of such approval the Board of Directors of the Company then includes one or more "Continuing Directors" and a majority of such Continuing Directors shall have joined in such approval. The term "Continuing Director" means any member of the Board of Directors of the Company who was a member of the Board of Directors of the Company prior to the date of the Rights Agreement and any person who is subsequently elected to the Board of Directors of the Company if such person is recommended or approved by a majority of the Continuing Directors, but such term 11 14 does not include an Acquiring Person, or an affiliate or associate of an Acquiring Person, or any representative of the foregoing entities. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Shares as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. In the event that an Acquiring Person becomes the beneficial owner of 10% or more of the then outstanding Shares (unless such acquisition is made pursuant to a tender or exchange offer for all outstanding Shares at a price determined by a majority of the independent directors of the Company who are not representatives, nominees, affiliates or associates of an Acquiring Person to be fair and otherwise in the best interest of the Company and its shareholders), each holder of a Right will thereafter have the right to receive, upon exercise, Shares (or, in certain circumstances, cash, property or other securities of the Company), having a value equal to two times the Exercise Price of the Right. The "Exercise Price" is the Purchase Price times the number of Shares associated with each Right (currently, one). Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph (the "Flip-In Events"), all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of any of the Flip-In Events set forth above until such time as the Rights are no longer redeemable by the Company as set forth below. In the event that, following the Stock Acquisition Date, (i) the Company engages in a merger or business combination transaction in which the Company is not the surviving corporation (other than a merger that follows a tender offer determined to be fair to the shareholders of the Company, as described in the preceding paragraph); (ii) the Company engages in a merger or business combination transaction in which the Company is the surviving corporation and the Shares are changed or exchanged (other than a merger that follows a tender offer determined to be fair to the shareholders of the Company, as described in the preceding paragraph); or (iii) 50% or more of the Company's assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights that have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise of the Right, common stock of the acquiring corporation having a value equal to two times the Exercise Price of the Right. The Purchase Price payable, and the number of Shares or other securities or property issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Shares, (ii) if holders of the Shares are granted certain rights or warrants to subscribe for Shares, or (iii) upon the distribution to holders of the Shares of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional shares will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Shares on the last trading date prior to the date of exercise. At any time until 10 days following the Stock Acquisition Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. Immediately upon the action of the Board of Directors of the Company ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price. The Board of Directors of the Company has the right to redeem all or a portion of the Rights following the occurrence of a Flip-In Event by exchanging Shares for outstanding Rights at a ratio of one to one. Upon exercise of the exchange feature, Rights held by all shareholders will be 12 15 exchanged (on a pro rata basis if less than all the Rights are to be exchanged), other than those held by an Acquiring Person, which in accordance with the terms of the plan would have become null and void. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to shareholders or to the Company, shareholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Shares (or other consideration) of the Company as set forth above. Any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board of Directors of the Company in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. 5. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT Set forth below is certain selected consolidated financial information with respect to Parent and its subsidiaries excerpted from the information contained in Parent's 1996 Annual Report on Form 10-K (the "Parent 10-K") filed with the Commission under the Exchange Act, Parent's 1996 Annual Report to Stockholders (the "Parent Annual Report") and Parent's Quarterly Report on Form 10-Q for the period ending August 21, 1996 (the "Parent 10-Q"). More comprehensive financial information is included in the Parent 10-Q, the Parent 10-K, the Parent Annual Report and other documents filed by Parent with the Commission, and the following summary is qualified in its entirety by reference to the Parent 10-Q, the Parent 10-K, the Parent Annual Report and such other documents and all the financial information (including any related notes) contained therein. The Parent 10-Q, the Parent 10-K, the Parent Annual Report and such other documents should be available for inspection and copies thereof should be obtainable in the manner set forth in Section 9 of the Offer to Purchase under "Available Information." 13 16 REVCO D.S., INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN MILLIONS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED FISCAL QUARTER ENDED ---------------------------------- --------------------- JUNE 1 JUNE 3, MAY 28, AUG. 24, AUG. 25, 1996 1995 1994 1996 1995 -------- -------- -------- -------- -------- SUMMARY OF EARNINGS DATA: Net sales.......................... $5,087.7 $4,431.9 $2,504.0 $1,179.6 $1,076.7 Operating profit................... 206.2 175.7 100.5 37.9 31.0 Net income......................... 76.2 58.3 38.7 14.4 8.4 Net income per share of common stock........................... $ 1.14 $ 0.91 $ 0.77 $ 0.21 $ 0.13 BALANCE SHEET DATA:(1) Total current assets............... $1,116.8 $1,089.0 $1,148.7 Total assets....................... 2,133.5 2,149.8 2,151.2 Total current liabilities.......... 703.5 689.5 697.5 Total liabilities.................. 1,264.9 1,376.7 1,277.0 Total stockholder's equity......... $ 868.6 $ 773.1 $ 874.2 - --------------- (1) At period end.
6. CONTACTS AND TRANSACTIONS WITH THE COMPANY; BACKGROUND OF THE AMENDED OFFER On September 10, 1996, the Purchaser commenced a tender offer to purchase all outstanding Shares at $15 per Share in cash, as set forth in the Offer to Purchase. Certain contacts with the Company prior to September 10, 1996 are described in Section 11 of the Offer to Purchase. On September 13, 1996, the Purchaser delivered a demand (the "Demand") to inspect the securityholder lists and related corporate records of the Company pursuant to Section 16.02 of the Alabama Business Corporation Act (the "ABCA"). On September 17, 1996, the Company filed a complaint in Circuit Court of Jefferson County, Alabama, Bessemer Division (the "State Court"), seeking clarification of the Demand and a temporary restraining order and temporary and permanent injunctions preventing the Purchaser from enforcing a portion of the Demand. On September 18, 1996, the Purchaser filed a notice of removal removing the matter before the State Court to the United States District Court in the Northern District of Alabama (the "Federal Court"). After discussions between representatives of the Purchaser and the Company, the Purchaser modified the Demand and the Company agreed to comply with the Demand, as modified. On September 23, 1996, Anthony J. Bruno, Chairman and Chief Executive Officer of the Company, sent to D. Dwayne Hoven, President and Chief Executive Officer of Parent, the following letter together with a proposed form of confidentiality agreement: September 23, 1996 Mr. D. Dwayne Hoven President and Chief Executive Officer Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, Ohio 44087 Dear Dwayne: The Board of Directors of Big B, Inc. has carefully considered the terms and conditions of Revco's pending tender offer for Big B common stock and the proposed subsequent merger of 14 17 Big B with a subsidiary of Revco. On behalf of the Board of Directors, I wish to advise you that the Board of Directors has unanimously determined that Revco's pending tender offer and related merger, as was the case with Revco's previous acquisition proposal, is not in the best interests of Big B's shareholders. The foregoing conclusion is based on the Board of Director's determination that the per share consideration in Revco's tender offer and proposed merger of $15.00 in cash is inadequate. The Board of Directors has authorized Big B's management, with the assistance of its financial and legal advisors, to actively explore alternatives to maximizing Big B shareholder value. We have already received inquiries from other interested parties. The Board of Directors has authorized Big B's management to provide confidential information concerning Big B's business and operations to any interested party, including Revco, who enters into a Confidentiality Agreement which is acceptable to us. In addition, in order to allow sufficient time to develop and consider possible alternatives, the Board has directed Big B's management to implement a Shareholder Rights Plan. Although the Board of Directors has made no decision to sell the Company, the Board will give careful consideration to any acquisition proposal that appropriately reflects Big B's intrinsic value. We note that Revco has indicated in its Offer to Purchase that it "intends to seek to negotiate with" Big B. If this remains the case, we invite you to enter into a Confidentiality Agreement with us. In such circumstances, we would be happy to meet with you, to make our advisors available to you and to provide you access to our confidential financial information. For your convenience, we have enclosed a form of Confidentiality Agreement which is acceptable to us and which we will propose be executed by all interested parties. Very truly yours, /s/ Anthony J. Bruno Anthony J. Bruno Chairman of the Board and Chief Executive Officer On September 23, 1996, the Company filed a complaint in an action entitled Big B, Inc. v. Revco D.S., Inc. and RDS Acquisition Inc. in the State Court (the "Rights Action") requesting the State Court to declare the Company's shareholder rights plan valid and lawful and to enjoin temporarily, preliminarily and permanently the Purchaser and all others acting in concert with it from bringing any action attacking the Company's shareholder rights plan or the adoption by the Company of the Company's shareholder rights plan. On September 23, 1996, the Purchaser filed a notice of removal removing the Rights Action from the State Court to the Federal Court. On September 27, 1996, Mr. Hoven sent to Mr. Bruno the following letter: September 27, 1996 Mr. Anthony J. Bruno Chairman of the Board and Chief Executive Officer Big B, Inc. 2600 Morgan Road, S.E. Bessemer, AL 35023 Dear Anthony: We have reviewed the proposed form of confidentiality agreement that you sent us, and we have proposed changes in your form of agreement. Unfortunately, it appears that Big B has not 15 18 been willing to negotiate any meaningful changes in its terms, which we believe are seriously detrimental to Revco and to Big B's shareholders. We are willing to negotiate a reasonable confidentiality agreement that will allow us access to confidential information available to other bidders to ensure that your shareholders receive the highest value for their shares. However, we have a number of serious problems with the form of confidentiality agreement you provided us: - Your proposed agreement and poison pill would prohibit your shareholders from accepting our offer or any other offer not approved by your Board at least until January 31, 1997. Indeed, we or any other party could be prohibited from consummating an offer until June 30 of next year due to the poison pill. We cannot conceive of any reason why you need as much as four months (or even longer) to determine whether an offer superior to our $15 offer is available to your shareholders. We are willing to agree to delay consummating our offer for a reasonable period of time that will permit you to solicit competing bids, but we do not believe the substantial delay you envision is justified. - Your proposed form of agreement would require us to give up all our rights as a shareholder to challenge the validity of your poison pill even though you have yourself instituted litigation against us on that very subject. - Your proposed agreement would prohibit us from soliciting your shareholders to determine whether they wish to eliminate your poison pill in order to accept our offer or any other offer at least until January 31, 1997. In fact, your proposed agreement does not require you to remove your poison pill and does not prevent you from interposing other obstacles to our offer once a reasonable period to solicit bids has elapsed. - Your proposed agreement does not obligate you to provide Revco with equal access to confidential information with other parties and an equal opportunity to bid. We were disappointed that your Board of Directors chose to adopt a poison pill that interferes with the rights of your shareholders to accept an offer from Revco or any other party. If your Board believes that our $15 cash offer is inadequate, we would have much preferred to engage in meaningful negotiations with you to determine whether an agreement for a mutually acceptable transaction could be reached. We are still willing to discuss our offer with you and are prepared to meet at any time and place with you and your advisors. On September 25, 1996, the Hart-Scott-Rodino waiting period applicable to our offer expired. The only obstacle to your shareholders now accepting our offer is your poison pill. The fact is that the only real offer to acquire Big B has been made by Revco, and there is no assurance that any other party will make an offer. Even if another party is willing to make an offer to acquire Big B, there is no assurance that that offer can be consummated or will not be substantially delayed for antitrust or other reasons. Your Board of Directors should allow your shareholders to decide on their own whether they wish to accept our offer. If any other party is prepared to make a superior offer that can be consummated, they do not need four months (or even longer) to do so. Enclosed for your information is the form of confidentiality agreement that we would be willing to sign. We hope you will reconsider your position against negotiating an agreement on this basis. 16 19 We look forward to hearing from you and discussing a mutually acceptable agreement that will result in the best, most expeditious transaction for your shareholders. Sincerely, /s/ D. Dwayne Hoven D. Dwayne Hoven A copy of a revised form of confidentiality agreement incorporating Parent's proposed changes was enclosed with the above letter. On September 30, 1996, the Purchaser and Parent filed with the Federal Court (i) an answer and counterclaims in response to the Rights Action seeking declaratory and injunctive relief and (ii) a motion for a preliminary injunction and expedited hearing seeking to enjoin, among other things, the operation and enforcement of the Rights Agreement and an order compelling the Company to redeem the Rights to be issued pursuant to the Rights Agreement. On October 1, 1996, Mr. Bruno sent Mr. Hoven the following letter: October 1, 1996 Mr. Dwayne Hoven President and Chief Executive Officer Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, Ohio 44087 Dear Dwayne: I am writing in response to your letter to me of September 27, 1996 with which you included your proposed revisions to the confidentiality agreement that I sent you on September 23, 1996. As you know, one of Big B's objectives in the process that we have undertaken is to promote the interests of Big B's shareholders by seeking through confidentiality agreements to discourage potential acquirors of Big B from efforts to minimize the value available to Big B's shareholders through litigation pressure or other tactics. If you are sincere in your repeatedly stated desire to work constructively with Big B, I encourage you to join the other interested parties who are proceeding consistent with this objective and promptly execute a confidentiality agreement on terms that Big B can accept. Provided that a suitable agreement can be reached, I and the other members of the Big B Board of Directors would welcome Revco's active participation in the process. In response to the specifics of your proposed confidentiality agreement, let me begin by noting that a number of other potentially interested parties have executed confidentiality agreements providing for the same standstill restrictions that were included in the proposed form of confidentiality agreement that I sent to you on September 23 and that no party other than Revco has advised Big B that it will not execute a confidentiality agreement because of reservations concerning such standstill provisions. We believe that the responses from these parties, each of whom has expressed an interest in developing an acquisition proposal for Big B and is mindful that others are doing the same, clearly demonstrate that the standstill restrictions as proposed are entirely reasonable. Even though what we have proposed has been found to be reasonable by all of the others, Big B would still prefer to reach a mutually acceptable confidentiality agreement with Revco. In the interests of doing so, I am enclosing a revised form of confidentiality agreement that Big B is prepared to execute with Revco and which I believe appropriately balances Big B's and Revco's interests. In order to preserve the level playing field for Revco and the other interested parties that we have sought to maintain, we will be communicating with each of the other parties with 17 20 whom we have executed confidentiality agreements to offer to revise their agreements in accordance with the revised form being provided to you, whether or not we reach agreement with you. Although the revised form of confidentiality agreement is self-explanatory, several points deserve emphasis: - We have retained the proposed December 15, 1996 termination date previously discussed with your counsel rather than your November 15 proposal. The preliminary results of the process Big B has undertaken has confirmed us in our initial judgment that the additional time may be necessary for certain parties to formulate their best proposals. We have, however, sought to address your other expressed concerns by providing for an earlier termination in the event that Big B enters into a definitive and binding agreement to be acquired or takes certain other specified actions. - We continue to believe that pursuit by Revco of rights plan litigation at this juncture is clearly premature and would be inimical to the process under which Big B is seeking to develop and consider in an orderly manner alternative proposals. We have accordingly proposed that such litigation be stayed by both parties at this time but have agreed that it could be pursued once the termination date occurs. - We remain unwilling to include several Big B covenants proposed by you because we believe that they would generally have the effect of inappropriately restricting the Big B Board of Directors' ability to comply with their fiduciary responsibilities while potentially chilling interest on the part of other parties. We have, however, sought to address your stated concerns that Big B not take certain kinds of actions while Revco's actions are restricted by accelerating the termination date under the circumstances described above. In any event, neither the revised confidentiality agreement nor the original proposed form of confidentiality agreement would restrict Revco's ability to seek judicial redress (other than concerning the rights plan as described above) at any time for actions which are taken by Big B or the Big B Board of Directors and which Revco believes violates its legal rights. I remain hopeful that you will see the benefits for Revco that an agreement promptly be reached which evidences Revco's willingness to be part of an orderly process and which affords Revco access to Big B's confidential financial information. Whether or not Revco chooses to exclude itself from the confidential information, I assure you that the Big B Board of Directors will continue to act in the best interests of Big B's shareholders and will carefully consider any acquisition proposal that is timely received from Revco or any other party that appropriately reflects Big B's intrinsic value. Very truly yours, /s/ Anthony J. Bruno Anthony J. Bruno Chairman of the Board and Chief Executive Officer On October 1, 1996, the Company filed in the Federal Court a motion to remand the Rights Action to the State Court. The Federal Court heard arguments with respect to the Company's motion to remand at a hearing held on October 2, 1996 and issued an order denying the motion on October 3, 1996. On October 3, 1996, Parent entered into a Confidentiality Agreement with the Company (the "Confidentiality Agreement"). Pursuant to the Confidentiality Agreement, Parent agreed that from October 3, 1996 through the Termination Date (as defined below), neither Parent nor any of Parent's affiliates would, without the prior written consent of the Company: (i) acquire, offer to 18 21 acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the Company; (ii) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are used in the rules of the Commission) whether before or after the formal commencement of any such solicitation, or seek to advise or influence any person or entity with respect to the voting of, any voting securities of the Company; (iii) call, or seek to call, a meeting of the Company's shareholders or execute any written consent or initiate any shareholder proposal for action by shareholders of the Company; (iv) otherwise act, alone or in concert with others, to seek to acquire control of the Company or influence the Board of Directors of the Company, management or policies of the Company; (v) bring any action, or otherwise act through judicial process, to contest the validity of the Company's shareholder rights plan or to seek the redemption of the Rights; or (vi) induce any other person or entity to do any of the foregoing; provided, however, that the foregoing shall not prevent (x) any cash tender offer for all outstanding Shares at a price of not less than $15 per Share, and any filings required in connection therewith, (y) any transaction approved by the Board of Directors of the Company or (z) any action or other legal proceeding to enforce the Confidentiality Agreement or any other action or legal proceeding not restricted pursuant to clause (v) above. In furtherance of the agreement set forth in clause (v) above, the Company and Parent agreed to seek a stay of the Rights Action and to take no action to seek a lifting of such stay until the Termination Date. For purposes of the Confidentiality Agreement, "Termination Date" means the earliest to occur of (w) November 30, 1996, (x) the execution by the Company of a definitive and binding agreement providing for the acquisition of the Company, (y) the adoption of any amendment to the Company's existing shareholder rights plan in any manner adverse to Parent or the adoption of any new shareholder rights plan, or (z) any public announcement by the Company of any proposal to amend its Articles (Certificate) of Incorporation. On October 14, 1996, officers and representatives of Parent met with Arthur M. Jones, Sr., President of the Company, and reviewed documents and other information made available by the Company as part of Parent's due diligence investigation of the Company. On October 15, 1996, Parent and the Purchaser received a letter from Robinson-Humphrey on behalf of the Company indicating, among other things, that any person interested in acquiring the Company should submit a written bid package, including a proposed form of merger agreement, by 5:00 p.m. on October 25, 1996. Prior to 5:00 p.m. on October 25, 1996, Mr. Hoven sent the following letter to the Board of Directors of the Company: October 25, 1996 The Board of Directors Big B, Inc. In care of Mr. Charlie Shelton The Robinson-Humphrey Company, Inc. Atlanta Financial Center 3333 Peachtree Road, NE Atlanta, GA 30326 Dear Sirs: We appreciate the opportunity to participate in the process you've established for the sale of Big B, Inc. The due diligence we've done so far, including our conversation with Mac Jones, has been very helpful. In light of what we've learned, we are pleased to present you with the following proposal for the combination of Revco and Big B. 19 22 Revco will increase the cash price for all outstanding Big B shares to $17 per share. The shares will be acquired pursuant to a cash tender offer and a subsequent cash merger in which all shares not tendered pursuant to the tender offer would be acquired for the tender offer price. As set forth in the proposed form of merger agreement attached hereto as Annex I, Revco would amend its current all cash tender offer to increase the per share offer price to $17 for all outstanding Big B shares as well as to make the tender offer subject to the terms and conditions of the enclosed form of merger agreement. In addition to the merger agreement, Revco would simultaneously enter into a support agreement substantially in the form attached hereto as Annex II pursuant to which, among other things, the directors, executive officers and certain trusts related thereto would agree to tender their shares to Revco. Revco believes that this proposal would provide full and superior value to your shareholders. In addition, for the reasons outlined below, a transaction between Revco and Big B would be consummated more quickly than a transaction with any other potential acquiror. In reviewing our proposal, please note: - Revco's offer is an all cash offer that is, therefore, not subject to any valuation uncertainty. - Revco's offer is not conditioned on its ability to secure financing, and Revco has enough capacity under its current credit facility to consummate the transactions contemplated hereby (including refinancing of Big B's debt). You already have a copy of Revco's bank credit agreement. - As you know, Revco has already cleared the Hart-Scott-Rodino antitrust waiting period. Revco does not foresee any other regulatory impediments to a speedy consummation of a transaction. - This proposal has been approved by Revco's Board of Directors. The only third party approvals necessary in order to consummate the transactions contemplated hereby are (i) if necessary, the approval of the second-step merger by the shareholders of Big B and (ii) any approvals applicable to Big B as described in the disclosure letter to the merger agreement. - Revco believes that its acquisition of Big B can be consummated very quickly. Because Revco's offer is not subject to financing or regulatory contingencies, Revco's amended tender offer can be completed in 10 business days following adequate dissemination of our price increase. The time necessary to consummate the second-step merger would depend upon whether Revco could benefit from Alabama's short-form merger statute, but in any event would be limited to the time necessary to satisfy applicable statutory notice provisions and, if necessary, to hold a shareholders meeting. - Revco is prepared to sign and deliver the form of agreements attached hereto upon satisfactory completion by Big B of the necessary disclosure letter and the provision of information necessary to fill in the blanks. - Attached to this letter as Annex III is a working party list that contains information for contacting members of our team. Georges Azzam of Salomon Brothers Inc will be available to discuss financial issues. Richard Hall of Cravath, Swaine & Moore and Jack Staph of Revco are our principal legal contacts. Feel free to contact either of them or any member of our team at any time with any questions or comments. This proposal will remain open until midnight on Sunday, October 27, 1996, unless definitive agreements are entered into by Revco, Big B and the shareholders of Big B referred to above prior to that time. No contract or agreement relating to the matters described in this proposal will be deemed to exist between Revco and Big B or any of its shareholders unless and until 20 23 definitive written agreements have been signed and delivered by Revco, Big B and such shareholders. To that end, we would appreciate hearing from you as early as possible so we can coordinate our discussions as quickly as possible. I look forward to completion of a successful transaction. Very truly yours, /s/ D. Dwayne Hoven D. Dwayne Hoven President and Chief Executive Officer Revco D.S., Inc. On October 26 and 27, 1996, negotiations took place between representatives of Parent and the Company concerning the price and other terms of Parent's revised proposal. In the course of such negotiations, Parent increased its proposed price to $17.25 per Share. On October 27, 1996 the Board of Directors of the Company unanimously duly adopted the Merger Agreement, including the Plan of Merger contained therein, approved the Offer and the Merger, determined that the Offer and the Merger are fair to, and in the best interests of, the shareholders of the Company, and recommended that shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer. Following such approval by the Board of Directors of the Company, Parent, the Purchaser and the Company executed and delivered the Merger Agreement and Parent, the Purchaser and the Shareholders executed and delivered the Support Agreement. On October 28, 1996, the Company and Parent jointly issued a press release announcing the execution of such agreements, the increase in the Offer Price to $17.25 per Share and the extension of the Offer to 9:00 a.m. on Friday, November 15, 1996. 7. PURPOSE OF THE OFFER AND THE MERGER; THE OPERATIVE AGREEMENTS Purpose of the Offer and the Merger The purpose of the Offer and the Merger is to enable Parent to acquire control of, and the entire equity interest in, the Company. In the Merger Agreement, the Purchaser and the Company have agreed to effect the Merger in accordance with the provisions of the Merger Agreement as promptly as practicable following expiration of the Offer. In addition, the Purchaser has entered into the Support Agreement wherein certain holders of Shares, who are executive officers and directors of the Company and certain related entities, have agreed, among other things, to vote all Shares then beneficially owned by them in favor of the Merger, if a shareholder vote is required to approve the Merger. Set forth below is a summary of the material provisions of the Merger Agreement, a copy of which was filed as Exhibit (c)(7) to Amendment No. 14 (the "14D-1 Amendment") to the Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D of the Purchaser and Parent filed with the Commission in connection with the amendment to the Offer (the "Schedule 14D-1"), and the material provisions of the Support Agreement, a copy of which was filed as Exhibit (c)(8) to the 14D-1 Amendment. Such Exhibits should be available for inspection and copies should be obtainable, in the manner set forth in Section 8 of the Offer to Purchase (except that they will not be available at the regional offices of the Commission). The following summary is qualified in its entirety by reference to the Merger Agreement and the Support Agreement. 21 24 The Merger Agreement The Offer. In the Merger Agreement, the Purchaser has agreed, among other things, to amend the Offer (a) to increase the purchase price offered from $15 per Share to $17.25 per Share and (b) to amend and restate the conditions to the Offer to those set forth in Section 8 of this Supplement. The Merger Agreement provides that, without the consent of the Company, the Purchaser will not (a) reduce the number of Shares sought in the Offer, (b) amend the Offer so that it is at a price less than $17.25 per Share, (c) modify, in any manner adverse to the holders of Shares, or add to the conditions set forth in Section 8 of this Supplement, (d) except as provided in the next sentence, extend the Offer, (e) change the form of consideration payable in the Offer or (f) reduce or waive the Minimum Tender Condition. Notwithstanding the foregoing, the Purchaser may, without the consent of the Company, (a) extend the Offer if, at the scheduled expiration date of the Offer, any of the conditions to the Purchaser's obligation to purchase the Shares are not satisfied or waived, until such time as such conditions are satisfied or waived, (b) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer and (c) extend the Offer for a period of not more than 10 business days beyond November 15, 1996, if on the date of such extension less than 80% of the outstanding Shares on a fully diluted basis have been validly tendered and not properly withdrawn pursuant to the Offer. The Merger Agreement provides that, without limiting the right of the Purchaser to extend the Offer pursuant to the immediately preceding sentence, in the event that (i) the Minimum Tender Condition has not been satisfied or (ii) any condition set forth in paragraph (a) of Section 8 of this Supplement is not satisfied at the scheduled expiration date of the Offer, the Purchaser shall, and Parent shall cause the Purchaser to, extend the expiration date of the Offer in increments of five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Tender Condition and such other condition or Parent reasonably determines that any condition to the Offer is not capable of being satisfied on or prior to December 24, 1996, (y) the termination of the Merger Agreement in accordance with its terms and (z) December 24, 1996; provided, however, that if any person or group (within the meaning of Section 13(d)(3) of the Exchange Act) has publicly made a Takeover Proposal (as defined below) or disclosed in writing its intention to make a Takeover Proposal, the Purchaser shall not be required pursuant to this sentence to extend the Offer for more than 20 calendar days beyond the date on which such Takeover Proposal was publicly announced or such intention was disclosed, if at the end of such 20 calendar day period such Takeover Proposal shall not have then been withdrawn and the Minimum Tender Condition shall not then have been satisfied. The Merger. The Merger Agreement provides that, following the satisfaction or waiver of the conditions set forth therein, either, at Parent's election, the Purchaser will be merged with and into the Company, with the Company continuing as the surviving corporation (the "Surviving Corporation"), or the Company will be merged with and into the Purchaser, with the Purchaser continuing as the Surviving Corporation, and in either event, each then outstanding Share (other than Shares held in the treasury of the Company, Shares owned by Parent, the Purchaser or any other subsidiary of Parent or of the Company, or Shares held by shareholders who properly exercise their dissenters' rights under Alabama law) will be converted into the right to receive $17.25 per Share in cash, without interest. For a description of certain dissenters' rights available to shareholders upon consummation of the Offer, see Section 12 of the Offer to Purchase. Representations and Warranties. The Merger Agreement contains representations and warranties by the Company with respect to, among other things, its organization, its capitalization, its authority to enter into the Merger Agreement, its filings with the Commission and its financial statements, the absence of certain changes in its business, the information supplied by the Company in connection with the Offer, the Company's employee benefit plans and other compensation arrangements, the absence of certain litigation with respect to the Company, compliance by the Company with applicable law, the inapplicability of the Rights Agreement to the Offer and the 22 25 Merger, tax matters relating to the Company, certain facts and the absence of certain provisions of the articles of incorporation and By-laws of the Company's subsidiaries related to certain state anti-takeover statutes and real property matters. The Merger Agreement also contains representations and warranties by Parent and the Purchaser with respect to, among other things, their organization, their authority to enter into the Operative Agreements, the information supplied by them in connection with the Offer, their ability to finance the purchase of the Shares and the absence of certain litigation with respect to Parent. Covenants of the Company. In the Merger Agreement, the Company has agreed that, among other things, during the period from the date of the Merger Agreement until the time the Merger is effective, (a) the Company and its subsidiaries will carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as conducted through the date of the Merger Agreement and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses is unimpaired at the effectiveness of the Merger, and (b) the Company will not, and will not permit any of its subsidiaries to: (i)(x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital shares, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent (except for regular quarterly dividends on the Shares declared and paid at times consistent with past practice in an amount not in excess of $0.05 per Share per quarter), (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of the Company or (z) repurchase, redeem or otherwise acquire, any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any capital shares, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than (x) the issuance of Shares upon the exercise of Employee Options (as defined below) outstanding on the date of the Merger Agreement in accordance with their present terms and (y) the issuance of Shares upon conversion of the Convertible Debentures); (iii) amend its Articles (Certificate) of Incorporation, By-laws or other comparable charter or organizational documents; (iv) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (y) any assets that are material, individually or in the aggregate, to the Company and its subsidiaries taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice or in the fulfillment of contracts in existence on date of the Merger Agreement and copies of which have been made available to Parent; (v) sell, lease, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its material properties or assets, except sales of inventory in the ordinary course of business consistent with past practice; (vi) (y) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice, or (z) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any direct or indirect wholly owned subsidiary of the Company; (vii) make or agree to make any new capital expenditure or expenditures which, individually, is in excess of $500,000 or, in the aggregate, are in excess of $5 million; (viii) make any tax election or settle or compromise any income tax liability; (ix) except for certain items previously disclosed to Parent, grant to any executive officer any increase in compensation or in severance or 23 26 termination pay, except in each case as was required under employment agreements in effect as of the date of the Merger Agreement, or enter into any employment, severance or termination agreement with any executive officer; (x) adopt or implement any change in accounting methods, principles or practices materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles; (xi) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than any payment required pursuant to an order of a court of competent jurisdiction and the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the documents filed with the Commission and publicly available prior to the date of the Merger Agreement, or incurred in the ordinary course of business consistent with past practice, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; or (xii) authorize any of, or commit or agree to take any of, the foregoing actions. In addition to the foregoing, the Company has agreed in the Merger Agreement that it will not take any action, or permit any of its subsidiaries to take any action, that would, or could reasonably be expected to, result in (a) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality becoming untrue, (b) any of such representations and warranties that are not so qualified becoming untrue in any material respect or (c) except as permitted pursuant to the provision described below under "Prohibition on Solicitation", any of the conditions to the Offer set forth in Section 8 to this Supplement or any of the conditions to the Merger set forth in the Merger Agreement not being satisfied. Prohibition on Solicitation. Pursuant to the Merger Agreement, the Company has agreed that the Company and its officers, directors, employees, representatives and agents shall immediately cease any discussions or negotiations with any parties that may be ongoing with respect to any Takeover Proposal. In addition, the Company shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or advisor retained by it or any of its subsidiaries to (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that, in the event that prior to the acceptance for payment of Shares pursuant to the Offer an unsolicited Takeover Proposal is made and the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Company may deliver a written notice to that effect promptly to Parent and thereafter, subject to compliance with the provisions described in the second succeeding paragraph, (x) furnish, pursuant to a confidentiality agreement that is not less favorable to the Company than the Confidentiality Agreement, information with respect to the Company to the person making such unsolicited Takeover Proposal and (y) participate in discussions or negotiations regarding such Takeover Proposal. Without limiting the foregoing, the Merger Agreement provides that any violation of the restrictions set forth in the preceding sentence by any director or employee of the Company or any of its subsidiaries or any investment banker, financial advisor, attorney, accountant or other advisor, representative or agent of the Company or any of its subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its subsidiaries or otherwise, shall be deemed to be a breach of the provisions described in this paragraph by the Company. For purposes of the Merger Agreement, "Takeover Proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase in any manner of a substantial amount of assets of the Company and subsidiaries (taken as a whole) or an interest in any substantial amount of voting securities of the Company or any Significant Subsidiary (as defined in the Merger Agreement), any tender offer or exchange offer that if consummated would result in any 24 27 person beneficially owning any voting securities of the Company or Significant Subsidiary (as defined in the Merger Agreement), any merger, consolidation, business combination, sale of all or substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by the Operative Agreements, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Offer or the Merger or that would reasonably be expected to dilute materially the benefits to Parent or the Purchaser of the transactions contemplated by the Operative Agreements. The Merger Agreement also provides that neither the Board of Directors of the Company nor any committee thereof may (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub, the adoption, approval or recommendation by such Board of Directors or any such committee of the Offer, the Merger Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any Takeover Proposal or take any action, or make any determination, under the Rights Agreement to facilitate any Takeover Proposal or (iii) cause or permit the Company to enter into any agreement with respect to any Takeover Proposal. Notwithstanding the foregoing, in the event that prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Board of Directors of the Company may withdraw or modify its adoption, approval or recommendation of the Offer, the Merger Agreement and the Merger at any time following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors of the Company has received a Superior Proposal and identifying the person making such Superior Proposal. For purposes of the Merger Agreement, a "Superior Proposal" means any bona fide Takeover Proposal for all outstanding Shares on terms that the Board of Directors of the Company determines in its good faith judgment (based on the written opinion of Robinson-Humphrey or another financial advisor of nationally recognized reputation, which opinion takes into account all the terms and conditions of the Takeover Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation) are not more favorable to the person or persons making such Takeover Proposal and provide greater present value to all the Company's shareholders, in each case, than the Merger Agreement, the Offer and the Merger taken as a whole. In addition to the obligations of the Company described in the two preceding paragraphs, the Merger Agreement provides that the Company shall immediately advise Parent orally and in writing of any request for information or of any Takeover Proposal, or of any inquiry with respect to or which could lead to any Takeover Proposal and the material terms and conditions of such request, Takeover Proposal or of inquiry and the identity of the person making such request, Takeover Proposal or inquiry. The Company shall keep Parent fully informed of the status and material terms (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry. The Merger Agreement provides that nothing described in the preceding three paragraphs prohibits the Company from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's shareholders if the Board of Directors of the Company determines in good faith, after consultation with outside counsel, failure so to disclose would be inconsistent with its fiduciary duties to the Company's shareholders under applicable law; provided, however, that neither the Company nor its Board of Directors nor any committee thereof shall, except as permitted by the provisions described in the second preceding paragraph, withdraw or modify, or propose to withdraw or modify, its position with respect to the Offer, the Merger Agreement or the Merger or approve or recommend, or propose to approve or recommend, a Takeover Proposal. 25 28 Shareholder Approval; Preparation of Proxy Statement. The Merger Agreement provides that if shareholder approval of the Merger Agreement is required by law, the Company, shall, at Parent's request, as soon as practicable following the expiration of the Offer, duly call, give notice of, convene and hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose of approving the Merger Agreement and the Merger. The Merger Agreement also provides that the Company shall, through its Board of Directors, recommend to its shareholders approval of the Merger Agreement, including the Plan of Merger contained therein, and the transactions contemplated by the Operative Agreements, except to the extent that the Board of Directors of the Company shall have withdrawn or modified its approval or recommendation of the Offer, the Merger Agreement or the Merger as permitted by the provisions described in the second paragraph under "Prohibition on Solicitation" above. Further, the Company agreed that its obligations described in the first sentence of this paragraph would not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any Takeover Proposal or (ii) the withdrawal or modification by the Board of Directors of the Company of its approval or recommendation of the Offer, the Merger Agreement or the Merger. The Merger Agreement also provides that, if requested by Parent, the Company shall from time to time postpone or adjourn the Shareholders Meeting to allow Parent and the Company additional time to seek proxies in favor of approval of the Merger Agreement and the transactions contemplated by the Operative Agreements. The Merger Agreement provides that if shareholder approval of the Merger Agreement is required by law, the Company shall at Parent's request, as soon as practicable following the expiration of the Offer, prepare and file a preliminary Proxy Statement with the Commission and shall use its best efforts to respond to any comments of the Commission or its staff and to cause the Proxy Statement to be mailed to the Company's shareholders as promptly as practicable after such filing. The Merger Agreement provides that the Company shall notify Parent promptly of the receipt of any comments from the Commission or its staff and of any request by the Commission or its staff for amendments or supplements to the Proxy Statement or for additional information and shall supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. The Merger Agreement provides that if at any time prior to the approval of the Merger Agreement by the Company's shareholders there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company shall promptly prepare and mail to its shareholders such an amendment or supplement. The Merger Agreement provides that the Company shall not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. The Merger Agreement provides that Parent shall cause all Shares purchased pursuant to the Offer and all other Shares owned by the Purchaser or any other subsidiary of Parent to be voted in favor of the approval of the Merger Agreement. Access to Information; Confidentiality. Pursuant to the Merger Agreement, from the date of the Merger Agreement to the effectiveness of the Merger, subject to the appropriate provisions of confidentiality agreements applicable to the Company, the Company shall, and shall cause each of its subsidiaries to, afford to Parent, and to Parent's officers, employees, accountants, counsel, financial advisors and other representatives, reasonable access during normal business hours during the period prior to the effectiveness of the Merger to all their respective properties, books, contracts, commitments, personnel and records 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 by it during such period pursuant to the requirements of Federal or state securities laws and (ii) all other information concerning its business, properties and personnel as Parent may reasonably request. The Merger Agreement provides that except as required by law, Parent shall hold, and shall cause its officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any nonpublic information in confidence until such time as such information otherwise becomes publicly available (otherwise than through the wrongful act of any such person) 26 29 and shall use its best efforts to ensure that such persons do not disclose such information to others without the prior written consent of the Company. The Merger Agreement provides that in the event of termination of the Merger Agreement for any reason, Parent shall promptly return or destroy all documents containing nonpublic information so obtained from the Company or any of its subsidiaries and any copies made of such documents. The Merger Agreement provides that the Company or its representatives have requested the return or destruction of confidential information of the Company provided by the Company or its representatives from each of the parties that executed confidentiality or standstill agreements following public announcement of the existing Offer and the Company agreed not to waive, amend or modify any provision of any such agreement without prior written consent of Parent. Best Efforts; Notification. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, unless, to the extent permitted by the provisions described in the second paragraph under "Prohibition on Solicitation" above, the Board of Directors of the Company approves or recommends a Superior Proposal, each of the parties agreed to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer and the Merger, and the other transactions contemplated by the Operative Agreements, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities (as defined in the Merger Agreement) and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging any Operative Agreement or the consummation of any of the transactions contemplated by the Operative Agreements, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, the Operative Agreements. The Merger Agreement provides that in connection with and without limiting the foregoing, the Company and its Board of Directors shall (i) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger, any Operative Agreement or any of the other transactions contemplated by the Operative Agreements and (ii) if any state takeover statute or similar statute or regulation becomes applicable to the Offer, the Merger, any Operative Agreement or any other transaction contemplated by any Operative Agreement, take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated by the Operative Agreements may be consummated as promptly as practicable on the terms contemplated by the Operative Agreements and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated by the Operative Agreements. The Merger Agreement provides that notwithstanding the foregoing, the Board of Directors of the Company shall not be prohibited from taking any action permitted by the provisions described in the second paragraph under "Prohibition on Solicitation" above. The Merger Agreement provides that the Company shall give prompt notice to Parent, and Parent or the Purchaser shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in the Merger Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the Merger Agreement. 27 30 The Rights Agreement. The Company has agreed in the Merger Agreement that, at the request of Parent upon five business days' prior notice, the Board of Directors of the Company shall redeem the Rights prior to the effectiveness of the Merger. The Company has also represented, among other things, that it has taken or will take all necessary action to (i) render the Rights inapplicable to the Offer, the Merger and the other transactions contemplated by the Operative Agreements, and (ii) ensure that a Distribution Date does not occur by reason of the announcement or consummation of the Offer, the Merger or any of the other transactions contemplated by the Operative Agreements. The Merger Agreement provides that except with the prior written consent of Parent, the Board of Directors of the Company shall not (i) amend the Rights Agreement or (ii) take any action with respect to, or make any determination under, the Rights Agreement, in each case that could have the effect of rendering the Rights applicable to the Offer, the Merger Agreement or any of the other transactions contemplated by the Operative Agreements, including any amendment or supplement to the Offer that includes a cash Offer Price that is not less than $17.25 per Share for all Shares. Board of Directors; Corporate Governance. The Merger Agreement provides that, upon the Purchaser's acceptance for payment and payment for, Shares pursuant to the Offer, the Purchaser will be entitled to designate such number of directors on the Board of Directors of the Company as will give the Purchaser, subject to compliance with Section 14(f) of the Exchange Act and the ABCA, a majority of such directors. The Merger Agreement further provides that, notwithstanding the foregoing, until the effectiveness of the Merger, the Company shall have on the Board of Directors of the Company at least three directors who were directors of the Company as of the date of the Merger Agreement. Subject to applicable law, the Company has agreed to take all action necessary to effect the election of the Purchaser's designees to the Board of Directors and in connection therewith, the Company will promptly, at the option of Parent, either increase the size of the Board of Directors of the Company and/or obtain the resignation of such number of its current directors as is necessary to enable the Purchaser designees to the Board of Directors and in connection therewith, the Company will promptly, at the option of Parent, either increase the size of the Company's Board of Directors and/or obtain the resignation of such number of its current directors as is necessary to enable the Purchaser's designees to be elected to the Board of Directors of the Company as provided above. Treatment of Stock Options; Certain Employee Benefits. Pursuant to the Merger Agreement (a) as soon as practicable following the date of the Merger Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Plans (as defined below)) shall adopt such resolutions or take such other actions as are required to adjust the terms of all outstanding employee stock options to purchase Shares ("Employee Options") and all outstanding stock appreciation rights ("SARs") heretofore granted under any stock option or stock appreciation rights plan, program or arrangement of the Company (collectively, the "Stock Plans") to provide that each vested and unvested Employee Option (and any SAR related thereto) outstanding immediately prior to the acceptance for payment of Shares pursuant to the Offer shall be cancelled in exchange for a cash payment by the Company immediately prior to the effectiveness of the Merger of an amount equal to (i) the excess, if any, of (x) the Offer Price over (y) the exercise price per Share subject to such Employee Option, multiplied by (ii) the number of Shares for which such Employee Option shall not theretofore have been exercised (the "Option Consideration"). The Merger Agreement provides that the Stock Plans shall terminate as of the effectiveness of the Merger, and the provisions in any other Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest in respect of any capital stock of the Company shall be deleted as of the effectiveness of the Merger, and the Company shall ensure that following the effectiveness of the Merger no holder of an Employee Option or SAR or any participant in any Stock Plan or other Benefit Plan shall have any right thereunder to acquire any capital stock of the Company or the Surviving Corporation. 28 31 Except as provided in the provisions in the immediately preceding paragraph, the Merger Agreement provides that Parent shall cause the Surviving Corporation to maintain for a period of one year after the effectiveness of the Merger the Benefit Plans of the Company and its subsidiaries in effect on the date of the Merger Agreement or to provide benefits for such period to employees of the Company and its subsidiaries that are not materially less favorable in the aggregate to such employees than those in effect on the date of the Merger Agreement. In the Merger Agreement, Parent agrees to cause the Surviving Corporation to honor all severance policies and agreements, deferred compensation agreements, employment agreements and death benefit agreements with the Company's officers and employees disclosed to Parent, including certain proposed additional agreements and modifications disclosed to Parent; provided, however, that in no event shall the liability of the Surviving Corporation for severance, post-termination health and other benefits, deferred compensation and acceleration or non-vested stock options under all such policies and agreements exceed $12.5 million. Parent also acknowledges in the Merger Agreement that the transactions contemplated by the Operative Agreements will constitute a change of control for purposes of the agreements described in the preceding sentence. Parent acknowledges in the Merger Agreement that, in connection with the Company's annual bonus plan for the fiscal year ending February 1, 1997, (i) the Company shall be deemed to have achieved all targets under such plan and (ii) any employee of the Company whose employment with the Company is terminated by the Company (other than termination for dishonesty or violation of Company policy) or who terminates his or her employment with the prior written consent of the Company following consummation of the Offer and prior to February 1, 1997, shall upon termination be fully vested under such plan for fiscal year 1997; provided, however, that the liability of the Company under such plan shall be $1,060,000 less any amounts attributable to employees who terminate their employment prior to February 1, 1997, without the prior written consent of Parent or whose employment with the Company is terminated prior to such date for dishonesty or violation of Company policy. Parent acknowledges in the Merger Agreement that, in connection with the Company's profit sharing plan for the fiscal year ending February 1, 1997, the Company shall make a discretionary contribution for such fiscal year in an aggregate amount of $3,100,000. Indemnification and Insurance. In the Merger Agreement, Parent and the Purchaser have agreed that all rights to indemnification for acts or omissions occurring prior to the effectiveness of the Merger that are in existence as of the date of the Merger Agreement in favor of the current or former directors or officers of the Company and its subsidiaries as provided in their respective Articles or Certificates of Incorporation or By-laws or contractual arrangements or as otherwise provided by applicable law shall survive the Merger and shall continue in full force and effect in accordance with their terms for a period of not less than six years from the effectiveness of the Merger. Pursuant to the Merger Agreement, Parent will, for a period of six years from the effectiveness of the Merger maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy except that, to the extent that such coverage is not obtainable at less than or equal to 225% of the current per annum cost (such 225% amount, the "Maximum Premium"), Parent will be obligated to use its reasonable efforts to purchase only so much coverage as may then be obtained for such amount. The Company represented in the Merger Agreement to Parent that the Maximum Premium is $315,000. Conditions to Merger. The Merger Agreement provides that the respective obligations of each party to the Merger Agreement to effect the Merger shall be subject to the satisfaction, prior to the closing of the transactions contemplated by the Merger Agreement, to the following conditions: (a) if required by applicable law, the Merger Agreement, and the appropriate Plan of Merger contained therein, and the transactions contemplated thereby shall have been approved by the 29 32 affirmative vote of the shareholders of the Company; and (b) no temporary restraining order, preliminary or permanent injunctive or other order issued by any court of competent jurisdiction or other legal restraint or prohibition arising under the authority of any Governmental Entity preventing the consummation of the Merger shall be in effect. The Merger Agreement provides that the obligation of Parent and Purchaser to effect the Merger are further subject to the condition that there shall not be pending any suit, action or proceeding by any Governmental Entity that has a substantial likelihood of success (other than any suit, action or proceeding pending on the date of consummation of the Offer) (i) challenging the acquisition by Parent or the Purchaser of any Shares, seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by any Operative Agreement, or seeking to obtain from the Company, Parent or the Purchaser any damages that are material in relation to the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by any Operative Agreement, (iii) seeking to impose limitations on the ability of Parent or the Purchaser to acquire or hold, or exercise full rights of ownership of, any Shares, including, without limitation, the right to vote the Common Stock purchased by it on all matters properly presented to the shareholders of the Company or (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries. For a description of the conditions to the Offer, see Section 8 of this Supplement. Termination. The Merger Agreement provides that it may be terminated at any time prior to the effectiveness of the Merger, whether before or after approval of matters presented in connection with the Merger by the shareholders of the Company: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: (i) if, upon a vote at a duly held Shareholders Meeting or any adjournment thereof at which Parent voted all Shares beneficially owned by it in accordance with the Merger Agreement, any required approval of the Shareholders of the Company shall not have been obtained; provided, however, that the Company shall not have the right to terminate the Merger Agreement pursuant this clause (i) if (A) any Shares beneficially owned on the date of the Merger Agreement by any Shareholder party to the Support Agreement that are not purchased pursuant to the Offer are not voted in favor of the Merger and such approval would have been obtained had all such Shares been so voted or (B) the Company is in violation of any of the provisions above under "Prohibition on Solicitation", "Shareholder Approval; Preparation of Proxy Statement" or "Best Efforts; Notification"; (ii) if, as the result of the failure of any of the conditions set forth in Section 8 of this Supplement, the Offer shall have terminated or expired in accordance with its terms without the Purchaser having purchased any Shares pursuant to the Offer; provided, however, that the right to terminate the Merger Agreement pursuant to the provisions described in this clause (ii) shall not be available to any party whose failure to fulfill any of its obligations under, or breach of any provisions of, any Operative Agreement results in the failure of any such condition; or (iii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by the Company if (i) the Company shall have given Parent a Notice of Superior Proposal with respect to a Takeover Proposal, (ii) at least five business days later, the Board of Directors of the Company shall have determined in good faith (based on the written opinion of Robinson-Humphrey or another financial advisor of nationally recognized reputation, which opinion takes into account all the terms of such Takeover Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation) that the terms of such Takeover Proposal are not more favorable to the person or persons making such Takeover Proposal and provide greater present value to all the Company's shareholders, in each case, than the Merger 30 33 Agreement, the Offer and the Merger taken as a whole in light of any improved terms proposed by Parent or the Purchaser prior to the expiration of such five business day period and (iii) the Company has paid to Parent the Termination Fee as described in "Fees and Expenses" below; or (d) by Parent if it shall have received a Notice of Superior Proposal pursuant to the provisions described in the second paragraph under "Prohibition on Solicitation" above. Fees and Expenses. The Merger Agreement provides that, except as provided in the following paragraph, all fees and expenses incurred in connection with the Offer, the Merger, the Merger Agreement and the transactions contemplated by the Operative Agreements will be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. Under the Merger Agreement, the Company will pay to Parent upon demand in cash a fee of $15 million (the "Termination Fee"), payable in same day funds, if: (i) the Merger Agreement is terminated pursuant to the provisions described in clause (b)(ii) under "Termination" above as a result of the failure of any condition described in paragraph (d) (other than clause (ii)(A) thereof), (e) or (f) of Section 8 of this Supplement; (ii)(v) after the date of the Merger Agreement, any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) publicly makes a Takeover Proposal or amends a Takeover Proposal made prior to the date of the Merger Agreement, or discloses its intention to do either of the foregoing, in any case (A) at an all-cash price in excess of $17.25 per Share or (B) for non-cash consideration or a combination of cash and non-cash consideration, (w) the Offer remains open for the period contemplated by Section 1 of this Supplement, (x) the Minimum Tender Condition (as defined in Section 8 of this Supplement) is not satisfied at such expiration date, (y) the Merger Agreement is thereafter terminated pursuant to the provisions described in clause (b)(ii) under "Termination" above, and (z) either (A) the Board of Directors of the Company, within five business days of being requested to do so by Parent, failed to both reaffirm its recommendation of the Offer and the Merger and recommend rejection of such Takeover Proposal on the grounds that it is not in the best interests of the Company and its shareholders (such request having been made following the making of such Takeover Proposal, such amendment or such public disclosure and at least five business days prior to expiration of the Offer) or (B) within twelve months after such termination the Company enters into a definitive agreement providing for a Takeover Proposal or a Takeover Proposal is consummated; or (iii) the Merger Agreement is terminated pursuant to the provisions described in clause (c) under "Termination" above. The Merger Agreement provides that if it is terminated as a result of a wilful and material breach of the Merger Agreement by Parent or the Purchaser, Parent shall pay the Company in cash, payable in same day funds, $5 million (the "Expenses") in lieu of reimbursement of the Company for all fees and expenses incurred or paid by or on behalf of it or any of its affiliates in connection with the Offer, the Merger or the consummation of any of the transactions contemplated by the Operative Agreements. The Merger Agreement provides that if it is terminated pursuant to the provisions described in clause (b) (ii) under "Termination" above as a result of the failure of the Minimum Tender Condition (except under circumstances described in clause (ii) of the first sentence of this paragraph) or pursuant to the provisions described in clause (d) under "Termination" above, the Company shall pay Parent in cash, payable in same day funds, the Expenses. The Merger Agreement further provides that any amount paid by the Company pursuant to the immediately preceding sentence shall be a credit against any amounts subsequently due from the Company pursuant to clause (ii) of the first sentence of this paragraph. Litigation. The Merger Agreement provides that Parent and the Company shall promptly enter into stipulations dismissing without prejudice all litigation currently pending between them or their respective affiliates and representatives, or commenced by or on behalf of any of them in connection with the Offer, and promptly to cause such stipulations to be filed in connection with such litigation. The Merger Agreement provides that each such stipulation shall provide that the relevant litigation shall be deemed to be dismissed with prejudice from and after the effectiveness of the Merger. In addition, the Merger Agreement provides that (a) the Company shall not reinstate (or permit its affiliates or representatives to reinstate) any such litigation so long as Parent and the Purchaser are 31 34 not in material breach of their respective obligations under the Merger Agreement and (b) each of Parent and the Purchaser shall not reinstate (or permit its affiliates or representatives to reinstate) any such litigation so long as the Company is not in material breach of its obligations under the Merger Agreement. Amendment. The Merger Agreement provides that it may be amended by the parties thereto, by action taken or authorized by their respective Boards of Directors, provided, however, that after any approval of the Merger Agreement by the shareholders of the Company, no amendment will be made to the Merger Agreement which by laws requires further approval by such shareholders without such further approval. The Support Agreement Parent and the Purchaser entered into the Support Agreement with Anthony J. Bruno, Arthur M. Jones, Sr., James A. Bruno, Vincent J. Bruno and certain entities associated with Vincent J. Bruno (collectively, the "Shareholders"). Pursuant to the Support Agreement, the Shareholders have agreed that at any meeting of shareholders called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Merger and the Merger Agreement is sought, such Shareholder shall vote (or cause to be voted) all Shares then beneficially owned by such Shareholder in favor of the Merger, the adoption by the Company of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement. The Support Agreement further provides that at any meeting of shareholders or at any adjournment thereof or in any other circumstances upon which such Shareholder's vote, consent or other approval is sought, such Shareholder shall vote (or cause to be voted) all Shares then beneficially owned by such Shareholder against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Takeover Proposal, (ii) any amendment of the Company's Articles (Certificate) of Incorporation or By-laws or other proposal or transaction that could impede, interfere with, prevent or materially delay the Merger or that could reasonably be expected to dilute materially the benefits to Parent or the Purchaser of the transactions contemplated by the Merger Agreement and (iii) against any candidate for election to the Board of Directors of the Company not approved by Parent. Parent has been advised that the Shareholders currently directly own at least 1,187,486 Shares (the "Subject Shares"), representing approximately 6.3% of the outstanding Shares, and beneficially own an additional approximately 400,000 Shares, representing an additional approximately 1.8% of the outstanding Shares. The Shareholders have also agreed that they will not (i) sell, transfer, pledge assign or otherwise dispose of, or enter into any contract, option or other arrangement (including any profit sharing arrangement) with respect to the sale, transfer, pledge, assignment or other disposition of, the Subject Shares to any person (A) other than the Purchaser or the Purchaser's designee or (B) by operation of law upon the death of such Shareholder or (ii) enter into any voting agreement, whether by proxy, voting agreement or otherwise, in connection, directly or indirectly, with any Takeover Proposal. The Support Agreement provides that a Shareholder shall not, nor shall it permit any investment banker, attorney or other advisor or representative of such Shareholder to, (i) directly or indirectly solicit, initiate or encourage the submission of, any Takeover Proposal or (ii) directly or indirectly participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal. In the Support Agreement each Shareholder also grants to the Purchaser, with full power of substitution, a proxy covering all the Subject Shares of such Shareholder to vote such Subject Shares in accordance with the requirements of the Support Agreement. The proxy is coupled with an interest and is irrevocable 32 35 to the maximum extent permitted by the ABCA. The obligations of the Shareholders under the Support Agreement, including the proxy granted pursuant to the Support Agreement, terminate on the termination of the Merger Agreement; provided, however, that, if any Shareholder fails to comply with its obligations under the Support Agreement to vote (or cause to be voted) all Shares then beneficially owned by such Shareholder in favor of the Merger, the adoption by the Company of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, the obligations of such Shareholder under the Support Agreement described above shall not terminate until the third anniversary of the date of the Support Agreement. Arthur M. Jones, Sr. and James A. Bruno have informed Parent and the Company that they intend to tender their Shares in the Offer. Because of restrictions imposed by Section 16 of the Exchange Act, Anthony J. Bruno, Vincent J. Bruno and certain associated trusts and other entities, holding in the aggregate approximately 11% of the outstanding Shares, have informed Parent that they do not expect to tender their Shares pursuant to the Offer. 8. AMENDED CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or 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-l(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer unless the Minimum Tender Condition is satisfied through the valid tender prior to the expiration of the Offer of that number of Shares which would represent at least a majority of the Fully Diluted Shares. The term "Fully Diluted Shares" means all outstanding securities entitled generally to vote in the election of directors of the Company on a fully diluted basis, after giving effect to the exercise or conversion of all options, rights and securities exercisable or convertible into such voting securities, other than potential dilution attributable to the Rights. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, the Purchaser shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate or amend the Offer, with the consent of the Company or if, at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists: (a) there shall be threatened by any Governmental Entity, or there shall be instituted or pending any suit, action, proceeding, application or counterclaim by any Governmental Entity or any other person, or before any court or governmental authority, agency or tribunal, domestic or foreign, in each case that has a substantial likelihood of success, (i) challenging the acquisition by Parent or the Purchaser of any Shares, seeking to restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by any Operative Agreement, or seeking to obtain from the Company, Parent or the Purchaser any damages that are material in relation to the Company and its subsidiaries taken as whole, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Offer or any of the other transactions contemplated by any Operative Agreement, (iii) seeking to impose limitations on the ability of Parent or the Purchaser to acquire or hold, or exercise full rights of ownership of, any Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the shareholders of the Company, (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries, or (v) which 33 36 otherwise is reasonably likely to have a material adverse effect on the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole; (b) there shall be any statute, rule, regulation, legislation, interpretation, judgment, order or injunction enacted, entered, enforced, promulgated, amended or issued with respect to, or deemed applicable to, or any consent or approval withheld with respect to, (i) Parent, the Company or any of their respective subsidiaries or (ii) the Offer, the Merger or any of the other transactions contemplated by the Operative Agreements, by any Governmental Entity or before any court or governmental authority, agency or tribunal, domestic or foreign, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) there shall have occurred any material adverse change in the Company, or any development that, insofar as reasonably can be foreseen, has resulted in or is reasonably likely to result in a material adverse change in the Company, other than any change arising from general economic or industry conditions. (d)(i) it shall have been publicly disclosed or Parent shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the outstanding Shares has been acquired by another person, entity or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) other than acquisitions for bona fide arbitrage purposes only and other than as disclosed in a Schedule 13D or 13G on file with the Commission prior to the date of the Merger Agreement, (ii) the Board of Directors of the Company or any committee thereof shall have (A) withdrawn or modified in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger or the Merger Agreement, (B) approved or recommended any Takeover Proposal or (C) taken any action, or made any determination, under the Rights Agreement to facilitate any Takeover Proposal, (iii) the Company shall have entered into any agreement with respect to any Takeover Proposal or (iv) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct and any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case as if such representations and warranties were made as of such time; (f) the Company shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under the Merger Agreement; or (g) the Merger Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of the Purchaser and Parent and, subject to the provisions of the Merger Agreement, may be asserted by the Purchaser or Parent regardless of the circumstances giving rise to such condition or may be waived by the Purchaser and Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, the Purchaser or any other affiliate of Parent 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 circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 34 37 9. SHAREHOLDER LITIGATION On October 3, 1996, a purported class action entitled Brickell Partners v. Anthony Bruno et al. was filed in the Federal Court. The action claims, among other things, that certain individual directors of the Company as well as the Company itself have unlawfully refused to consider the Offer and have taken improper defensive actions including the adoption of the Rights Agreement and the adoption of certain severance agreements designed to thwart the Offer while at the same time entrenching the Company's current management. The complaint seeks declaratory and injunctive relief and attorneys' fees and experts' fees. 10. MISCELLANEOUS For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to the Purchaser and not withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by payment by Parent to tendering shareholders or will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering shareholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Salomon Brothers Inc is acting as Dealer Manager in connection with the Offer and is providing certain financial advisory services to the Purchaser and Parent in connection with the Offer and the Merger. No person has been authorized to give any information or to make any representation on behalf of the Purchaser or Parent not contained herein, in the 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. If Parent elects to cause the Company to be merged with and into the Purchaser without a vote of the shareholders of the Company in accordance with the Merger Agreement, Parent will file a Plan of Merger in the form attached as Schedule I to this Supplement along with any other required documents with the Secretary of State of the State of Alabama and the Secretary of State of the State of Delaware. Parent is providing the Plan of Merger attached as Schedule I to this Supplement in order to satisfy the notice requirements of Section 11.04 of the ABCA. The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 and Rule 13d-1 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer, has filed certain amendments thereto and may file additional amendments thereto. Such Schedule 14D-1 and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Section 8 of the Offer to Purchase (except that such material will not be available at the regional offices of the Commission). RDS Acquisition Inc. October 29, 1996 35 38 SCHEDULE I PLAN OF MERGER SECTION 1.01. Constituent Corporations. RDS Acquisition Inc., a Delaware corporation ("Sub"), and Big B. Inc., an Alabama corporation (the "Company"), constitute the constituent corporations of this Plan of Merger. SECTION 1.02. The Merger. Upon the terms and subject to the conditions set forth in this Plan of Merger and in accordance with the Delaware General Corporation Law (the "DGCL") and the Alabama Business Corporation Act (the "ABCA"), the Company shall be merged with and into Sub at the Effective Time of the Merger (as defined below). Following a merger pursuant to this Section 1.02 (the "Merger"), the separate corporate existence of the Company shall cease and Sub shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of the Company in accordance with the DGCL and the ABCA. SECTION 1.03. Effective Time. The parties shall file a certificate or articles of merger and other appropriate documents. The Merger shall become effective at such date and time as this Plan of Merger and any other required documents (collectively, the "Certificates of Merger") are duly filed with the Delaware Secretary of State and the Alabama Secretary of State (the time the Merger becomes effective being the "Effective Time of the Merger"). SECTION 1.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA. SECTION 1.05. Certificate of Incorporation and By-laws. (a) The Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time of the Merger, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of Sub as in effect at the Effective Time of the Merger shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.06. Directors. The directors of Sub at the Effective Time of the Merger shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.07. Officers. The officers of the Company at the Effective Time of the Merger shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.08. Effect on Capital Shares. As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"; the Common Stock and the associated common stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, being hereinafter collectively referred to as the "Shares") or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Treasury Shares and Parent Owned Shares. Each Share that is owned by the Company or by any subsidiary of the Company and each Share that is owned by Revco D.S., Inc., a Delaware corporation ("Parent"), Sub or any other subsidiary of Parent (together, in each case, with the associated Right) shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. 36 39 (c) Conversion of Shares. Subject to Section 1.08(d), each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 1.08(b)) together with the associated Right shall be converted into the right to receive from the Surviving Corporation in cash, without interest, $17.25 (the "Merger Consideration"). As of the Effective Time of the Merger, all such Shares (and the associated Rights) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such Shares (and the associated Rights) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Shareholders. Notwithstanding anything in this Plan of Merger to the contrary, any issued and outstanding Shares held by persons who object to the Merger and comply with all the provisions of Alabama law concerning the right of holders of Shares to dissent from the Merger and obtain payment of the fair value of their Shares ("Dissenting Shareholders") shall not be converted as described in Section 1.08(c) but shall become the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the laws of the State of Alabama; provided, however, that the Shares (together with the associated Rights) outstanding immediately prior to the Effective Time of the Merger and held by a Dissenting Shareholder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal, in either case pursuant to the ABCA, shall be deemed to be converted as of the Effective Time of the Merger into the right to receive the Merger Consideration. SECTION 1.09 Exchange of Certificates. (a) Paying Agent. [ ] is the paying agent (the "Paying Agent") for the payment of the Merger Consideration upon surrender of certificates representing Shares. (b) Parent to Provide Funds. Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide to the Paying Agent, on a timely basis, as and when needed after the Effective Time of the Merger, funds necessary to pay for the Shares pursuant to Section 1.08. (c) Exchange Procedure. As soon as reasonably practicable after the Effective Time of the Merger, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time of the Merger represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive the Merger Consideration pursuant to Section 1.08, (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 Paying Agent and shall be in a 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. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 1.09, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08. No interest shall be paid or shall accrue on the cash payable upon the surrender of any Certificate. 37 40 (d) No Further Ownership Rights in Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Plan of Merger shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, and there shall be no further registration of transfers on the share transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Plan of Merger. (e) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to five years after the Effective Time of the Merger (or immediately prior to such earlier date on which any payment pursuant to this Plan of Merger would otherwise escheat to or become the property of any governmental authority or agency, domestic or foreign) the payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. 38 41 Manually signed copies of the Letter of Transmittal (or copies thereof) will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or such stockholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail By Hand or Overnight Delivery: ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. Reorganization Department Reorganization Department P.O. Box 798 120 Broadway Midtown Station 13th Floor New York, NY 10018 New York, NY 10271
By Fax Transmission: (201) 329-8936 For Fax Confirmation Only by Telephone: (201) 296-4209 ------------------------ Questions and requests for assistance may be directed to the Dealer Manager or the Information Agent at their respective addresses or telephone numbers set forth below. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be obtained from the Information Agent or the Dealer Manager as set forth below, and will be furnished promptly at the Purchaser's expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Bankers and Brokers Call Collect: (212) 269-5550 Call Toll Free: (800) 488-8075 The Dealer Manager for the Offer is: SALOMON BROTHERS INC Seven World Trade Center New York, NY 10048 Call Collect: (212) 783-7292 EX-99.A17 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF BIG B, INC. PURSUANT TO THE OFFER TO PURCHASE DATED SEPTEMBER 10, 1996 AND THE SUPPLEMENT THERETO DATED OCTOBER 29, 1996 BY RDS ACQUISITION INC., a Wholly Owned Subsidiary of REVCO D.S., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: ChaseMellon Shareholder Services, L.L.C. By Mail By Hand or Overnight Delivery: ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. Reorganization Department Reorganization Department P.O. Box 798 120 Broadway Midtown Station 13th Floor New York, NY 10018 New York, NY 10271
By Fax Transmission: (201) 329-8936 For Fax Confirmation Only by Telephone: (201) 296-4209 ------------------------ DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FAX 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 revised Letter of Transmittal or the previously circulated original BLUE Letter of Transmittal is to be completed by securityholders of Big B, Inc. (the "Company") either if certificates ("Certificates") evidencing Shares (as defined below) and/or Convertible Debentures (as defined below) are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer to the account of ChaseMellon Shareholder Services, L.L.C. (the "Depositary") at The Depository Trust Company or Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to the book-entry transfer procedures described in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase (as defined below), as amended and supplemented by the Supplement (as defined below). Securityholders whose Certificates are not immediately available or who cannot deliver their Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in the Supplement) or who cannot complete the procedures for delivery by book-entry transfer on a timely basis and 2 who wish to tender their Shares must do so pursuant to the guaranteed delivery procedures described in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. 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 [ ] 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): _________________________________________ Date of Execution of Notice of Guaranteed Delivery: ______________________ Name of Institution which Guaranteed Delivery: ___________________________ If Delivered by Book-Entry Transfer, Check Box of Applicable Book-Entry Transfer Facility: [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company Account Number ___________________________________________________________ Transaction Code Number __________________________________________________ 3 - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE(S) AND SHARE(S) TENDERED APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES NUMBER OF CERTIFICATE EVIDENCED BY SHARES NUMBER(S)(1) CERTIFICATE(S)(1)(2) TENDERED(2) ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- TOTAL SHARES OF COMMON STOCK ------------ - -------------------------------------------------------------------------------- (1) Need not be completed by shareholders delivering Shares by book-entry transfer. (2) Includes whole Shares to be received upon conversion of Convertible Debentures if certificates for Convertible Debentures are being delivered to tender such Shares. Unless otherwise indicated, it will be assumed that all Shares evidenced by each certificate for Shares (and all whole Shares to be received upon conversion of Convertible Debentures evidenced by each certificate for Convertible Debentures) are being tendered. See Instruction 4. - --------------------------------------------------------------------------------
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 RDS Acquisition Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Revco D.S., Inc., a Delaware corporation, the above-described shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with an equal number of associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares"), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), as amended and supplemented, including by the Supplement to the Offer to Purchase dated October 29, 1996 (the "Supplement"), and in this Letter of Transmittal (which together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged. Upon the terms of 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 any and all other Shares or other securities or rights issued or issuable in respect thereof on or after September 10, 1996 (collectively, "Distributions")), and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned to the fullest extent of the undersigned's rights 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 (a) deliver 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 any such case, with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, (b) present such Shares and all Distributions for transfer on the Company's books and (c) 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 Jack A. Staph, Brian P. Carney and Paul N. Harris as attorneys-in-fact and 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 any and all Distributions). All such attorneys-in-fact and 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 as provided in the Offer to Purchase, as amended and supplemented by the Supplement. Upon such acceptance for payment, all prior powers of attorney and proxies given by the undersigned with respect to such Shares and other securities will, without further action, be revoked, and no subsequent powers of attorney or proxies may be given. The individuals named above as attorneys-in-fact and proxies 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, special, adjourned or postponed meeting of the Company's shareholders, by written consent 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. If the undersigned is tendering Shares by the delivery of certificates for the Company's 6.5% Convertible Subordinated Debentures Due 2003 ("Convertible Debentures"), in addition to the matters described above, the undersigned hereby irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable 5 power coupled with an interest), to the full extent of the undersigned's rights with respect to such Convertible Debentures, (a) to convert Convertible Debentures represented by such certificates into the Shares being tendered, (b) to cause the transfer of record ownership of such Convertible Debentures into the name of the undersigned or the Depositary if deemed by the Depositary or the Purchaser to be necessary or appropriate to convert such Convertible Debentures into the Shares being tendered and (c) to receive the Shares issuable upon conversion of such Convertible Debentures and any cash in lieu of fractional Shares payable upon such conversion. This appointment will be effective if, when and only to the extent that, the Purchaser accepts such Shares for payment pursuant to the Offer. 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 (including Shares and Distributions to be received upon conversion of Convertible Debentures on behalf of the undersigned) and that when the same 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 or appropriate assurance 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 such Distribution as determined by the Purchaser in its sole discretion. If the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to effectuate the conversion of such Convertible Debentures into the Shares tendered hereby, including, without limitation, such documents as shall be necessary to effect the transfer of record ownership of such Convertible Debentures into the name of the undersigned or the Depositary. 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 or the Supplement this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in the section entitled "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, as amended and supplemented by the Supplement, 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 if the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the check for any cash in lieu of fractional Shares received upon conversion of such Convertible Debentures), and return all Certificates evidencing Shares not tendered or not purchased (and Certificates evidencing Convertible Debentures convertible into Shares not tendered or not purchased), 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 if the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the check for any cash in lieu of fractional Shares received 6 upon conversion of such Convertible Debentures) and return all certificates evidencing Shares not tendered or not purchased (and Certificates evidencing Convertible Debentures convertible into 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 if the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the check for any cash in lieu of fractional Shares received upon conversion of such Convertible Debentures) and return all Certificates evidencing Shares not tendered or not purchased (and Certificates evidencing Convertible Debentures convertible into Shares not tendered or not purchased) in the name(s) of, and mail such check(s) and 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 (or convert or transfer any Convertible Debentures) from the name of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares tendered hereby. 7 [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES (OR CONVERTIBLE DEBENTURES) THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 10. Number of Shares (or number of Shares to be received upon conversion of Convertible Debentures) represented by the lost or destroyed certificates: ------------------- SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of the Shares purchased (and if the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the check for any cash in lieu of fractional Shares received upon conversion of such Convertible Debentures) or Certificates evidencing the Shares not tendered or not purchased (or Certificates evidencing Convertible Debentures convertible into the Shares not tendered or not purchased) are to be issued in the name of someone other than the undersigned, or if the 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 [ ] Certificate(s) to: Name -------------------------------------------------- (Please Print) Address - ------------------------------------------------------ (Include Zip Code) - ------------------------------------------------------ (Taxpayer Identification or Social Security Number) [ ] Credit Shares delivered by book-entry transfer and not purchased to the account set forth below: Check appropriate box: [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company Account Number ---------------------------------------- SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ---------------------------------------- ---------------------------------------- (SIGNATURE(S) OF HOLDER(S)) Dated: _________________ , 1996 (MUST BE SIGNED BY REGISTERED HOLDER(S) AS NAME(S) APPEAR(S) ON THE CERTIFICATE(S) OR ON A SECURITY POSITION LISTING OR BY PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS TRANSMITTED HEREWITH. IF SIGNATURE IS BY TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF CORPORATIONS OR OTHERS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE PROVIDE THE FOLLOWING INFORMATION. SEE INSTRUCTION 5.) Name(s) -------------------------------------------------------- -------------------------------------------------------- (PLEASE PRINT) Capacity (Full title) ------------------------------------------ Address -------------------------------------------------------- -------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ( ) ---- -------------------------- Taxpayer Identification or Social Security Number --------------------------------------------------------- (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) Authorized Signature ------------------------------------------- Name ----------------------------------------------------------- (PLEASE PRINT) Name of Firm --------------------------------------------------- Address -------------------------------------------------------- -------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ( ) ---- -------------------------- Dated: _________________ , 1996 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased (and if the undersigned is tendering Shares by the delivery of Certificates for Convertible Debentures, the check for any cash in lieu of fractional Shares received upon conversion of such Convertible Debentures) or Certificates evidencing the Shares not tendered or not purchased (or Certificates evidencing Convertible Debentures convertible into the Shares not tendered or not purchased) are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered". Mail [ ] Check [ ] Certificate(s) to: Name ---------------------------------------------------------------------------- (Please Print) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Taxpayer Identification or Social Security Number) 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal if (a) this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, includes any participant in any of the Book-Entry Transfer Facilities' systems whose name appears on a security position listing as the owner of Shares) of any of the Shares tendered herewith and such registered holder(s) has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above or (b) such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. If Certificates evidencing Shares or Convertible Debentures are registered in the name of a person other than the signer of this Letter of Transmittal, or if payment is to be made or Certificates relating to tendered Shares not accepted for payment are to be returned to a person other than the registered holder of the Certificates surrendered, the tendered Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or name(s) of the registered holders or owners appear on the Certificate, with the signatures on such Certificate or stock powers guaranteed as aforesaid. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of Transmittal is to be used either if Certificates evidencing Shares or Convertible Debentures are to be forwarded herewith or if Shares are to be delivered by book-entry transfer pursuant to the procedure set forth in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. Certificates evidencing all tendered Shares (or Certificates evidencing Convertible Debentures convertible into all tendered Shares), or confirmation of a book-entry transfer of such Shares (a "Book-Entry Confirmation"), 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 section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement, together with a properly completed and duly executed Letter of Transmittal (or copy 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 required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date. If Certificates evidencing Shares or Convertible Debentures are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Securityholders whose Certificates are not immediately available, who cannot deliver their Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedures for delivery by book-entry transfer on a timely basis may tender Shares pursuant to the guaranteed delivery procedures described in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. Pursuant to such procedures: (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 Certificates evidencing all tendered Shares (or Certificates evidencing Convertible Debentures convertible into all tendered Shares), in proper form for transfer, or a confirmation of a book-entry transfer of such Shares, if such procedures are available, into the Depositary's account at one of the Book-Entry Transfer Facilities, together with a properly completed and duly executed Letter of Transmittal (or copy thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other required documents, must be received by the Depositary within three trading days after the date of execution of the Notice of Guaranteed Delivery, all as described in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. A "trading day" is any day on which the Nasdaq National Market is open for business. 9 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 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 signatures on this Letter of Transmittal cover Shares tendered hereby. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES EVIDENCING SHARES OR CONVERTIBLE DEBENTURES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SECURITYHOLDER, 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 copy hereof), all tendering securityholders 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 Certificate numbers, the number of Shares evidenced by such Certificates (or the number of Shares to be received upon conversion of Convertible Debentures evidenced by such Certificates) and the number of Shares tendered should be listed on a separate schedule and attached hereto. 4. PARTIAL TENDERS. (Not applicable to shareholders who tender by book-entry transfer.) If fewer than all the Shares evidenced by any Certificate (or if fewer than all the whole Shares to be received upon conversion of Convertible Debentures evidenced by any Certificate) delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new Certificate(s) evidencing the remainder of the Shares (or Debentures) that were evidenced by the 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 Certificates (and all whole Shares to be received upon conversion of Convertible Debentures evidenced by 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 (or the Convertible Debentures that are convertible into the Shares tendered hereby), the signature(s) must correspond with the name(s) as written on the face of the Certificate(s) without any alteration, enlargement or change whatsoever. If any Share tendered hereby (or any Convertible Debenture that is convertible into 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 (or any Convertible Debenture that is convertible into any Share 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 (or any Convertible Debentures that are convertible into any Shares tendered hereby), no endorsements of Certificates or separate stock powers are required, unless payment is to be made to, or Certificates evidencing Shares (or Convertible Debentures that are convertible into 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 Certificate(s) evidencing the Shares tendered hereby (or the Convertible Debentures that are convertible into 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) appears(s) on such Certificate(s). Signatures on such Certificate(s) and stock powers must be guaranteed by an Eligible Institution. 10 If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby (or any Convertible Debentures that are convertible into Shares tendered hereby), the Certificate(s) evidencing such Shares (or Convertible Debentures) 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 Certificate(s). Signatures on such Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any 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 provided in this Instruction 6, the Purchaser will pay all stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or if Certificates evidencing Shares not tendered or not purchased (or Certificates evidencing Convertible Debentures convertible into 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 transfer taxes (whether imposed on the registered owner(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 satisfactory evidence 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 CERTIFICATES EVIDENCING THE SHARES TENDERED HEREBY (OR THE CERTIFICATES EVIDENCING CONVERTIBLE DEBENTURES CONVERTIBLE INTO THE SHARES TENDERED HEREBY). 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby (or if Shares are tendered by the delivery of Certificates for Convertible Debentures, a check for any cash in lieu of fractional Shares received upon conversion of such Convertible Debentures) is to be issued, or Certificate(s) evidencing Shares not tendered or not purchased (or Convertible Debentures convertible into 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 any such check or any such 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 to an address other than that shown above, the appropriate boxes on this Letter of Transmittal must be completed. Shareholders 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 shareholder 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. 31% BACKUP WITHHOLDING. In order to avoid backup withholding of Federal income tax on payments of cash pursuant to the Offer, a securityholder tendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such holder's correct taxpayer identification number (i.e., social security number or employer identification number) ("TIN") on the Substitute Form W-9 below in this Letter of Transmittal and certify under penalties of perjury that such TIN is correct and that such holder is not subject to backup withholding. If a holder does not provide such holder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a $50 penalty on such holder and payment of cash to such holder pursuant to the Offer may be subject to backup withholding of 31%. Backup withholding is not an additional income tax. Rather, the amount of the backup withholding may be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund may be obtained by the holder upon filing an income tax return. 11 The securityholder is required to give the Depositary the TIN of the record holder of the Shares (or in the case of Shares to be received upon conversion of Convertible Debentures, the record holder of the Convertible Debentures). If the Shares (or Convertible Debentures) are held 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. The box in Part 3 of Substitute Form W-9 may be checked if the tendering securityholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the securityholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such securityholder if a TIN is provided to the Depositary within 60 days. Certain securityholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign securityholders must complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to Salomon Brothers Inc, the Dealer Manager, or to D.F. King & Co., Inc., the Information Agent, at their respective addresses and telephone numbers set forth below. Additional copies of the Offer to Purchase, the Supplement, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks and trust companies. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Shares (or Convertible Debentures) has been lost, destroyed or stolen, the securityholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares (or the number of Shares to be received upon conversion of any Convertible Debentures) so lost, destroyed or stolen. The securityholder will then be instructed by the Depositary as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A COPY HEREOF), PROPERLY COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES (TOGETHER WITH CERTIFICATES FOR SHARES OR CONVERTIBLE DEBENTURES 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 SUPPLEMENT). 12 PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - -------------------------------------------------------------------------------- SUBSTITUTE PART 1-- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY _______________________ BY SIGNING AND DATING BELOW. Social Security FORM W-9 Number(s) DEPARTMENT OF THE TREASURY OR INTERNAL REVENUE SERVICE _______________________ PAYER'S REQUEST Employer Identification FOR TAXPAYER Number(s) IDENTIFICATION NUMBER ---------------------------------------------------------------- (TIN) PART 2--Certification--Under penalty of perjury, I certify that: PART 3-- (1) the number shown on this form is my correct Taxpayer Awaiting TIN Identification Number (or I am waiting for a number to be [ ] issued to me) and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. --------------------------- PART 4-- Exempt [ ] ---------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS--You must cross out item (2) in Part 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 returns. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out such item (2). If you are exempt from backup withholding, check the box in Part 4 above.
- -------------------------------------------------------------------------------- Signature ____________________________________ Date __________ , 1996 - -------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalty of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (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 to the Depositary, 31% of all reportable payments made to me will be withheld, but will be refunded if I provide a certified taxpayer identification number within 60 days. ________________________________ _________________, 1996 Signature Date
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 INFORMATION. 13 The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Bankers and Brokers Call Collect: (212) 269-5550 Call Toll Free: (800) 488-8075 The Dealer Manager for the Offer is: SALOMON BROTHERS INC Seven World Trade Center New York, NY 10048 Call Collect: (212) 783-5141 EX-99.A18 4 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF BIG B, INC. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00, A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- As set forth in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase (as defined below), as amended and supplemented by the Supplement (as defined below), and in Instruction 2 of the related Letter of Transmittal, this Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer if (i) certificates evidencing shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares") (or certificates evidencing the Company's 6.5% Convertible Subordinated Debentures Due 2003 ("Convertible Debentures") that are convertible into Shares to be tendered), are not immediately available, (ii) time will not permit all required documents to reach ChaseMellon Shareholder Services, L.L.C. (the "Depositary"), prior to the Expiration Date (as defined in the Supplement) or (iii) the procedures for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or transmitted by fax or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined below). See the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail By Hand or Overnight Delivery: ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. Reorganization Department Reorganization Department P.O. Box 798 120 Broadway Midtown Station 13th Floor New York, NY 10018 New York, NY 10271
By Fax Transmission: (201) 329-8936 For Fax Confirmation Only by Telephone: (201) 296-4209 ------------------------ DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FAX TRANSMISSION OTHER THAN AS SET FORTH ABOVE, DOES 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. 2 LADIES AND GENTLEMEN: The undersigned hereby tenders to RDS Acquisition Inc., a Delaware corporation (the "Purchaser"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), as amended and supplemented, including by the Supplement to the Offer to Purchase dated October 29, 1996 (the "Supplement"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedures set forth in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. Number of Shares:_______________________________ Dated: ___________________________________, 1996 Certificate Nos. (if available): Name(s) of Record Holder(s): ________________________________________________ ________________________________________________ ________________________________________________ (Check ONE box if Shares will be tendered by (Please Print) book-entry transfer) [ ] The Depository Trust Company Address(es):____________________________________ [ ] Philadelphia Depository Trust Company ________________________________________________ Zip Code Account Number:_________________________________ Area Code and Tel. No.:_________________________ Signature(s):___________________________________ ________________________________________________
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES) The undersigned, a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"), hereby 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 certificates evidencing Convertible Debentures that are convertible into the Shares tendered hereby in proper form for conversion), or confirmation of book-entry transfer of such Shares into the Depositary's accounts at The Depository Trust Company or Philadelphia Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or copy thereof) with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any other required documents within three trading days after the date hereof. A "trading day" is any day on which the Nasdaq National Market is open for business. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's Message) and certificates for Shares (or Convertible Debentures) to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm:___________________________________ ___________________________________________ Address Authorized Signature ________________________________________________ Name_______________________________________ Zip Code Please Type or Print Area Code and Title:_____________________________________ Telephone Number:_______________________________ Dated:_____________________________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES (OR CONVERTIBLE DEBENTURES) WITH THIS NOTICE. CERTIFICATES FOR SHARES (OR CONVERTIBLE DEBENTURES) SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.A19 5 LETTER TO BROKERS, DEALERS, ETC. 1 ------------------------------ SALOMON BROTHERS INC ------------------------------ SUPPLEMENT TO THE OFFER TO PURCHASE DATED SEPTEMBER 10, 1996 RDS ACQUISITION INC., a Wholly Owned Subsidiary of REVCO D.S., INC., Has Increased the Price of its Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Common Stock Purchase Rights) of BIG B, INC. TO $17.25 NET PER SHARE - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- October 29, 1996 To Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees: We have been appointed by RDS Acquisition Inc., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Revco D.S., Inc., a Delaware corporation, to act as the Dealer Manager in connection with its offer to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares"), at a price of $17.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), as amended and supplemented, including by the Supplement to the Offer to Purchase dated October 29, 1996 (the "Supplement"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares or 6.5% Convertible Subordinated Debentures Due 2003 of the Company ("Convertible Debentures") registered in your name or in the name of your nominees. Enclosed herewith are copies of the following documents: 1. The Supplement dated October 29, 1996; 2. The revised PINK Letter of Transmittal to be used by securityholders of the Company in accepting the Offer; 2 3. The revised BLUE Notice of Guaranteed Delivery to be used to accept the Offer if the certificates evidencing such Shares (or certificates evidencing the Convertible Debentures that are convertible into Shares to be tendered) have not yet been issued, are not immediately available or time will not permit all required documents to reach ChaseMellon Shareholder Services, L.L.C. (the "Depositary") prior to the Expiration Date (as defined in the Supplement) or the procedure for book-entry transfer cannot be completed on a timely basis; 4. A letter which may be sent to your clients for whose accounts you hold Shares or Convertible Debentures registered in your name or in the name of your nominees, with space provided for obtaining such clients' instructions with regard to the Offer; 5. The Letter to Shareholders of the Company from the Chairman and Chief Executive Officer of the Company accompanied by the Company's amended Solicitation/Recommendation Statement on Schedule 14D-9; and 6. A return envelope addressed to the Depositary. Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with the provisions set forth in Section 3 of the Offer to Purchase. Payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) the certificates for Shares (or in the case of Shares being tendered by the delivery of certificates evidencing the Convertible Debentures as described in the Offer to Purchase, certificates for such Convertible Debentures) or timely confirmation of a book-entry transfer of such Shares, if such procedure is available, into the Depositary's accounts at The Depository Trust Company or Philadelphia Depository Trust Company pursuant to the procedures set forth in the Offer to Purchase, (b) the Letter of Transmittal (or copy thereof), properly completed and duly executed, or an Agent's Message (as defined in the Offer to Purchase) and (c) any other required documents. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. The Purchaser will not pay for fees or commissions to any broker or dealer or other person (other than to the Dealer Manager and the Information Agent) for soliciting tenders of Shares pursuant to the Offer. You will be reimbursed upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your customers. 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. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or copy thereof), with any required signature guarantees and any other required documents, should be sent to the Depositary, and certificates evidencing the tendered Shares (or in the case of holders of Convertible Debentures, certificates for the Convertible Debentures convertible into the tendered Shares) should be delivered or such Shares should be tendered by book-entry transfer, all in accordance with the Offer to Purchase, the Supplement and the Instructions set forth in the Letter of Transmittal. If securityholders wish to tender Shares, but such securityholders are unable to forward their certificates or other required documents prior to the Expiration Date, a tender may be effected by 3 following the guaranteed delivery procedures specified in the section entitled "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 Salomon Brothers Inc, the Dealer Manager, or D.F. King & Co., Inc., the Information Agent, at their respective addresses and telephone numbers set forth on the back cover page of the Supplement. Additional copies of the enclosed materials may be obtained by calling the Information Agent, D.F. King & Co., Inc., 77 Water Street, New York, NY 10005 at (212) 269-5550 (Call Collect). Very truly yours, SALOMON BROTHERS INC NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, REVCO D.S., INC., THE COMPANY, THE DEPOSITARY, THE INFORMATION AGENT OR THE DEALER MANAGER OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE, THE SUPPLEMENT OR THE LETTER OF TRANSMITTAL. EX-99.A20 6 LETTER TO CLIENTS 1 SUPPLEMENT TO THE OFFER TO PURCHASE DATED OCTOBER 29, 1996 RDS ACQUISITION INC., a Wholly Owned Subsidiary of REVCO D.S., INC., Has Increased the Price of its Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Common Stock Purchase Rights) of BIG B, INC. TO $17.25 NET PER SHARE THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. October 29, 1996 To Our Clients: Enclosed for your consideration is a Supplement dated October 29, 1996 (the "Supplement"), to the Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), and the Letter of Transmittal related to the Supplement (the Offer to Purchase, the Supplement and the related Letter of Transmittal, together with any supplements or amendments thereto, collectively constitute the "Offer") relating to the Offer by RDS Acquisition Inc., a Delaware corporation (the "Purchaser"), to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares"), at a price of $17.25 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the Letter to Shareholders of the Company from the Chairman and Chief Executive Officer of the Company accompanied by the Company's amended Solicitation/Recommendation Statement on Schedule 14D-9. The Shares into which the Company's 6.5% Convertible Subordinated Debentures Due 2003 ("Convertible Debentures") are convertible may be tendered without first converting such Convertible Debentures by delivery of the certificates for such Convertible Debentures. Securityholders whose certificates evidencing Shares (or certificates evidencing Convertible Debentures to be delivered to tender Shares into which they are convertible) are not immediately available or who cannot deliver their certificates for Shares and all other documents required by the Letter of Transmittal to ChaseMellon Shareholder Services, L.L.C. (the "Depositary"), prior to the Expiration Date (as defined in the Supplement) or who cannot complete the procedures for delivery by book-entry transfer to the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) on a timely basis and who wish to tender their Shares must do so pursuant to the guaranteed delivery procedures described in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement. 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. 2 THIS MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF THE SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD OF THE SHARES (OR CONVERTIBLE DEBENTURES) HELD BY US FOR YOUR ACCOUNT. A TENDER OF 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 of or all the Shares (or any of or all the whole Shares issuable upon conversion of Convertible Debentures) held by us for your account, upon the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price has been increased to $17.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer. 2. The Offer and withdrawal rights will expire at 9:00 A.M., New York City time, on Friday, November 15, 1996, unless the Offer is extended. 3. The Offer is being made for all outstanding Shares. 4. The Offer is conditioned upon (i) there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares that would represent at least a majority of all outstanding Shares on a fully diluted basis on the date of purchase and (ii) the satisfaction of the other conditions set forth in the Supplement. 5. Tendering securityholders 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. 6. The Board of Directors of the Company has approved the Offer and has recommended that the shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer. The Offer is made solely by the Offer to Purchase, as amended and supplemented by the Supplement, and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by 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 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 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 Salomon Brothers Inc, the Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal (or a copy thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in the section entitled "The Tender Offer--Procedures for Tendering Shares" of the Offer to Purchase, as amended and supplemented by the Supplement, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering securityholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUM- 3 STANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Securityholders who have previously validly tendered and not properly withdrawn their Shares pursuant to the Offer are not required to take any further action, except as may be required by the procedure for guaranteed delivery if such procedure was utilized. If Shares are accepted for payment and paid for by the Purchaser pursuant to the Offer, such shareholders will receive, subject to the conditions of the Offer, the increased price of $17.25 per Share. See Section 3 of the Offer to Purchase for the procedures for withdrawing Shares tendered pursuant to the Offer. If you wish to have us tender any of or all the Shares (including any whole Shares into which Convertible Debentures may be converted) held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares (including any Shares into which Convertible Debentures may be converted), all such Shares will be tendered unless otherwise specified on the instruction form contained 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 DATE. 4 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF BIG B, INC. The undersigned acknowledge(s) receipt of your letter and the Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), as amended and supplemented, including by the Supplement to the Offer to Purchase dated October 29, 1996 (the "Supplement") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), in connection with the offer by RDS Acquisition Inc., a Delaware corporation (the "Purchaser"), to purchase all the outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares"). 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:__________________________________________ (Signatures) Dated _____________________________________________, 1996 __________________________________________________________ __________________________________________________________ - ---------------------------------------------------------- (Please type or print name(s) here) __________________________________________________________ __________________________________________________________ (Please type or print address(es) here) __________________________________________________________ (Area Code and Telephone Number) __________________________________________________________ (Tax Identification or Social Security Number(s)) - --------------- *May include Shares to be received upon conversion of Convertible Debentures held for the account of the undersigned. Unless otherwise indicated, it will be assumed that all of your Shares (including any whole Shares into which Convertible Debentures are convertible) held by us for your account are to be tendered.
EX-99.A21 7 FORM OF SUMMARY ADVERTISEMENT 1 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 September 10, 1996, as amended and supplemented, including by the Supplement thereto dated October 29, 1996, and the related Letter of Transmittal, and 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 any jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of the Purchaser by Salomon Brothers Inc (the "Dealer Manager" or one or more registered brokers or dealers licensed under the laws of such jurisdiction. RDS ACQUISITION INC., A WHOLLY OWNED SUBSIDIARY OF REVCO D.S., INC., HAS INCREASED THE PRICE OF ITS OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF BIG B, INC. TO $17.25 NET PER SHARE RDS Acquisition Inc., a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Revco D.S., Inc., a Delaware corporation ("Revco"), has amended its offer to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), of Big B, Inc., an Alabama corporation (the "Company"), together with the associated Common Stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, between the Company and First National Bank of Boston, as Rights Agent (the Common Stock, together with the associated Rights being collectively herein referred to, unless the context otherwise requires, as the "Shares"), so that the Purchaser is now offering to purchase all outstanding Shares at a price of $17.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 10, 1996 (the "Offer to Purchase"), as amended and supplemented, including by the Supplement thereto dated October 29, 1996 (the "Supplement"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The purpose of the Offer is to enable Revco to acquire control of, and the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all the Shares. ----------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 A.M., NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 15, 1996, UNLESS THE OFFER IS EXTENDED. ----------------------------------------------------------------------- THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE SUPPLEMENT) THAT NUMBER OF SHARES THAT WOULD REPRESENT A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS ON THE DATE OF PURCHASE. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS SET FORTH IN THE SUPPLEMENT. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of October 27, 1996 (the "Merger Agreement"), among Revco, the Purchaser and the Company pursuant to which, following consummation of the Offer, the Purchaser will merge with the Company (the "Merger"). On the effective date of the Merger, each outstanding Share (other than Shares owned by the Purchaser, Revco or any of their subsidiaries, Shares held in the treasury of the Company and Shares owned by shareholders who perfect any available dissenters' rights under the Alabama Business Corporation Act) will be converted into the right to receive $17.25 in cash, without interest thereon. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DULY ADOPTED THE MERGER AGREEMENT, INCLUDING THE PLAN OF MERGER CONTAINED THEREIN, APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, AND RECOMMENDED THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to the Purchaser and not properly withdrawn as, if and when the Purchaser gives oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of the Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering shareholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates with respect to (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (ii) a Letter of Transmittal (or a copy thereof), properly completed and duly signed, with any required signature guarantees, and, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other required documents. Accordingly, tendering shareholders may be paid at different times depending upon when such documents are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making payment for tendered Shares. Except as otherwise provided below, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer. For a withdrawal to be effective, a written or fax notice of withdrawal must be timely received by the Depositary at one of its addresses as set forth below and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the certificate relating to the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates with respect to Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in Section 2 of the Offer to Purchase), the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer as set forth in Section 2 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility (as defined in the Offer to Purchase) to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for any purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 of the Offer to Purchase at any time prior to the Expiration Date. 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, which determination will be final and binding. None of the Purchaser, Revco, the Company, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give information of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such information. Subject to the provisions of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and the Supplement, and is incorporated herein by reference. The Offer to Purchase has been, and the Supplement, the related Letter of Transmittal and other relevant materials will be, mailed to record holders of Shares, and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE, THE SUPPLEMENT, AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers as set forth below. The Purchaser will not pay any fees or commissions to any broker or dealer or to any other person (other than the Dealer Manager and the Information Agent) for soliciting tenders of shares pursuant to the Offer. Additional copies of the Offer to Purchase, the Supplement, the related Letter of Transmittal and all other tender offer materials may be obtained from the Information Agent or the Dealer Manager or from brokers, dealers, commercial banks and trust companies, and will be furnished promptly at the Purchaser's expense. 2 The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Bankers and Brokers Call Collect: (212) 269-5550 Toll Free (800) 488-8075 The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Hand or Overnight Delivery: ChaseMellon Shareholder ChaseMellon Shareholder Services, L.L.C. Services, L.L.C. Reorganization Department Reorganization Department P. O. Box 798 120 Broadway Midtown Station 13th Floor New York, NY 10018 New York, NY 10271 By Fax Transmission: (201) 329-8936 For Fax Confirmation Only by Telephone: (201) 296-4209 The Dealer Manager for the Offer is: SALOMON BROTHERS INC Seven World Trade Center New York, New York 10048 Call Collect (212) 783-5141 October 29, 1996 EX-99.C7 8 AGREEMENT AND PLAN OF MERGER 1 EXECUTION COPY ================================================================================ AGREEMENT AND PLAN OF MERGER Dated as of October 27, 1996 among REVCO D.S., INC., RDS ACQUISITION INC. and BIG B, INC. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I The Offer ---------- SECTION 1.01. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.02. Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II The Merger ---------- SECTION 2.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.03. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.04. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.05. Certificate of Incorporation and By-laws . . . . . . . . . . . . . 6 SECTION 2.06. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.07. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE III Effect of the Merger on the Capital Shares ------------------------------------------ of the Constituent Corporations; Exchange of Certificates ---------------------------------------------------------- SECTION 3.01. Effect on Capital Shares . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.02. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . 8
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PAGE ---- ARTICLE IV Representations and Warranties ------------------------------ SECTION 4.01. Representations and Warranties of the Company . . . . . . . . . . . 9 SECTION 4.02. Representations and Warranties of Parent and Sub . . . . . . . . . 20 ARTICLE V Covenants Relating to Conduct of Business ----------------------------------------- SECTION 5.01. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.02. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VI Additional Agreements --------------------- SECTION 6.01. Shareholder Approval; Preparation of Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.02. Access to Information; Confidentiality . . . . . . . . . . . . . . 28 SECTION 6.03. Best Efforts; Notification . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.04. Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.05. Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.06. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 6.07. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 6.08. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 6.09. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 6.10. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.11. Dismissal of Litigation . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.12. Shareholder Litigation . . . . . . . . . . . . . . . . . . . . . . 34
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PAGE ---- ARTICLE VII Conditions Precedent -------------------- SECTION 7.01. Conditions to Each Party's Obligations To Effect the Merger . . . . 34 SECTION 7.02. Conditions to Obligations of Parent and Sub . . . . . . . . . . . . 34 ARTICLE VIII Termination, Amendment and Waiver ---------------------------------- SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.04. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver . . . . . 37 ARTICLE IX General Provisions ------------------ SECTION 9.01. Nonsurvival of Representations and Warranties . . . . . . . . . . . 37 SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 9.03. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.04. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . 40 SECTION 9.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 9.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 9.09. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5 4 EXHIBITS Exhibit A Conditions to the Offer Exhibit B Form of Section 2.01(a) Plan of Merger Exhibit C Form of Section 2.01(b) Plan of Merger 6 1 AGREEMENT AND PLAN OF MERGER dated as of October 27, 1996, among REVCO D.S., INC., a Delaware corporation ("Parent"), RDS ACQUISITION INC., a Delaware corporation ("Sub") and a wholly owned subsidiary of Parent, and BIG B, INC., an Alabama corporation (the "Company"). WHEREAS Sub has outstanding an offer (the "Existing Offer", and, as amended from time to time in accordance with this Agreement, the "Offer") to purchase all the outstanding shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"; the Common Stock and the associated common stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996 (as amended from time to time, the "Rights Agreement"), being hereinafter collectively referred to as the "Shares"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 10, 1996, and in the related letter of transmittal; WHEREAS, concurrently with the execution and delivery of this Agreement, Parent, Sub and certain directors and officers of the Company who hold Shares and certain related entities holding Shares are entering into a support agreement (the "Support Agreement" and, together with this Agreement, the "Operative Agreements"); WHEREAS the Board of Directors of the Company has (i) determined that the Offer and the Merger (as defined below) are fair to and in the best interests of the shareholders of the Company, (ii) approved (1) the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement and (2) the transactions contemplated by the Operative Agreements, (iii) adopted this Agreement, including the appropriate Plan of Merger contained herein, and (iv) resolved to recommend acceptance of the Offer and the Merger and approval of this Agreement, including the appropriate Plan of Merger contained herein, by such shareholders; WHEREAS the respective Boards of Directors of Parent, Sub and the Company have approved the merger of Sub into the Company, or the Company into Sub, at the election of Parent as set forth below (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding Share not owned directly or indirectly by Parent or the Company, except Shares held by persons who object to the Merger and comply with all the provisions of Alabama law concerning the right of holders of Shares to dissent from the Merger and obtain payment of the fair value of their Shares ("Dissenting Shareholders"), will be converted into the right to receive the per share consideration paid pursuant to the Offer; and WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. 7 2 NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I The Offer SECTION 1.01. The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable after the date of this Agreement, Sub shall, and Parent shall cause Sub to, amend the Existing Offer to reflect the terms and conditions of this Agreement, including the purchase price of $17.25 per Share (and associated Right), net to the seller in cash, without interest thereon (the "Offer Price"), and to set November 15, 1996 (the "Initial Expiration Date"), as the expiration date for the Offer. The obligation of Sub to, and of Parent to cause Sub to, accept for payment, and pay for, any Shares tendered pursuant to the Offer shall be subject only to the conditions set forth in Exhibit A. Sub expressly reserves the right to modify any term, or modify or waive any condition, of the Offer, except that, without the consent of the Company (unless the Company takes any action permitted to be taken pursuant to Section 5.02(b)), Sub shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the price per Share to be paid pursuant to the Offer, (iii) modify, in any manner adverse to the holders of Shares, or add to the conditions set forth in Exhibit A, (iv) extend the Offer, (v) change the form of consideration payable in the Offer or (vi) reduce or waive the Minimum Tender Condition (as defined in Exhibit A). Notwithstanding the foregoing, Sub may, without the consent of the Company, (i) extend the Offer, if at the scheduled expiration date of the Offer any of the conditions to Sub's obligation to purchase Shares shall not be satisfied, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of not more than 10 business days beyond the Initial Expiration Date, if on the date of such extension less than 80% of the outstanding Shares on a fully diluted basis have been validly tendered and not properly withdrawn pursuant to the Offer, and (iii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer. Without limiting the right of Sub to extend the Offer pursuant to the immediately preceding sentence, in the event that (i) the Minimum Tender Condition has not been satisfied or (ii) any condition set forth in paragraph (a) of Exhibit A is not satisfied at the scheduled expiration date of the Offer, Sub shall, and Parent shall cause Sub to, extend the expiration date of the Offer in increments of five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Tender Condition and such other condition or Parent reasonably determines that any condition to the Offer is not capable of being satisfied on or prior to December 24, 1996, (y) the termination of this Agreement in accordance with its terms and (z) December 24, 1996; provided, however, that if any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) has publicly made a Takeover Proposal (as defined below) or disclosed in writing its intention to make a Takeover Proposal, Sub shall not be required pursuant to this sentence to extend the Offer for more than 20 calendar days beyond the date on which such Takeover Proposal was publicly announced or such intention was disclosed if at the end of 8 3 such 20 calendar day period such Takeover Proposal shall not have then been withdrawn and the Minimum Tender Condition shall not then have been satisfied. On the terms and subject to the conditions of the Offer, Sub shall, and Parent shall cause Sub to, accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) As soon as reasonably practicable after the date hereof, Parent and Sub shall amend its Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D (the "Schedule 14D-1") with respect to the Offer that was originally filed on September 10, 1996, and shall file such amendment (the "14D-1 Amendment") with the SEC. The Schedule 14D-1 shall contain a supplement to the Offer to Purchase dated September 10, 1996, and a revised form of the related letter of transmittal and summary advertisement (which Schedule 14D-1, Offer to Purchase and other related documents, as amended and supplemented, together with any further supplements or amendments thereto, are herein collectively referred to as the "Offer Documents"), which shall be mailed to holders of Shares. The Offer Documents shall comply as to form in all material respects with the requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and the Offer Documents, which shall be mailed to holders of Shares, on the date filed with the SEC and on the date first published, sent or given to the Company's shareholders, 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 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 for inclusion in the Offer Documents. Each of Parent, Sub and the Company shall promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Sub shall take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's shareholders, in each case as and to the extent required by applicable Federal securities laws. Parent and Sub shall provide the Company and its counsel in writing with any comments Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Parent shall provide or cause to be provided to Sub on a timely basis the funds necessary to purchase any Shares that Sub becomes obligated to purchase pursuant to the Offer. SECTION 1.02. Company Actions. (a) Subject to Section 5.02(b), the Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company, at a meeting duly called and held, has unanimously duly adopted this Agreement, including the appropriate Plan of Merger contained herein, approved the Offer and the Merger, determined that the Offer and the Merger are fair to and in the best interests of the Company's shareholders and recommended that the Company's shareholders accept the Offer 9 4 and tender their shares pursuant to the Offer and approve this Agreement and the appropriate Plan of Merger contained herein. The Company represents that its Board of Directors have received the opinion of The Robinson-Humphrey Company, Inc. ("R-H") that, as of the date of such opinion, the proposed consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view, and a complete and correct signed copy of such opinion has been delivered by the Company to Parent. The Company has been advised by each of its directors and executive officers that such person intends to tender all Shares owned by such person pursuant to the Offer, except to the extent that such tender could give rise to "short-swing" profits under Section 16 of the Exchange Act. (b) On the date the 14D-1 Amendment is filed with the SEC, the Company shall file with the SEC a supplement to its Solicitation/Recommendation Statement on Schedule 14D-9 originally filed on September 23, 1996, with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing the recommendations described in Section 1.02(a) and shall mail the Schedule 14D-9 to the shareholders of the Company. The Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's shareholders, 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 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. Each of the Company, Parent and Sub shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's shareholders, in each case as and to the extent required by applicable Federal securities laws. The Company shall provide Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to furnish Sub promptly with mailing labels containing the names and addresses of the record holders of Shares as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of shareholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Shares, and shall furnish to Sub such information and assistance (including updated lists of shareholders, security position listings and computer files) as Parent may reasonably request in communicating the Offer to the Company's shareholders. 10 5 ARTICLE II The Merger SECTION 2.01. The Merger. (a) Unless Parent elects to merge the Company into Sub in accordance with Section 2.01(b), upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the "DGCL") and the Alabama Business Corporation Act (the "ABCA"), Sub shall be merged with and into the Company at the Effective Time of the Merger (as defined in Section 2.03). Following a merger pursuant to this Section 2.01(a), the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL and the ABCA. (b) If (i) (x) Parent or Sub owns 80% or more of all outstanding Shares after the expiration of the Offer and Parent elects to effect the Merger pursuant to Section 11.04 of the ABCA or (y) Parent otherwise elects and (ii) Parent reasonably determines that such election will result in the Merger being effected no later than the time the Merger would be effected if Sub were merged into the Company pursuant to Section 2.01(a), upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL and the ABCA, the Company shall be merged with and into Sub at the Effective Time of the Merger. Following a Merger pursuant to this Section 2.01(b), the separate corporate existence of the Company shall cease and Sub shall continue as the Surviving Corporation and shall succeed to and assume all the rights and obligations of the Company in accordance with the DGCL and the ABCA. Any election by Parent to effect the Merger pursuant to this Section 2.01(b) shall be made in writing prior to the approval by the shareholders of the Company of this Agreement and the appropriate Plan of Merger included herein. (c) Notwithstanding the foregoing, at the election of Parent, any direct or indirect subsidiary of Parent may be substituted for Sub as a constituent corporation in the Merger by delivery of written notice to that effect naming the subsidiary to be so substituted. (d) If the Merger is effected pursuant to Section 2.01(a), the Plan of Merger shall be the Plan of Merger attached hereto as Exhibit B. If the Merger is effected pursuant to Section 2.01(b), the Plan of Merger shall be the Plan of Merger attached hereto as Exhibit C. SECTION 2.02. Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties, which (subject to satisfaction or waiver of the conditions set forth in Section 7.02 shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Section 7.01 11 6 (the "Closing Date"), at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless another date or place is agreed to in writing by the parties hereto. SECTION 2.03. Effective Time. As soon as practicable following the satisfaction or waiver of the conditions set forth in Article VII, the parties shall file a certificate or articles of merger and other appropriate documents, including, if the Merger is to be effected pursuant to Section 2.01(a), a Plan of Merger in the form attached hereto as Exhibit B and, if the Merger is to be effected pursuant to Section 2.01(b), a Plan of Merger in the form attached hereto as Exhibit C (collectively, the "Certificates of Merger") executed in accordance with the relevant provisions of the DGCL and the ABCA, and the parties shall make all other filings or recordings required under the DGCL and the ABCA. The Merger shall become effective at such date and time as the Certificates of Merger are duly filed with the Delaware Secretary of State and the Alabama Secretary of State, or at such other later time as Sub and the Company (by mutual agreement) shall specify in the Certificates of Merger (the time the Merger becomes effective being the "Effective Time of the Merger"). SECTION 2.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA. SECTION 2.05. Certificate of Incorporation and By-laws. (a) Unless Parent elects to merge the Company into Sub pursuant to Section 2.01(b), the Articles (Certificate) of Incorporation of the Company, as in effect immediately prior to the Effective Time of the Merger, shall be amended as of the Effective Time of the Merger so that the first paragraph of Article IV of such Articles (Certificate) of Incorporation reads in its entirety as follows: "The total number of shares of all classes of stock that the corporation shall have authority to issue is 1,000 shares, par value $0.001 per share." and, as so amended, shall be the Articles (Certificate) of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) If Parent elects to merge the Company into Sub pursuant to Section 2.01(b)(i), the Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time of the Merger, shall be the Certificate of Incorporation of the Surviving Corporation. If Parent elects to merge the Company into Sub pursuant to Section 2.01(b)(ii), unless the Merger is effected pursuant to Section 11.04 of the ABCA, the Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time of the Merger, shall be amended as of the Effective Time of the Merger to change the name of Sub to "Big B, Inc." and, as so amended, such Certificate of Incorporation shall be the Certificate of Incorporation of the Surviving Corporation. (c) If (i) the Merger is effected pursuant to Section 2.01(a), the By-laws of the Company as in effect at the Effective Time of the Merger shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law or (ii) the Merger is effected pursuant to Section 2.01(b), the By-laws of Sub 12 7 as in effect at the Effective Time of the Merger shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 2.06. Directors. Regardless of whether the Merger is effected pursuant to Section 2.01(a) or 2.01(b), the directors of Sub at the Effective Time of the Merger shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 2.07. Officers. Regardless of whether the Merger is effected pursuant to Section 2.01(a) or 2.01(b), the officers of the Company at the Effective Time of the Merger shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE III Effect of the Merger on the Capital Shares of the Constituent Corporations; Exchange of Certificates SECTION 3.01. Effect on Capital Shares. As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any Shares or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Treasury Shares and Parent Owned Shares. Each Share that is owned by the Company or by any subsidiary of the Company and each Share that is owned by Parent, Sub or any other subsidiary of Parent (together, in each case, with the associated Right) shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Shares. Subject to Section 3.01(d), each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 3.01(b)) together with the associated Right shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the Offer Price (the "Merger Consideration"). As of the Effective Time of the Merger, all such Shares (and the associated Rights) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate 13 8 representing any such Shares (and the associated Rights) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Shareholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by a Dissenting Shareholder shall not be converted as described in Section 3.01(c) but shall become the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the laws of the State of Alabama; provided, however, that the Shares (together with the associated Rights) outstanding immediately prior to the Effective Time of the Merger and held by a Dissenting Shareholder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal, in either case pursuant to the ABCA, shall be deemed to be converted as of the Effective Time of the Merger, into the right to receive the Merger Consideration. The Company shall give Parent (i) prompt notice of any written notices of any intent to demand payment and any written demands for payment of Shares received by the Company and (ii) the opportunity to direct all offers of payment, negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Parent, voluntarily make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to the Effective Time of the Merger, Parent shall select a bank or trust company to act as paying agent (the "Paying Agent") for the payment of the Merger Consideration upon surrender of certificates representing Shares. (b) Parent to Provide Funds. Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide to the Paying Agent, on a timely basis, as and when needed after the Effective Time of the Merger, funds necessary to pay for the Shares pursuant to Section 3.01. (c) Exchange Procedure. As soon as reasonably practicable after the Effective Time of the Merger, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time of the Merger represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive the Merger Consideration pursuant to Section 3.01, (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 Paying Agent and shall be in a 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. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by 14 9 the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.01, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.02, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.01. No interest shall be paid or shall accrue on the cash payable upon the surrender of any Certificate. (d) No Further Ownership Rights in Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, and there shall be no further registration of transfers on the share transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article III. (e) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to five years after the Effective Time of the Merger (or immediately prior to such earlier date on which any payment pursuant to this Article III would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 4.01(d)), the payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. 15 10 ARTICLE IV Representations and Warranties SECTION 4.01. Representations and Warranties of the Company. The Company represents and warrants to Parent and Sub as follows: (a) Organization, Standing and Corporate Power. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power and authority would not, individually or in the aggregate, have a material adverse effect on the Company. Except as disclosed in Section 4.01(a) of the letter dated the date of this Agreement and delivered to Parent and Purchaser concurrently with this Agreement (the "Company Disclosure Letter"), each of the Company and each of its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a material adverse effect on the Company. The Company has delivered to Parent complete and correct copies of its Articles (Certificate) of Incorporation and By-laws and the comparable charter or organizational documents of its Significant Subsidiaries, in each case as amended to the date of this Agreement. For purposes of this Agreement, a "Significant Subsidiary" means any subsidiary of the Company that constitutes a significant subsidiary within the meaning of Rule 1-02 of Regulation S-X of the SEC. (b) Subsidiaries. Section 4.01(b) of the Company Disclosure Letter lists each subsidiary of the Company. All the outstanding shares of capital stock of each such subsidiary have been validly issued and are fully paid and nonassessable and are owned by the Company, by another subsidiary of the Company or by the Company and another such subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"). Except for the capital shares of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture or other entity. (c) Capital Structure. The authorized equity capital of the Company consists of 100 million Shares. At the close of business on October 24, 1996, (i) 18,757,034 Shares were issued and outstanding, (ii) no Shares were held by the Company in its treasury, (iii) 1,000,000 Shares were reserved for issuance pursuant to, and 86,500 Shares were subject to outstanding options under, the Company's Employee Stock Option Plan, (iv) not more than 3,299,180 Shares were reserved for issuance 16 11 and issuable upon conversion of the Company's 6.5% Convertible Subordinated Debentures Due 2003 (the "Convertible Debentures"), and (v) Shares reserved for issuance in connection with the Rights. Except as set forth above, at the close of business on October 24, 1996, no capital shares or other voting securities of the Company were issued, reserved for issuance or outstanding. There are no outstanding SARs (as defined in Section 6.05) that were not granted in tandem with a related Employee Option (as defined in Section 6.05). All outstanding capital shares of the Company are, and all Shares that may be issued pursuant to the Company's Employee Stock Option Plan will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are not any bonds, debentures, notes or other indebtedness of the Company having the right to vote (or, other than the Convertible Debentures, convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above, as of the date of this Agreement, there are not any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional capital shares or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement, there are not any outstanding contractual obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any capital shares of the Company or any of its subsidiaries. The Company has delivered to Parent a complete and correct copy of the Rights Agreement as amended and supplemented to the date of this Agreement. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, subject in the case of the Merger to approval of this Agreement by the holders of two-thirds of the outstanding Shares, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by the Operative Agreements have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to approval of this Agreement by the holders of two- thirds of the outstanding Shares. This Agreement has been duly executed and delivered by the Company and, assuming that this 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. The execution and delivery of the Operative Agreements do not, and the consummation of the transactions contemplated by the Operative Agreements and compliance with the provisions of the Operative Agreements will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or 17 12 give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries under, (i) the Articles (Certificate) of Incorporation or By-laws of the Company or the comparable charter or organizational documents of any of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clause (ii), (A) any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on the Company, (y) impair the ability of the Company to perform its obligations under this Agreement or (z) prevent the consummation of any of the transactions contemplated by the Operative Agreements, (B) any such conflicts, violations or defaults under the Company's pharmacy, liquor and general business licenses and any permits from the Federal Drug Administration relating to controlled substances, (C) any such conflicts, violations or defaults arising from the consummation of the Merger pursuant to Section 2.01(b) that would not arise from consummation of the Merger pursuant to Section 2.01(a), (D) the repurchase obligations of the Company with respect to the Convertible Debentures and (E) any defaults under the Company's bank credit agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation of the transactions contemplated by the Operative Agreements, except for (i) the filing with the SEC of (x) the Schedule 14D-9, (y) a proxy or information statement relating to the approval by the Company's shareholders of this Agreement, if such approval is required by law (as amended or supplemented from time to time, the "Proxy Statement"), and (z) such reports under Sections 13(a), 13(d) and 16 of the Exchange Act as may be required in connection with the Operative Agreements and the transactions contemplated by the Operative Agreements, (ii) the filing of the Certificates of Merger with the Delaware Secretary of State and the Alabama Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) consents, approvals, orders, authorizations, declarations and filings, in each case in connection with pharmacy, liquor and general business licenses and (iv) consents, approvals, orders, authorizations, declarations and filings in connection with permits from the Federal Drug Administration relating to controlled substances. (e) SEC Documents; Undisclosed Liabilities. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC 18 13 since January 29, 1995 (the "SEC Documents"). As of their respective dates, (i) the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) the financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except to the extent that information contained in any SEC Document has been revised or superseded by a later filed SEC Document, none of the SEC Documents contains any untrue statement of a material fact or omits 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. Except as reflected, reserved against or otherwise disclosed in the Filed SEC Documents (as defined below), neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by generally accepted accounting principles to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto and which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company. (f) Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Offer Documents, the Schedule 14D-9, the information statement to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement") or the Proxy Statement shall, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's shareholders, or, in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's shareholders or at the time of the meeting of the Company's shareholders held to vote on approval and adoption of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9, the 19 14 Information Statement and the Proxy Statement shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub for inclusion or incorporation by reference therein. (g) Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed SEC Documents") and except as set forth in Section 4.01(g) of the Company Disclosure Letter, from the date of the most recent audited financial statements included in the SEC Documents to the date of this Agreement, the Company has conducted its business only in the ordinary course, and there has not been (i) any material adverse change in the Company and its subsidiaries taken as a whole, other than changes arising from general economic or industry conditions, (ii) except for the regular quarterly dividend of $0.05 per Share paid on September 13, 1996 to holders of record on August 30, 1996, any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital shares, (iii) any split, combination or reclassification of any of its capital shares or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital shares, (iv) (x) any granting by the Company or any of its subsidiaries to any executive officer of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents, (y) any granting by the Company or any of its subsidiaries to any such executive officer of any increase in severance or termination pay, except as was required under employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents or (z) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such executive officer, (v) any damage, destruction or loss, whether or not covered by insurance, that has or could have a material adverse effect on the Company and its subsidiaries taken as a whole or (vi) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. (h) Litigation. Except as disclosed in the Filed SEC Documents or in Section 4.01(h) of the Company Disclosure Letter, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries (and the Company is not aware of any basis for any such suit, action or proceeding) that, individually or in the aggregate, could reasonably be expected to (i) have a material adverse effect on the Company, (ii) impair the ability of the Company to perform its obligations under this 20 15 Agreement, or (iii) prevent the consummation of any of the transactions contemplated by the Operative Agreements, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. (i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed SEC Documents or in Section 4.01(i) of the Company Disclosure Letter, since the date of the most recent audited financial statements included in the Filed SEC Documents, there has not been any adoption or amendment in any material respect by the Company or any of its subsidiaries of any collective bargaining agreement or any bonus, pension, salary reduction, profit sharing, deferred compensation, incentive compensation, share ownership, share purchase, share option, phantom share, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company or any of its subsidiaries (collectively, "Benefit Plans"). Except as disclosed in the Filed SEC Documents, there exist no employment, consulting, severance, termination or indemnification agreements, arrangements or understandings between the Company or any of its subsidiaries and any current or former employee, officer or director of the Company or any of its subsidiaries. (j) ERISA Compliance; No Excess Parachute Payments. (i) The Company has delivered to Parent true, complete and correct copies of (v) all Benefit Plans that are "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans") and all Benefit Plans that are "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) maintained, or contributed to, by the Company or any of its subsidiaries for the benefit of any current or former employees, officers or directors of the Company or any of its subsidiaries, (w) each other Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (x) the most recent summary plan description for each Benefit Plan for which such summary plan description is required, (y) each trust agreement and group annuity contract relating to any Benefit Plan and (z) the most recent actuarial valuations relating to each of the Pension Plans. Section 4.01(j) of the Company Disclosure Letter sets forth a complete list of all Benefit Plans. (ii) All Pension Plans that are intended to be tax qualified have been the subject of determination letters from the Internal Revenue Service to the effect that such Pension Plans are qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"), and no such determination letter has been revoked nor, to the knowledge of the Company, has revocation been threatened, nor has any such Pension 21 16 Plan been amended since the date of its most recent determination letter or application therefor in any respect that would adversely affect its qualification. (iii) No Pension Plan that the Company or any of its subsidiaries maintains, or to which the Company or any of its subsidiaries is obligated to contribute, other than any Pension Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA; collectively, the "Multiemployer Pension Plans"), had, as of the respective last annual valuation date for each such Pension Plan, an "unfunded benefit liability" (as such term is defined in Section 4001(a)(18) of ERISA), based on actuarial assumptions which have been furnished to Parent. None of the Pension Plans has an "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA or Section 412 of the Code), whether or not waived. None of the Company, any of its subsidiaries, any officer of the Company or any of its subsidiaries or any of the Benefit Plans which are subject to ERISA, including the Pension Plans, any trusts created thereunder or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary responsibility that could subject the Company, any of its subsidiaries or any officer of the Company or any of its subsidiaries to the tax or penalty on prohibited transactions imposed by such Section 4975 or to any liability under Section 502(i) or (1) of ERISA, other than any such taxes, penalties or liabilities that have been satisfied in full or that would not, either individually or in the aggregate, have a material adverse effect on the Company. Neither any of such Benefit Plans nor any of such trusts has been terminated, nor has there been any "reportable event" (as that term is defined in Section 4043 of ERISA) with respect thereto, during the last five years, which termination or event would have a material adverse effect on the Company. Neither the Company nor any of its subsidiaries has suffered or otherwise caused a "complete withdrawal" or a "partial withdrawal" (as such terms are defined in Section 4203 and Section 4205, respectively, of ERISA), the liability with respect to which has not been satisfied in full, since the effective date of such Sections 4203 and 4205 with respect to any of the Multiemployer Pension Plans. (iv) With respect to any Benefit Plan that is an employee welfare benefit plan (x) no such Benefit Plan is unfunded or funded through a "welfare benefits fund", as such term is defined in Section 419(e) of the Code, (y) each such Benefit Plan that is a "group health plan", as such term is defined in Section 5000(b)(1) of the Code, complies in all material respects with the applicable requirements of Section 4980B(f) of the Code and (z) each such Benefit Plan (including any such Plan covering retirees or other former employees), other than the Company's Continuity and Deferred Compensation Agreements, may be amended or terminated without material liability to the Company or any of its subsidiaries on or at any time after the consummation of the Offer. 22 17 (v) Any amount that is permitted to be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by the Operative Agreements by any employee, officer or director of the Company or any of its affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or Benefit Plan currently in effect pursuant to the terms thereof would not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). The Company has delivered to Parent the information the Company used in verifying the accuracy of the preceding sentence, including (i) the amount that is currently expected to be paid to each employee, officer or director of the Company as a result of the transactions contemplated by the Operative Agreements under all employment, severance and termination agreements, other compensation arrangements and Benefit Plans currently in effect and (ii) the approximate "base amount" (as such term is defined in Section 280G(b)(3) of the Code) for each such person calculated as of the date of this Agreement, subject to the assumptions set forth in such information the Company delivered to Parent. (k) Taxes. Each of the Company and each of its subsidiaries has filed all tax returns and reports required to be filed by it and has paid (or the Company has paid on its behalf) all taxes shown to be due thereon and the most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. No deficiencies for any taxes have been proposed, asserted or assessed against the Company or any of its subsidiaries that would in the aggregate have a material adverse effect on the Company, and no requests for waivers of the time to assess any such taxes are pending. The Federal income tax returns of the Company and each of its subsidiaries consolidated in such returns have been examined by and settled with the United States Internal Revenue Service for all years through 1993. As used in this Agreement, "taxes" means all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges of any nature whatsoever. (l) Labor Matters. The Company has made available to Parent copies of all collective bargaining agreements, contracts or other agreements or understandings with a labor union or labor organization to which the Company or any of its subsidiaries is a party or by which any of them is bound. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the Company, threatened against the Company or its subsidiaries relating to their business, except for any such proceeding which would not have, individually or in the aggregate, a material adverse effect on the Company. To the knowledge of the Company, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of the Company or any of its subsidiaries. 23 18 (m) Voting Requirements. No vote of any holders of any securities of the Company is required to consummate the Offer or approve the Operative Agreements or any of the transactions contemplated by the Operative Agreement other than the Merger. The affirmative vote of the holders of two-thirds of the outstanding Shares approving this Agreement is the only vote of the holders of any class or series of securities of the Company necessary to approve the Merger. (n) State Takeover Statutes. The By-laws of Big B Drugs, Inc., a Georgia corporation and a wholly owned subsidiary of the Company, do not contain any provision that purports to cause Section 1133 of the Georgia Business Corporation Code to be applicable to Big B Drugs, Inc. Each of the Company and each of its subsidiaries either has (i) less than 500 residents of Florida as employees or (ii) a gross annual payroll of less than $5 million to Florida residents. (o) Rights Agreement. The Offer Price and the other terms of the Offer have been determined by a majority of the members of the Board of Directors of the Company who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person (each as defined in the Rights Agreement), after receiving advice from one or more investment banking firms, to be (x) at a price which is fair to shareholders (taking into account all factors that such members of the Board of Directors of the Company deem relevant including prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (y) otherwise in the best interests of the Company and its shareholders, and such determination remains in full force and effect. The Company has taken or will take all necessary action to (i) render the Rights inapplicable to the Offer, the Merger and the other transactions contemplated by the Operative Agreements, and (ii) ensure that (y) neither Parent nor any of its affiliates is an Acquiring Person (as defined in the Rights Agreement) and (z) a Distribution Date (as defined in the Rights Agreement) does not occur by reason of the announcement or consummation of the Offer or the Merger or the consummation of any of the other transactions contemplated by the Operative Agreements in accordance with their respective terms or the execution of any Operative Agreement. Other than as disclosed to Parent prior to the date of this Agreement, neither the Company nor the Board of Directors of the Company has prior to the date of this Agreement (A) redeemed the Rights, (B) amended the Rights Agreement, (C) made any determinations under the Rights Agreement with respect to any Takeover Proposal or (D) approved or authorized any of the foregoing. (p) Compliance with Laws. (i) Except as set forth in Section 4.01(p) of the Company Disclosure Letter, neither the Company nor any of its subsidiaries has violated or failed to comply with any statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity applicable to its business or operations, except for violations and failures to comply that could not, individually or 24 19 in the aggregate, reasonably be expected to result in a material adverse effect on the Company. (ii) Except as disclosed in the Filed SEC Documents, (A) to the best knowledge of the Company after due inquiry, the Company and each of its subsidiaries is in compliance with all applicable federal, state and local laws and regulations relating to pollution or protection of human health or the environment (collectively, "Environmental Laws"), which compliance includes the possession of all material permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof, except for non-compliance that would not have, individually or in the aggregate, a material adverse effect on the Company, and (B) neither the Company nor any of its subsidiaries has received written notice of, or, to the knowledge of the Company, is the subject of, any action, cause of action, claim, investigation, demand or notice by any person or entity alleging liability under or non-compliance with any Environmental Law that would have, individually or in the aggregate, a material adverse effect on the Company. (q) Real Property. The Company has made available to Parent copies of its leases, subleases, licenses or other agreements under which the Company or any of its subsidiaries uses or occupies or has the right to use or occupy, now or in the future, any real property (the "Real Property Leases"). Each Real Property Lease is valid, binding and in full force and effect, free and clear of all liens except those that do not or will not individually or in the aggregate materially interfere with its ability to conduct its business at such real property as currently conducted, all rent and other sums and charges payable by the Company and its subsidiaries as tenants thereunder are current, and no termination event or condition or uncured default of a material nature on the part of the Company or any such subsidiary or, to the knowledge of the Company, as to a landlord exists under any Real Property Lease, except for any of the foregoing matters which would not have, individually or in the aggregate, a material adverse effect on the Company. Except as set forth in Section 4.01(q) of the Company Disclosure Letter and except for any of the following matters which would not have, individually or in the aggregate, a material adverse effect on the Company, the Company (i) has not granted any leases, subleases, licenses or other agreements granting to any person other than the Company any right to possession, use, occupancy or enjoyment of the stores covered by the Real Property Leases or owned by the Company, or any portion thereof, (ii) is not obligated under any option, right of first refusal or any contractual right to purchase, acquire, sell or dispose of any real property covered by the Real Property Leases or owned by the Company and (iii) has good and marketable title to all real property reflected in the Filed SEC Documents as owned by the Company or any of its subsidiaries free and clear of all liens except those that do not or will not individually or in the aggregate materially interfere with its ability to conduct its business at such real property as currently conducted. 25 20 (r) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than R-H, the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by the Operative Agreements based upon arrangements made by or on behalf of the Company. The arrangements made by the Company with respect to the fees of R-H are accurately described in the Schedule 14D-9. (s) Certain Contracts. The Company (i) has delivered, or made available for copying, true and correct copies of (A) what the Company reasonably believes to be the nine largest by sales volume existing managed care contractual arrangements and (B) all material supplier contractual arrangements (collectively, the "Contracts") to Parent, (ii) is in compliance, in all material respects, with the terms and conditions of each of the Contracts, and (iii) has taken no action to cancel or terminate any of the Contracts except to the extent any such cancellation or termination would not result in the Company's payment of any penalty or similar fee and would not, individually or together with any other cancellations or terminations, have a material adverse effect on the Company. The information provided by the Company to Parent regarding margins on managed care contractual arrangements is true and correct in all material respects. (t) Opinion of Financial Advisor. The Company has received the opinion of R-H, dated the date of this Agreement, to the effect that, as of such date, the consideration to be received in the Offer and the Merger by the Company's shareholders is fair to the Company's shareholders from a financial point of view, and a signed copy of such opinion has been delivered to Parent. SECTION 4.02. Representations and Warranties of Parent and Sub. Parent and Sub represent and warrant to the Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed individually or in the aggregate would not have a material adverse effect on Parent. (b) Authority; Noncontravention. Parent and Sub have all requisite corporate power and authority to enter into the Operative Agreements and to consummate the transactions contemplated by the Operative Agreements. The execution and delivery of the Operative Agreements and the consummation of the transactions contemplated 26 21 by the Operative Agreements, in each case by Parent and Sub, as the case may be, have been duly authorized by all necessary corporate action on the part of Parent and Sub. The Operative Agreements have been duly executed and delivered by Parent and Sub, as the case may be, and, assuming that the Operative Agreements constitute valid and binding obligations of the parties thereto other than Parent and Sub, each constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms. The execution and delivery of the Operative Agreements do not, and the consummation of the transactions contemplated by the Operative Agreements and compliance with the provisions of the Operative Agreements will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of Parent or Sub or the comparable charter or organizational documents of any other subsidiary of Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or Sub or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent, Sub or any other subsidiary of Parent or their respective properties or assets, other than, in the case of clause (ii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on Parent and its subsidiaries taken as a whole, (y) impair the ability of Parent and Sub to perform their respective obligations under the Operative Agreements or (z) prevent the consummation of any of the transactions contemplated by the Operative Agreements. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent, Sub or any other subsidiary of Parent in connection with the execution and delivery of the Operative Agreements by Parent or Sub, as the case may be, or the consummation by Parent or Sub, as the case may be, of any of the transactions contemplated by the Operative Agreements, except for (i) the filing with the SEC of the Offer Documents, and such reports under Sections 13 and 16 of the Exchange Act as may be required in connection with the Operative Agreements and the transactions contemplated by the Operative Agreements, (ii) the filing of the Certificates of Merger with the Delaware Secretary of State and the Alabama Secretary of State and appropriate documents with the relevant authorities of other states in which Parent is qualified to do business and (iii) such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the "takeover" or "blue sky" laws of various states. (c) Information Supplied. None of the information supplied or to be supplied by Parent or Sub for inclusion or incorporation by reference in the Offer Documents, the Schedule 14D-9, the Information Statement or the Proxy Statement shall, in the 27 22 case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's shareholders, or, in the case of the Proxy Statement, at the date the Proxy Statement is first mailed to the Company's shareholders or at the time of the meeting of the Company's shareholders held to vote on approval of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Offer Documents shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Sub with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference therein. (d) Brokers. No broker, investment banker, financial advisor or other person, other than Salomon Brothers Inc ("Salomon"), the fees and expenses of which will be paid by Parent, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by the Operative Agreements based upon arrangements made by or on behalf of Parent or Sub. (e) Financing. Parent and Sub have funds available sufficient to consummate the Offer and the Merger on the terms contemplated by this Agreement, and, at the expiration of the Offer and the Effective Time of the Merger, Parent and Sub will have available all funds necessary for the acquisition of all Shares on a fully diluted basis pursuant to the Offer and the Merger, as the case may be, and to perform their respective obligations under this Agreement. (f) Litigation. Except as set forth in any report, schedule, form, statement or other document filed by Parent with the SEC and publicly available prior to the date hereof, there is no suit, action or proceeding pending or, to the knowledge of Parent, threatened against or affecting Parent or any of its subsidiaries (and Parent is not aware of any basis for any such suit, action or proceeding) that, individually or in the aggregate, could reasonably be expected to (i) have a material adverse effect on Parent, (ii) impair the ability of Parent to perform its obligations under the Operative Agreements, or (iii) prevent the consummation of any of the transactions contemplated by the Operation Agreements, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. 28 23 ARTICLE V Covenants Relating to Conduct of Business SECTION 5.01. Conduct of Business. (a) Ordinary Course. During the period from the date of this Agreement to the Effective Time of the Merger, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired at the Effective Time of the Merger. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time of the Merger, the Company shall not, and shall not permit any of its subsidiaries to: (i) (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital shares, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent (except to regular quarterly dividends on the Shares declared and paid at times consistent with past practice in an amount not in excess of $0.05 per Share per quarter), (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (z) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any capital shares, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than (x) the issuance of Shares upon the exercise of Employee Options outstanding on the date of this Agreement in accordance with their present terms and (y) the issuance of Shares upon conversion of the Convertible Debentures); (iii) amend its Articles (Certificate) of Incorporation, By-laws or other comparable charter or organizational documents; (iv) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (y) any assets that are material, individually or in the aggregate, to the Company and its subsidiaries taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice or in the 29 24 fulfillment of contracts in existence on the date hereof and copies of which have been made available to Parent; (v) sell, lease, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its material properties or assets, except sales of inventory in the ordinary course of business consistent with past practice; (vi) (y) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice, or (z) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any direct or indirect wholly owned subsidiary of the Company; (vii) make or agree to make any new capital expenditure or expenditures which, individually, is in excess of $500,000 or, in the aggregate, are in excess of $5 million; (viii) make any tax election or settle or compromise any income tax liability; (ix) except as permitted by Section 6.06, grant to any executive officer any increase in compensation or in severance or termination pay, except in each case as was required under employment agreements in effect as of the date hereof, or enter into any employment, severance or termination agreement with any executive officer; (x) adopt or implement any change in accounting methods, principles or practices materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles; (xi) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than any payment required pursuant to an order of a court of competent jurisdiction and the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed SEC Documents or incurred in the ordinary course of business consistent with past practice, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; or 30 25 (xii) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Other Actions. The Company shall not, and shall not permit any of its subsidiaries to, take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality becoming untrue, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect or (iii) except as otherwise permitted by Section 5.02, any of the conditions to the Offer set forth in Exhibit A, or any of the conditions to the Merger set forth in Article VII, not being satisfied. (c) Advice of Changes. The Company shall promptly advise Parent orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, would have, a material adverse effect on the Company and its subsidiaries taken as a whole. SECTION 5.02. No Solicitation. (a) The Company and its officers, directors, employees, representatives and agents shall immediately cease any discussions or negotiations with any parties that may be ongoing with respect to any Takeover Proposal (as defined below). The Company shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or advisor retained by it or any of its subsidiaries to (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that, in the event that prior to the acceptance for payment of Shares pursuant to the Offer an unsolicited Takeover Proposal is made and the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Company may deliver a written notice to that effect promptly to Parent and thereafter, subject to compliance with Section 5.02(c), (x) furnish, pursuant to a confidentiality agreement that is not less favorable to the Company than the Confidentiality Agreement dated October 3, 1996, between Parent and the Company (the "Confidentiality Agreement"), information with respect to the Company to the person making such unsolicited Takeover Proposal and (y) participate in discussions or negotiations regarding such Takeover Proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any director or employee of the Company or any of its subsidiaries or any investment banker, financial advisor, attorney, accountant or other advisor, representative or agent of the Company or any of its subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.02(a) by the Company. For purposes of this Agreement, "Takeover Proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase in any manner of a substantial amount of assets of the Company and subsidiaries (taken as a 31 26 whole) or an interest in any substantial amount of voting securities of the Company or any Significant Subsidiary, any tender offer or exchange offer that if consummated would result in any person beneficially owning any voting securities of the Company or Significant Subsidiary, any merger, consolidation, business combination, sale of all or substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by the Operative Agreements, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Offer or the Merger or that would reasonably be expected to dilute materially the benefits to Parent or Sub of the transactions contemplated by the Operative Agreements. (b) Except as set forth in this Section 5.02(b), neither the Board of Directors of the Company nor any committee thereof may (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub, the adoption, approval or recommendation by such Board of Directors or any such committee of the Offer, this Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any Takeover Proposal or (except pursuant to Section 6.04(a)) take any action, or make any determination, under the Rights Agreement to facilitate any Takeover Proposal or (iii) cause or permit the Company to enter into any agreement with respect to any Takeover Proposal. Notwithstanding the foregoing, in the event that prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Board of Directors of the Company may withdraw or modify its adoption, approval or recommendation of the Offer, this Agreement and the Merger at any time following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors of the Company has received a Superior Proposal and identifying the person making such Superior Proposal. For purposes of this Agreement, a "Superior Proposal" means any bona fide Takeover Proposal for all outstanding Shares on terms that the Board of Directors of the Company determines in its good faith judgment (based on the written opinion of R-H or another financial advisor of nationally recognized reputation, which opinion takes into account all the terms and conditions of the Takeover Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation) are not more favorable to the person or persons making such Takeover Proposal and provide greater present value to all the Company's shareholders, in each case, than this Agreement, the Offer and the Merger taken as a whole. (c) In addition to the obligations of the Company set forth in Sections 5.02(a) and 5.02(b), the Company shall immediately advise Parent orally and in writing of any request for information or of any Takeover Proposal, or any inquiry with respect to or which could lead to any Takeover Proposal, the material terms and conditions of such request, Takeover Proposal or inquiry and the identity of the person making such request, Takeover Proposal or inquiry. The Company shall keep Parent fully informed of the status and 32 27 material terms (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry. (d) Nothing contained in this Section 5.02 shall prohibit the Company from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's shareholders if the Board of Directors of the Company determines in good faith, after consultation with outside counsel, failure so to disclose would be inconsistent with its fiduciary duties to the Company's shareholders under applicable law; provided, however, that neither the Company nor its Board of Directors nor any committee thereof shall, except as permitted by Section 5.02(b), withdraw or modify, or propose to withdraw or modify, its position with respect to the Offer, this Agreement or the Merger or approve or recommend, or propose to approve or recommend, a Takeover Proposal. ARTICLE VI Additional Agreements SECTION 6.01. Shareholder Approval; Preparation of Proxy Statement. (a) If shareholder approval of this Agreement is required by law, the Company shall, at Parent's request, as soon as practicable following the expiration of the Offer, duly call, give notice of, convene and hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose of approving this Agreement, including the appropriate Plan of Merger contained herein, and the transactions contemplated by the Operative Agreements. The Company shall, through its Board of Directors, recommend to its shareholders approval of this Agreement, including the appropriate Plan of Merger contained herein, and the transactions contemplated by the Operative Agreements, except to the extent that the Board of Directors of the Company shall have withdrawn or modified its approval or recommendation of the Offer, this Agreement or the Merger as permitted by Section 5.02(b). Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 6.01(a) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any Takeover Proposal or (ii) the withdrawal or modification by the Board of Directors of the Company of its approval or recommendation of the Offer, this Agreement or the Merger. If requested by Parent, the Company shall from time to time postpone or adjourn the Shareholders Meeting to allow Parent and the Company additional time to seek proxies in favor of approval of this Agreement, including the appropriate Plan of Merger contained herein, and the transactions contemplated by the Operative Agreements. (b) If shareholder approval of this Agreement is required by law, the Company shall, at Parent's request, as soon as practicable following the expiration of the Offer, prepare and file a preliminary Proxy Statement with the SEC and shall use its best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement 33 28 to be mailed to the Company's shareholders as promptly as practicable after such filing. The Company shall notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and shall supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the approval of this Agreement by the Company's shareholders there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company shall promptly prepare and mail to its shareholders such an amendment or supplement. The Company shall not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. (c) Parent shall cause all Shares purchased pursuant to the Offer and all other Shares owned by Sub or any other subsidiary of Parent to be voted in favor of the approval of this Agreement. SECTION 6.02. Access to Information; Confidentiality. (a) The Company shall, and shall cause each of its subsidiaries to, afford to Parent, and to Parent's officers, employees, accountants, counsel, financial advisors and other representatives, reasonable access during normal business hours during the period prior to the Effective Time of the Merger to all their respective properties, books, contracts, commitments, personnel and records 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 by it during such period pursuant to the requirements of Federal or state securities laws and (ii) all other information concerning its business, properties and personnel as Parent may reasonably request. (b) Except as required by law, Parent shall hold, and shall cause its officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any nonpublic information in confidence until such time as such information otherwise becomes publicly available (otherwise than through the wrongful act of any such person) and shall use its best efforts to ensure that such persons do not disclose such information to others without the prior written consent of the Company. In the event of termination of this Agreement for any reason, Parent shall promptly return or destroy all documents containing nonpublic information so obtained from the Company or any of its subsidiaries and any copies made of such documents. The Company or its representatives have requested the return or destruction of confidential information of the Company provided by the Company or its representatives from each of the parties that executed confidentiality or standstill agreements following public announcement of the Existing Offer and shall not waive, amend or modify any provision of any such agreement without the prior written consent of Parent. SECTION 6.03. Best Efforts; Notification. (a) Upon the terms and subject to the conditions set forth in this Agreement, unless, to the extent permitted by Section 5.02(b), the Board of Directors of the Company approves or recommends a Superior 34 29 Proposal, each of the parties agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer and the Merger, and the other transactions contemplated by the Operative Agreements, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging any Operative Agreement or the consummation of any of the transactions contemplated by the Operative Agreements, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, the Operative Agreements. In connection with and without limiting the foregoing, the Company and its Board of Directors shall (i) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger, any Operative Agreement or any of the other transactions contemplated by the Operative Agreements and (ii) if any state takeover statute or similar statute or regulation becomes applicable to the Offer, the Merger, any Operative Agreement or any other transaction contemplated by any Operative Agreement, take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated by the Operative Agreements may be consummated as promptly as practicable on the terms contemplated by the Operative Agreements and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated by the Operative Agreements. Notwithstanding the foregoing, the Board of Directors of the Company shall not be prohibited from taking any action permitted by Section 5.02(b). (b) The Company shall give prompt notice to Parent, and Parent or Sub shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. SECTION 6.04. Rights Agreement. (a) At the request of Parent upon five business days' prior written notice, the Board of Directors of the Company shall redeem the Rights prior to the Effective Time of the Merger. 35 30 (b) Except with the prior written consent of Parent, the Board of Directors of the Company shall not (i) amend the Rights Agreement or (ii) take any action with respect to, or make any determination under, the Rights Agreement, in each case that could have the effect of rendering the Rights applicable to the Offer, the Merger Agreement, or any of the other transactions contemplated by the Operative Agreements, including any amendment or supplement to the Offer that includes a cash Offer Price that is not less than $17.25 per Share for all Shares. SECTION 6.05. Stock Options. (a) As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Plans (as defined below)) shall adopt such resolutions or take such other actions as are required to adjust the terms of all outstanding employee stock options to purchase Shares ("Employee Options") and all outstanding stock appreciation rights ("SARs") heretofore granted under any stock option or stock appreciation rights plan, program or arrangement of the Company (collectively, the "Stock Plans") to provide that each Employee Option (and any SAR related thereto) outstanding immediately prior to the acceptance for payment of Shares pursuant to the Offer, including all vested and unvested Employee Options, shall be cancelled in exchange for a cash payment by the Company immediately prior to the Effective Time of the Merger of an amount equal to (i) the excess, if any, of (x) the Offer Price over (y) the exercise price per Share subject to such Employee Option, multiplied by (ii) the number of Shares for which such Employee Option shall not theretofore have been exercised (the "Option Consideration"). (b) All amounts payable pursuant to this Section 6.05 shall be subject to any required withholding of taxes and shall be paid without interest. The Company shall use its best efforts to obtain all consents of the holders of the Employee Options as shall be necessary to effectuate the foregoing to any such holder. Notwithstanding anything to the contrary contained in this Agreement, payment shall, at Parent's request, be withheld in respect of any Employee Option until any necessary consent of such holder is obtained. (c) The Stock Plans shall terminate as of the Effective Time of the Merger, and the provisions in any other Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest in respect of any capital stock of the Company shall be deleted as of the Effective Time of the Merger, and the Company shall ensure that following the Effective Time of the Merger no holder of an Employee Option or SAR or any participant in any Stock Plan or other Benefit Plan shall have any right thereunder to acquire any capital stock of the Company or the Surviving Corporation. SECTION 6.06. Benefit Plans. (a) Except as provided in Section 6.05(c), Parent shall cause the Surviving Corporation to maintain for a period of one year after the Effective Time of the Merger the Benefit Plans of the Company and its subsidiaries in effect on the date of this Agreement or to provide benefits for such period to employees of the Company and its subsidiaries that are not materially less favorable in the aggregate to such employees than those in effect on the date of this Agreement. 36 31 (b) Parent shall cause the Surviving Corporation to honor all severance policies and agreements, deferred compensation agreements, employment agreements and death benefit agreements with the Company's officers and employees disclosed in Section 4.01(j) of the Company Disclosure Letter, including the proposed additional agreements and modifications described in Section 4.01(j) of the Company Disclosure Letter; provided, however, that in no event shall the liability of the Surviving Corporation for severance, post-termination health and other benefits, deferred compensation and acceleration of non-vested stock options under all such policies and agreements exceed $12.5 million. Parent acknowledges that the transactions contemplated by the Operative Agreements will constitute a change of control for purposes of the agreements described in the preceding sentence. (c) For purposes of the Company's Annual Bonus Plan for the fiscal year ending February 1, 1997, Parent acknowledges that (i) the Company shall be deemed to have achieved all targets under such Plan and (ii) any employee of the Company whose employment with the Company is terminated by the Company (other than termination for dishonesty or violation of Company policy) or who terminates his or her employment with the prior written consent of the Company following consummation of the Offer and prior to February 1, 1997, shall upon termination be fully vested under such Plan for fiscal year 1997; provided, however, that the liability of the Company under such Plan shall be $1,060,000 less any amounts attributable to employees who terminate their employment prior to February 1, 1997, without the prior written consent of Parent or whose employment with the Company is terminated prior to such date for dishonesty or violation of Company policy. (d) For purposes of the Company's Profit Sharing Plan for the fiscal year ending February 1, 1997, Parent acknowledges that the Company shall make a discretionary contribution for such fiscal year in an aggregate amount of $3,100,000. SECTION 6.07. Indemnification. Parent and Sub agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time of the Merger now existing in favor of the current or former directors or officers of the Company and its subsidiaries as provided in their respective certificates of incorporation or by-laws shall survive the Merger and shall continue in full force and effect in accordance with their terms for a period of not less than six years from the Effective Time of the Merger. Parent shall cause to be maintained for a period of not less than six years from the Effective Time of the Merger the Company's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time of the Merger (the "D&O Insurance") for all persons who are directors and officers of the Company on the date of this Agreement, so long as the annual premium therefor would not be in excess of 225% of the last annual premium paid prior to the date of this Agreement (such 225% amount, the "Maximum Premium"). If the existing D&O Insurance expires, is terminated or cancelled during such six-year period, Parent will use all reasonable efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such 37 32 period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous than the existing D&O Insurance. The Company represents to Parent that the Maximum Premium is $315,000. SECTION 6.08. Directors. Promptly upon the acceptance for payment of, and payment by Sub for, any Shares pursuant to the Offer, Sub shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Sub, subject to compliance with Section 14(f) of the Exchange Act and the ABCA, representation on such Board of Directors equal to at least that number of directors, rounded up to the next whole number, which is the product of (a) the total number of directors on such Board of Directors (giving effect to the directors elected pursuant to this sentence) multiplied by (b) the percentage that (i) such number of Shares so accepted for payment and paid for by Sub plus the number of Shares otherwise owned by Sub or any other subsidiary of Parent bears to (ii) the number of such shares outstanding, and the Company shall, at such time, cause Sub's designees to be so elected; provided, however, that in the event that Sub's designees are appointed or elected to the Board of Directors of the Company, until the Effective Time of the Merger such Board of Directors shall have at least three directors who are Directors on the date of this Agreement (the "Continuing Directors"); and provided further that, in such event, if the number of Continuing Directors shall be reduced below three for any reason whatsoever, any remaining Continuing Directors (or Continuing Director, if there shall be only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Continuing Directors for purposes of this Agreement or, if no Continuing Directors then remain, the other directors shall designate three persons to fill such vacancies who shall not be officers, shareholders or affiliates of the Company, Parent or Sub, and such persons shall be deemed to be Continuing Directors for purposes of this Agreement. Subject to applicable law, the Company shall take all action requested by Parent necessary to effect any such election, including mailing to its shareholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Sub's designees). In connection with the foregoing, the Company shall promptly, at the option of Sub, either increase the size of the Company's Board of Directors or obtain the resignation of such number of its current directors as is necessary to enable Sub's designees to be elected or appointed to the Company's Board of Directors as provided above. SECTION 6.09. Fees and Expenses. (a) Except as set forth below, all fees and expenses incurred in connection with the Offer, the Merger, this Agreement and the transactions contemplated by the Operative Agreements, including all fees and expenses in connection with all litigation subject to Sections 6.11 and 6.12, shall be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. (b) The Company shall pay to Parent upon demand in cash a fee of $15 million (the "Termination Fee"), payable in same day funds, if: 38 33 (i) this Agreement is terminated pursuant to Section 8.01(b)(ii) as a result of the failure of any condition set forth in paragraph (d) (other than clause (ii)(A) thereof), (e) or (f) of Exhibit A; (ii)(v) after the date of this Agreement, any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) publicly makes a Takeover Proposal or amends a Takeover Proposal made prior to the date of this Agreement or discloses its intention to do either of the foregoing, in any case (A) at an all-cash price in excess of $17.25 per Share or (B) for non-cash consideration or a combination of cash and non-cash consideration, (w) the Offer remains open for the period contemplated by Section 1.01, (x) the Minimum Tender Condition is not satisfied at such expiration date, (y) this Agreement is thereafter terminated pursuant to Section 8.01(b)(ii), and (z) either (A) the Board of Directors of the Company, within five business days of being requested to do so by Parent, failed to both reaffirm its recommendation of the Offer and the Merger and recommend rejection of such Takeover Proposal on the grounds that it is not in the best interests of the Company and its shareholders (such request having been made following the making of such Takeover Proposal, such amendment or such public disclosure and at least five business days prior to expiration of the Offer) or (B) within twelve months after such termination the Company enters into a definitive agreement providing for a Takeover Proposal or a Takeover Proposal is consummated; or (iii) this Agreement is terminated pursuant to Section 8.01(c). (c) If this Agreement is terminated as a result of a wilful and material breach of this Agreement by Parent or Sub, Parent shall pay the Company in cash, payable in same day funds, $5 million (the "Expenses") in lieu of reimbursement of the Company for all fees and expenses incurred or paid by or on behalf of it or any of its affiliates in connection with the Offer, the Merger or the consummation of any of the transactions contemplated by the Operative Agreements. If this Agreement is terminated pursuant to Section 8.01(b)(ii) as a result of the failure of the Minimum Tender Condition (except under circumstances described in Section 6.09(b)(ii)) or pursuant to Section 8.01(d), the Company shall pay Parent in cash, payable in same day funds, the Expenses. Any amount actually paid by the Company pursuant to the immediately preceding sentence shall be a credit against any amounts subsequently due from the Company pursuant to Section 6.09(b)(ii). SECTION 6.10. Public Announcements. Parent and Sub, on the one hand, and the Company, on the other hand, shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by the Operative Agreements, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. 39 34 SECTION 6.11. Dismissal of Litigation. Each of the parties shall promptly enter into stipulations dismissing without prejudice all litigation currently pending between them or their respective affiliates and representatives, or commenced by or on behalf of any of them in connection with the Offer, and promptly to cause such stipulations to be filed in connection with such litigation. Each such stipulation shall provide that the relevant litigation shall be deemed to be dismissed with prejudice from and after the Effective Time of the Merger. In addition, (a) the Company shall not reinstate (or permit its affiliates or representatives to reinstate) any such litigation so long as Parent and Sub are not in material breach of their respective obligations under this Agreement and (b) each of Parent and Sub shall not reinstate (or permit its affiliates or representatives to reinstate) any such litigation so long as the Company is not in material breach of its obligations under this Agreement. SECTION 6.12. Shareholder Litigation. The Company shall give Parent the opportunity to participate in the defense or settlement of any shareholder litigation against the Company or its directors or officers relating to any of the transactions contemplated by the Operative Agreements; provided, however, that no such settlement shall be agreed to without Parent's consent, which shall not be unreasonably withheld. ARTICLE VII Conditions Precedent SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Shareholder Approval. If required by applicable law, this Agreement and the appropriate Plan of Merger contained herein shall have been approved and adopted by the affirmative vote or consent of the holders of two-thirds of the outstanding Shares in accordance with the ABCA and the Company's Articles (Certificate) of Incorporation. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition arising under the authority of any Governmental Entity preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used its best efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered. SECTION 7.02. Conditions to Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are further subject to the condition that there shall not be pending any suit, action or proceeding by any Governmental Entity that has 40 35 a substantial likelihood of success (other than any suit, action or proceeding pending on the date of consummation of the Offer), (i) challenging the acquisition by Parent or Sub of any Shares, seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by any Operative Agreement, or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by any Operative Agreement, (iii) seeking to impose limitations on the ability of Parent or Sub to acquire or hold, or exercise full rights of ownership of, any Shares, including, without limitation, the right to vote the Common Stock purchased by it on all matters properly presented to the shareholders of the Company or (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries. ARTICLE VIII Termination, Amendment and Waiver SECTION 8.01. Termination. This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after approval of matters presented in connection with the Merger by the shareholders of the Company: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: (i) if, upon a vote at a duly held Shareholders Meeting or any adjournment thereof at which Parent voted all Shares beneficially owned by it in accordance with this Agreement, any required approval of the Shareholders of the Company shall not have been obtained; provided, however, that the Company shall not have the right to terminate this Agreement pursuant to this Section 8.01(b)(i) if (A) any Shares beneficially owned on the date of this Agreement by any shareholder party to the Support Agreement that are not purchased pursuant to the Offer are not voted in favor of the Merger and such approval would have been obtained had all such Shares been so voted or (B) the Company is in violation of Section 5.02, 6.01 or 6.03; (ii) if, as the result of the failure of any of the conditions set forth in Exhibit A to this Agreement, the Offer shall have terminated or expired in 41 36 accordance with its terms without Sub having purchased any Shares pursuant to the Offer; provided, however, that the right to terminate this Agreement pursuant to this Section 8.01(b)(ii) shall not be available to any party whose failure to fulfill any of its obligations under, or breach of any provisions of, any Operative Agreement results in the failure of any such condition; or (iii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the purchase of Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by the Company if (i) the Company shall have given Parent a Notice of Superior Proposal with respect to a Takeover Proposal, (ii) at least five business days later, the Board of Directors of the Company shall have determined in good faith (based on the written opinion of R-H or another financial advisor of nationally recognized reputation, which opinion takes into account all the terms of such Takeover Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation) that the terms of such Takeover Proposal are not more favorable to the person or persons making such Takeover Proposal and provide greater present value to all the Company's shareholders, in each case, than this Agreement, the Offer and the Merger taken as a whole in light of any improved terms proposed by Parent or Sub prior to the expiration of such five business day period and (iii) the Company has paid to Parent the Termination Fee pursuant to Section 6.09(b)(ii); or (d) by Parent if it shall have received a Notice of Superior Proposal pursuant to Section 5.02(b). SECTION 8.02. Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Sub or the Company, other than the provisions of Section 4.01(r), Section 4.02(d), Section 6.02(b), Section 6.04(b) (other than following termination of this Agreement by Parent or Sub), Section 6.09, this Section 8.02 and Article IX and except to the extent that such termination results from the wilful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in the Operative Agreements. SECTION 8.03. Amendment. This Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the shareholders of the Company; provided, however, that after any such approval, there shall not be made any amendment that by law requires further approval by such shareholders without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. 42 37 SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time of the Merger, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.03, waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to Section 8.04 shall, in order to be effective, require (a) in the case of Parent, Sub or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors and (b) in the case of the Company, action by a majority of the members of the Board of Directors of the Company who were members thereof on the date of this Agreement and remain as such hereafter or the duly authorized designee of such members; provided, however, that in the event that Sub's designees are appointed or elected to the Board of Directors of the Company as provided in Section 6.08, after the acceptance for payment of Shares pursuant to the Offer and prior to the Effective Time of the Merger, the affirmative vote of a majority of the Continuing Directors, in lieu of the vote required pursuant to clause (b) above, shall be required by the Company to (i) amend or terminate this Agreement, (ii) exercise or waive any of the Company's rights or remedies under this Agreement or (iii) extend the time for performance of Parent's and Sub's respective obligations under this Agreement. ARTICLE IX General Provisions SECTION 9.01. Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time of the Merger. This Section 9.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time of the Merger. SECTION 9.02. Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, sent by overnight courier (providing proof of delivery) or faxed to the 43 38 parties at the following addresses or fax numbers (or at such other address or fax number for a party as shall be specified by like notice): (a) if to Parent or Sub, to: Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, OH 44087 Fax: (216) 487-1679 Attention: Jack A. Staph, Esq. with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019-7475 Fax: (212) 474-3700 Attention: Richard Hall, Esq. (b) if to the Company, to: Big B, Inc. 2600 Morgan Road Bessemer, AL 35023 Fax: (205) 425-3525 Attention: Mr. Anthony J. Bruno with copies to: Sirote & Permutt 2222 Arlington Avenue South Birmingham, AL 35205 Fax: (205) 930-5301 Attention: Richard Cohn, Esq. 44 39 and Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Fax: (212) 735-2000 Attention: Randall H. Doud, Esq. SECTION 9.03. Definitions. For purposes of this Agreement: An "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; "material adverse change" or "material adverse effect" means, when used in connection with the Company or Parent, any change or effect (or any development that, insofar as can reasonably be foreseen, is likely to result in any change or effect) that is materially adverse to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of such party and its subsidiaries taken as a whole; "person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; A "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting Interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person; SECTION 9.04. Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". SECTION 9.05. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 45 40 SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. The Operative Agreements (a) constitute the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of the Operative Agreements (including the Confidentiality Agreement which is hereby terminated) and (b) except for the provisions of Article III and Sections 6.06 and 6.07, are not intended to confer upon any person other than the parties any rights or remedies hereunder. SECTION 9.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (except to the extent that Alabama law mandatorily applies), regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. SECTION 9.08. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations under this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 46 41 SECTION 9.09. Enforcement. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the State of New York in the event any dispute arises out of any Operative Agreement or any of the transactions contemplated by any Operative Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to any Operative Agreement or any of the transactions contemplated by any Operative Agreement in any court other than a Federal or state court sitting in the State of New York. IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. REVCO D.S., INC., by /s/ BRIAN P. CARNEY ---------------------------------------- Name: Brian P. Carney Title: Senior Vice President, Finance RDS ACQUISITION INC., by /s/ BRIAN P. CARNEY ---------------------------------------- Name: Brian P. Carney Title: Treasurer BIG B, INC., by /s/ ANTHONY J. BRUNO ---------------------------------------- Name: Anthony J. Bruno Title: Chairman and Chief Executive Officer 47 1 EXHIBIT A Conditions of the Offer Notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which would represent at least a majority of the Fully Diluted Shares (the "Minimum Tender Condition"). The term "Fully Diluted Shares" means all outstanding securities entitled generally to vote in the election of directors of the Company on a fully diluted basis, after giving effect to the exercise or conversion of all options, rights and securities exercisable or convertible into such voting securities, other than potential dilution attributable to the Rights. Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate or amend the Offer, with the consent of the Company or if, at any time on or after the date of this Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists: (a) there shall be threatened by any Governmental Entity, or there shall be instituted or pending any suit, action, proceeding, application or counterclaim by any Governmental Entity or any other person, or before any court or governmental authority, agency or tribunal, domestic or foreign, in each case that has a substantial likelihood of success, (i) challenging the acquisition by Parent or Sub of any Shares, seeking to restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by any Operative Agreement, or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company and its subsidiaries taken as whole, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Offer or any of the other transactions contemplated by any Operative Agreement, (iii) seeking to impose limitations on the ability of Parent or Sub to acquire or hold, or exercise full rights of ownership of, any Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the shareholders of the Company, (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries, or (v) which otherwise is reasonably likely to have a 48 2 material adverse effect on the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole; (b) there shall be any statute, rule, regulation, legislation, interpretation, judgment, order or injunction enacted, entered, enforced, promulgated, amended or issued with respect to, or deemed applicable to, or any consent or approval withheld with respect to, (i) Parent, the Company or any of their respective subsidiaries or (ii) the Offer, the Merger or any of the other transactions contemplated by the Operative Agreements, by any Governmental Entity or before any court or governmental authority, agency or tribunal, domestic or foreign, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) there shall have occurred any material adverse change in the Company, or any development that, insofar as reasonably can be foreseen, has resulted in or is reasonably likely to result in a material adverse change in the Company, other than any change arising from general economic or industry conditions; (d)(i) it shall have been publicly disclosed or Parent shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the outstanding Shares has been acquired by another person, entity or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) other than acquisitions for bona fide arbitrage purposes only and other than as disclosed in a Schedule 13D or 13G on file with the SEC prior to the date of this Agreement, (ii) the Board of Directors of the Company or any committee thereof shall have (A) withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Offer, the Merger or this Agreement, (B) approved or recommended any Takeover Proposal or (C) taken any action, or made any determination, under the Rights Agreement to facilitate any Takeover Proposal, (iii) the Company shall have entered into any agreement with respect to any Takeover Proposal or (iv) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall not be true and correct and any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case as if such representations and warranties were made as of such time; 49 3 (f) the Company shall have failed to perform in any material respect any obligation or to comply in any material respect with any agreement or covenant of the Company to be performed or complied with by it under this Agreement; or (g) this Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of Sub and Parent and, subject to Section 1.01(a), may be asserted by Sub or Parent regardless of the circumstances giving rise to such condition or may be waived by Sub and Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, Sub or any other affiliate of Parent 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 circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 50 1 EXHIBIT B [FORM OF] Plan of Merger SECTION 1.01. Constituent Corporations. RDS Acquisition Inc., a Delaware corporation ("Sub"), and Big B, Inc., an Alabama corporation (the "Company"), constitute the constituent corporations of this Plan of Merger. SECTION 1.02. The Merger. Upon the terms and subject to the conditions set forth in this Plan of Merger, and in accordance with the Delaware General Corporation Law (the "DGCL") and the Alabama Business Corporation Act (the "ABCA"), Sub shall be merged with and into the Company at the Effective Time of the Merger (as defined below). Following a merger pursuant to this Section 1.02 (the "Merger"), the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL and the ABCA. SECTION 1.03. Effective Time. The Merger shall become effective at such date and time as this Plan of Merger and any other required documents (collectively, the "Certificates of Merger") are duly filed with the Delaware Secretary of State and the Alabama Secretary of State (the time the Merger becomes effective being the "Effective Time of the Merger"). SECTION 1.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA. SECTION 1.05. Certificate of Incorporation and By-laws. (a) The Articles (Certificate) of Incorporation of the Company, as in effect immediately prior to the Effective Time of the Merger, shall be amended as of the Effective Time of the Merger so that the first paragraph of Article IV of such Articles (Certificate) of Incorporation reads in its entirety as follows: "The total number of shares of all classes of stock that the corporation shall have authority to issue is 1,000 shares, par value $0.001 per share." and, as so amended, shall be the Articles (Certificate) of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of the Company as in effect at the Effective Time of the Merger shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.06. Directors. The directors of Sub at the Effective Time of the Merger shall be the directors of the Surviving Corporation, until the earlier of 51 2 their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.07. Officers. The officers of the Company at the Effective Time of the Merger shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.08. Effect on Capital Shares. As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"; the Common Stock and the associated common stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, being hereinafter collectively referred to as the "Shares") or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Treasury Shares and Parent Owned Shares. Each Share that is owned by the Company or by any subsidiary of the Company and each Share that is owned by Revco D.S., Inc., a Delaware corporation ("Parent"), Sub or any other subsidiary of Parent (together, in each case, with the associated Right) shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Shares. Subject to Section 1.08(d), each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 1.08(b)) together with the associated Right shall be converted into the right to receive from the Surviving Corporation in cash, without interest, $17.25 (the "Merger Consideration"). As of the Effective Time of the Merger, all such Shares (and the associated Rights) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such Shares (and the associated Rights) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Shareholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by persons who object to the Merger and comply with all the provisions of Alabama law concerning the right of holders of Shares to dissent from the Merger and obtain payment of the fair value of their Shares ("Dissenting 52 3 Shareholders"), shall not be converted as described in Section 1.08(c) but shall become the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the laws of the State of Alabama; provided, however, that the Shares (together with the associated Rights) outstanding immediately prior to the Effective Time of the Merger and held by a Dissenting Shareholder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal, in either case pursuant to the ABCA, shall be deemed to be converted as of the Effective Time of the Merger, into the right to receive the Merger Consideration. SECTION 1.09. Exchange of Certificates. (a) Paying Agent. [ ] is the paying agent (the "Paying Agent") for the payment of the Merger Consideration upon surrender of certificates representing Shares. (b) Parent to Provide Funds. Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide to the Paying Agent, on a timely basis, as and when needed after the Effective Time of the Merger, funds necessary to pay for the Shares pursuant to Section 1.08. (c) Exchange Procedure. As soon as reasonably practicable after the Effective Time of the Merger, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time of the Merger represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive the Merger Consideration pursuant to Section 1.08, (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 Paying Agent and shall be in a 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. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 1.09, each Certificate shall be deemed at any time after the Effective Time of the Merger to 53 4 represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08. No interest shall be paid or shall accrue on the cash payable upon the surrender of any Certificate. (d) No Further Ownership Rights in Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Plan of Merger shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, and there shall be no further registration of transfers on the share transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Plan of Merger. (e) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to five years after the Effective Time of the Merger (or immediately prior to such earlier date on which any payment pursuant to this Plan of Merger would otherwise escheat to or become the property of any governmental authority or agency, domestic or foreign), the payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. 54 1 EXHIBIT C [FORM OF] Plan of Merger SECTION 1.01. Constituent Corporations. RDS Acquisition Inc., a Delaware corporation ("Sub"), and Big B, Inc., an Alabama corporation (the "Company"), constitute the constituent corporations of this Plan of Merger. SECTION 1.02. The Merger. Upon the terms and subject to the conditions set forth in this Plan of Merger and in accordance with the Delaware General Corporation Law (the "DGCL") and the Alabama Business Corporation Act (the "ABCA"), the Company shall be merged with and into Sub at the Effective Time of the Merger (as defined below). Following a merger pursuant to this Section 1.02 (the "Merger"), the separate corporate existence of the Company shall cease and Sub shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of the Company in accordance with the DGCL and the ABCA. SECTION 1.03. Effective Time. The parties shall file a certificate or articles of merger and other appropriate documents. The Merger shall become effective at such date and time as this Plan of Merger and any other required documents (collectively, the "Certificates of Merger") are duly filed with the Delaware Secretary of State and the Alabama Secretary of State (the time the Merger becomes effective being the "Effective Time of the Merger"). SECTION 1.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA. SECTION 1.05. Certificate of Incorporation and By-laws. (a) The Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time of the Merger, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of Sub as in effect at the Effective Time of the Merger shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.06. Directors. The directors of Sub at the Effective Time of the Merger shall be the directors of the Surviving Corporation, until the earlier of 55 2 their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.07. Officers. The officers of the Company at the Effective Time of the Merger shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.08. Effect on Capital Shares. As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"; the Common Stock and the associated common stock purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as of September 23, 1996, as amended, being hereinafter collectively referred to as the "Shares") or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Treasury Shares and Parent Owned Shares. Each Share that is owned by the Company or by any subsidiary of the Company and each Share that is owned by Revco D.S., Inc., a Delaware corporation ("Parent"), Sub or any other subsidiary of Parent (together, in each case, with the associated Right) shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Shares. Subject to Section 1.08(d), each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 1.08(b)) together with the associated Right shall be converted into the right to receive from the Surviving Corporation in cash, without interest, $17.25 (the "Merger Consideration"). As of the Effective Time of the Merger, all such Shares (and the associated Rights) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such Shares (and the associated Rights) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Shareholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by persons who object to the Merger and comply with all the provisions of Alabama law concerning the right of holders of Shares to dissent from the Merger and obtain payment of the fair value of their Shares ("Dissenting 56 3 Shareholders") shall not be converted as described in Section 1.08(c) but shall become the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the laws of the State of Alabama; provided, however, that the Shares (together with the associated Rights) outstanding immediately prior to the Effective Time of the Merger and held by a Dissenting Shareholder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal, in either case pursuant to the ABCA, shall be deemed to be converted as of the Effective Time of the Merger, into the right to receive the Merger Consideration. SECTION 1.09. Exchange of Certificates. (a) Paying Agent. [ ] is the paying agent (the "Paying Agent") for the payment of the Merger Consideration upon surrender of certificates representing Shares. (b) Parent to Provide Funds. Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide to the Paying Agent, on a timely basis, as and when needed after the Effective Time of the Merger, funds necessary to pay for the Shares pursuant to Section 1.08. (c) Exchange Procedure. As soon as reasonably practicable after the Effective Time of the Merger, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time of the Merger represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive the Merger Consideration pursuant to Section 1.08, (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 Paying Agent and shall be in a 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. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 1.09, each Certificate shall be deemed at any time after the Effective Time of the Merger to 57 4 represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 1.08. No interest shall be paid or shall accrue on the cash payable upon the surrender of any Certificate. (d) No Further Ownership Rights in Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Plan of Merger shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, and there shall be no further registration of transfers on the share transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Plan of Merger. (e) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to five years after the Effective Time of the Merger (or immediately prior to such earlier date on which any payment pursuant to this Plan of Merger would otherwise escheat to or become the property of any governmental authority or agency, domestic or foreign) the payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. EX-99.C8 9 SUPPORT AGREEMENT 1 EXECUTION COPY SUPPORT AGREEMENT dated as of October 27, 1996, among REVCO D.S., INC., a Delaware corporation ("Parent"), RDS ACQUISITION INC., a Delaware corporation ("Sub") and a wholly owned subsidiary of Parent, and the parties listed on Schedule A hereto (each a "Shareholder" and, collectively, the "Shareholders"). WHEREAS Parent, Sub and Big B, Inc., an Alabama corporation (the "Company"), are concurrently entering into an Agreement and Plan of Merger dated as of the date hereof (as the same may be amended or supplemented, the "Merger Agreement") providing for the making of a cash tender offer (as such offer may be amended or supplemented from time to time, the "Offer") by Sub for all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of the Company together with the associated Rights (as defined in the Merger Agreement) (the Common Stock, together with the associated Rights, collectively, the "Shares") and the merger of the Company and Sub or another subsidiary of Parent (the "Merger"); WHEREAS each Shareholder owns not less than the number of Shares of the Company set forth opposite his or its name on Schedule A hereto; such number of Shares, as it may be adjusted by conversion or by any stock dividend, stock split, recapitalization, combination or exchange of Shares, merger, consolidation or reorganization of or by the Company, being referred to herein as the "Subject Shares"; and WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Parent and Sub have requested that the Shareholders enter into this Agreement. NOW, THEREFORE, the parties hereto agrees as follows: SECTION 1. Representations and Warranties of the Shareholder. Each Shareholder hereby, severally and not jointly, represents and warrants to Parent in respect of himself or itself as follows: (a) Authority. Such Shareholder has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by such Shareholder and constitutes a valid and binding obligation of such Shareholder enforceable in accordance with its terms. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under any provision of, any trust agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license, judgment, order, notice, decree, statute, law, ordinance, rule or regulation applicable to such Shareholder or to such Shareholder's property or assets. Except for filings with the Securities and Exchange Commission under Sections 13(d) and 16 of the Securities Exchange 2 2 Act of 1934, as amended, no consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic, foreign or supranational, is required by or with respect to such Shareholder in connection with the execution and delivery of this Agreement or the consummation by such Shareholder of the transactions contemplated hereby. (b) The Subject Shares. Such Shareholder has good and marketable title to the Subject Shares, free and clear of any claims, liens, encumbrances and security interests whatsoever. (c) Revocation of Prior Proxies. Such Shareholder has validly revoked any and all prior proxies granted with respect to the Subject Shares. SECTION 2. Representations and Warranties of Parent and Sub. Parent and Sub hereby represent and warrant to each Shareholder that each of Parent and Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Parent and Sub. This Agreement has been duly executed and delivered by Parent and Sub and constitutes a valid and binding obligation of Parent and Sub enforceable in accordance with its terms. SECTION 3. Covenants of the Shareholder. Each Shareholder, severally and not jointly, agrees as follows: (a) Approval of Merger. At any meeting of shareholders called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Merger and the Merger Agreement is sought, such Shareholder shall vote (or cause to be voted) all Shares then beneficially owned by such Shareholder in favor of the Merger, the adoption by the Company of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement. (b) Rejection of Other Proposals. At any meeting of shareholders or at any adjournment thereof or in any other circumstances upon which such Shareholder's vote, consent or other approval is sought, such Shareholder shall vote (or cause to be voted) all Shares then beneficially owned by such Shareholder against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Takeover Proposal (as defined in the Merger Agreement), (ii) any amendment of the Company's Articles (Certificate) of Incorporation or By-laws or other proposal or transaction that could impede, interfere with, prevent or materially delay the Merger or that could reasonably be expected to dilute materially the benefits to Parent or 3 3 Sub of the transactions contemplated by the Merger Agreement and (iii) against any candidate for election to the Board of Directors of the Company not approved by Parent. (c) Negative Pledge. Such Shareholder shall not (i) sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option or other arrangement (including any profit sharing arrangement) with respect to the sale, transfer, pledge, assignment or other disposition of, the Subject Shares to any person (A) other than Sub or Sub's designee or (B) by operation of law upon the death of such Shareholder or (ii) enter into any voting arrangement, whether by proxy, voting agreement or otherwise, in connection, directly or indirectly, with any Takeover Proposal. (d) No Solicitation. Such Shareholder shall not, nor shall it permit any investment banker, attorney or other advisor or representative of such Shareholder to, (i) directly or indirectly solicit, initiate or encourage the submission of, any Takeover Proposal or (ii) directly or indirectly participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal. (e) Proxy. Such Shareholder hereby grants to Sub, with full power of substitution, a proxy covering all the Subject Shares of such Shareholder to vote such Subject Shares in accordance with this Section 3. This proxy is coupled with an interest and shall be irrevocable to the maximum extent permitted by the Alabama Business Corporation Act. (f) Termination. The obligations of such Shareholder under this Section 3, including the proxy granted pursuant to Section 3(e), shall terminate on the termination of the Merger Agreement (the "Expiration Date"); provided, however, that, if any Shareholder fails to comply with Section 3(a), the obligations of such Shareholder under this Section 3 shall not terminate until the third anniversary of the date of this Agreement. SECTION 4. Shareholder Capacity. No person executing this Agreement who is or becomes during the term hereof a director or officer of the Company makes any agreement or understanding herein in his or her capacity as such director or officer. Each Shareholder signs solely in his or her capacity as the record holder and beneficial owner of, or the trustee of a trust whose beneficiaries are the beneficial owners of, such Shareholder's Subject Shares and nothing herein shall limit or affect any actions taken by a Shareholder in such Shareholder's capacity as an officer or director of the Company to the extent specifically permitted by the Merger Agreement, including without limitation Section 5.02 thereof. SECTION 5. Further Assurances. Each Shareholder shall, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further instruments as Parent or Sub may reasonably request for the purpose of effectively carrying out the transactions contemplated by this Agreement. 4 4 SECTION 6. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties 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 subsidiary of Parent. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. SECTION 7. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the state of New York and (iv) waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby. Each Shareholder shall pay all reasonable fees and expenses of counsel to Parent and Sub incurred in enforcing this Agreement against such Shareholder. (b) Expenses. Except as set forth in Section 7(a), all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. (c) Amendments. This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. (d) Notice. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier 5 5 (providing proof of delivery) or faxed to the parties at the following addresses or fax numbers (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Sub, to: Revco D.S., Inc. 1925 Enterprise Parkway Twinsburg, OH 44087 Fax: (216) 487-1679 Attention: Jack A. Staph, Esq. with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019-7475 Fax: (212) 474-3700 Attention: Richard Hall, Esq. (ii) if to a Shareholder, to the address set forth under the name of such Shareholder on Schedule A hereto with copies to: Sirote & Permutt 2222 Arlington Avenue South Birmingham, AL 35205 Fax: (205) 930-5301 Attention: Richard Cohn, Esq. and Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Fax (212) 735-2000 Attention: Randall H. Doud, Esq. (e) Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section to this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Wherever the words "include", 6 6 "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". (f) Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more of the counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart. (g) Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (except to the extent Alabama law mandatorily applies), regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (i) Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. SECTION 8. Performance by Sub. Parent shall cause Sub to perform in full each obligation of Sub set forth in this Agreement. IN WITNESS WHEREOF, each party has duly executed this Agreement as of the date first written above. REVCO D.S., INC., by /s/ BRIAN P. CARNEY ---------------------------------- Name: Brian P. Carney Title: Senior Vice President, Finance 7 7 RDS ACQUISITION INC., by /s/ BRIAN P. CARNEY ---------------------------------- Name: Brian P. Carney Title: Treasurer /s/ ANTHONY J. BRUNO ------------------------------------- Anthony J. Bruno /s/ ARTHUR M. JONES, SR. ------------------------------------- Arthur M. Jones, Sr. /s/ JAMES A. BRUNO ------------------------------------- James A. Bruno /s/ VINCENT J. BRUNO ------------------------------------- Vincent J. Bruno, in his individual capacity and in his capacity as custodian for the entities listed on Schedule B. 8 Schedule A List of Shareholders
Subject Shares --------------- Anthony J. Bruno 636,504 1212 South Cove Lane Birmingham, AL 35216 Arthur M. Jones, Sr. 60,508 5000 Castle Rock Drive Hoover, AL 35242 Vincent J. Bruno 418,854 2854 Shook Hill Circle Birmingham, AL 35223 James A. Bruno 71,620 7090 Old Overton Club Drive Vestavia Hills, AL 35242
9 Schedule B List of Shareholder Trusts Vincent Bruno, C/F Lee John Bruno AUGMA 48,300 Vincent Bruno, C/F Brannon Bruno AUGMA 26,200 Vincent Bruno, C/F Paul Vincent Bruno AUGMA 24,200 Vincent Bruno, C/F Vincent Joseph Bruno AUGMA 15,400
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