<PAGE> 1
INFORMATION PROVIDED PURSUANT TO SECTION 14(f)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
GENERAL
This information is being furnished in connection with the designation by
RDS Acquisition, Inc. ("Sub"), pursuant to the Agreement and Plan of Merger (the
"Merger Agreement"), dated October 27, 1996, by and among Big B, Inc. ("Big B"),
Revco D.S., Inc. ("Revco") and Sub, of persons to be elected to the Board of
Directors of Big B (the "Big B Board") other than at a meeting of the
shareholders of Big B. The Merger Agreement is more fully described under Item 3
of Amendment No. 8 to Big B's Schedule 14D-9 ("Amendment No. 8"), of which this
Annex A is a part. Capitalized terms used and not defined in this Annex A have
the meanings assigned to them in Amendment No. 8.
THE SUB DESIGNEES
Pursuant to the Merger Agreement, subject to compliance with applicable
law, promptly upon the payment by Sub for Shares pursuant to the Offer, and from
time to time thereafter, Sub will be entitled to designate such number of
directors (the "Sub Designees"), rounded up to the next whole number, on the Big
B Board as is equal to the product of the total number of directors on the Big B
Board (determined after giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Sub or any other subsidiary of Revco bears to the total
number of fully diluted Shares then outstanding; provided, however, that in the
event that Sub Designees are appointed or elected to the Big B Board, until the
Effective Time of the Merger such Big B Board shall have at least three
directors who are directors on the date of the Merger Agreement (the "Continuing
Directors") and, in such event, if the number of Continuing Directors shall be
reduced below three for any reason whatsoever, any remaining Continuing
Directors shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Continuing Directors for purposes of the Merger 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 Big B, Revco or Sub, and such persons shall be deemed to be
Continuing Directors for purposes of the Merger Agreement. Big B shall, upon
request of Sub, promptly take all actions necessary to cause the Sub Designees
to be so elected, including, if necessary, seeking the resignations of one or
more existing directors.
It is expected that on the date that Sub accepts for payment and purchases
Shares under the Offer, Big B will promptly take such other action as necessary
to enable the Sub Designees to be elected to the Big B Board.
Set forth in the table below are the name, age, present principal
occupation or employment and business address for each of the persons who may be
designated by Sub as the Sub Designees. Unless otherwise indicated, the business
address for each individual listed below is 1925 Enterprise
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<PAGE> 2
Parkway, Twinsburg, Ohio 44087. Each of the individuals listed below is a
citizen of the United States.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT
BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- ---------------------- -------------------------------------------------------------------
<S> <C>
D. Dwayne Hoven (55) Director, Revco; Chief Executive Officer, Revco (since August
1993); President, Revco (since July 1992); Chief Operating Officer,
Revco (July 1992 to August 1993); Executive Vice President,
Marketing and Stores, Revco (December 1991 to July 1992); Member of
interim office of President, Revco (June 1992 to July 1992);
Executive Vice President of Stores, Revco (July 1989 to December
1991); Senior Vice President of Distribution, Revco (January 1988
to June 1989); Director, OfficeMax, Inc.; Selected (effective
August 27, 1992) to become member of Revco Board to fill vacancy.
Carl A. Bellini (62) Director, Revco; Executive Vice President and Chief Operating
Officer, Revco (since October 1993); Executive Vice President,
Marketing and Stores, Revco (August 1992 to October 1993); Acting
Chief Operating Officer; Standard Brands Paint Co. (December 1991
to April 1992); President and Chief Operating Officer, Erol's, Inc.
(June 1989 to June 1991); Executive Vice President, Store
Operations, Revco (December 1987 to June 1989); Selected (effective
August 1, 1994) to become member of Revco Board to fill vacancy.
Brian P. Carney (36) Senior Vice President, Finance, Revco (since May 1996); Vice
President and Controller, Revco (June 1992 to May 1996); director
of general accounting, Revco (October 1989 to June 1992); Manager,
Arthur Andersen & Co. (prior to October 1989).
Jack A. Staph (51) Senior Vice President, Secretary and General Counsel, Revco (since
December 1986); Member, interim office of President, Revco (June
1992 to July 1992); Member, legal staff, Revco (over ten years
prior to June 1986).
Paul N. Harris (38) Assistant Secretary, Revco (since July 1993); Senior Counsel, Revco
(July 1988 to July 1993).
</TABLE>
Any other officer of Revco or Sub listed in Schedule I to the Offer to
Purchase dated September 10, 1996, filed as an exhibit to the combined Tender
Offer Statement on Schedule 14D-1 and Statement on Schedule 13D, as amended, of
Revco and Sub may also be designated by Sub as a Sub Designee. The information
with respect to the Sub Designees has been supplied by Sub for inclusion herein.
CERTAIN INFORMATION CONCERNING BIG B
As of October 24, 1996, there were approximately 18.8 million Shares
outstanding and approximately 22.2 million Shares outstanding on a fully diluted
basis. Each Share that is outstanding as of the close of business on any
applicable record date for any matter to be acted upon by shareholders is
entitled to one vote on such matter. The Big B Board consists of seven members.
THE CURRENT MEMBERS OF THE BIG B BOARD AND EXECUTIVE OFFICERS OF BIG B
To the extent that the Big B Board will consist of persons who are not
among the Sub Designees, the Big B Board is expected to consist of persons who
are currently directors of Big B who have not resigned.
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<PAGE> 3
The following tables set forth as to each director, his or her age,
principal occupation, business experience and the period during which each has
served as a director of Big B.
<TABLE>
<S> <C>
ANTHONY J. BRUNO Director since 1979
Chairman of the Board, Age 69
Chief Executive Officer
</TABLE>
Mr. Bruno has served as Chairman of the Board and Chief Executive Officer of Big
B since 1993 and served as President of Big B from 1979 to 1993.
<TABLE>
<S> <C>
ARTHUR M. JONES, SR. Director since 1981
President, Age 48
Chief Operating Officer
</TABLE>
Mr. Jones has served as President and Chief Operating Officer of Big B since
1993 and served as Executive Vice President and Secretary/Treasurer from 1981 to
1993.
<TABLE>
<S> <C>
VINCENT J. BRUNO Director since 1981
Senior Vice President, Age 53
Purchasing and Advertising
</TABLE>
Mr. Bruno has served as Senior Vice-President of Purchasing and Advertising of
Big B since 1981.
<TABLE>
<S> <C>
JAMES A. BRUNO Director since 1993
Executive Vice President, Age 35
Secretary
</TABLE>
Mr. Bruno has served as Executive Vice-President of Big B since 1995 and as
Secretary of Big B since 1993. He also served as Vice-President of Marketing of
Big B from 1987 to 1995.
<TABLE>
<S> <C>
RICHARD COHN Director since 1981
Attorney, Sirote & Permutt, P.C. Age 53
</TABLE>
Mr. Cohn has served as counsel for Big B since 1981.
<TABLE>
<S> <C>
CHARLES A. MCCALLUM, D.M.D., M.D. Director since 1993
Professor of Medicine and Dentistry, Age 69
University of Alabama at Birmingham ("UAB")
</TABLE>
Mr. McCallum served as President of UAB from 1987 to 1993.
<TABLE>
<S> <C>
SUSAN W. MATLOCK Director since 1995
Executive Director, Birmingham Age 49
Business Assistance Network
</TABLE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
As of October 28, 1996, Revco and Sub beneficially owned an aggregate
amount of 2,377,486 Shares, constituting approximately 12.7% of the total
outstanding Shares of Big B. That figure includes Revco and Sub's deemed
beneficial ownership of 1,187,486 Shares pursuant to a Support Agreement, dated
as of October 27, 1996, between Revco and Sub and Anthony J. Bruno, Arthur M.
Jones, Sr., James A. Bruno, Vincent J. Bruno and certain entities related to
Vincent J. Bruno.
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<PAGE> 4
According to publicly available information, the following individuals and
entities (other than the officers and directors of Big B whose ownership is
disclosed below and Revco and its affiliates) beneficially own 5% or more of the
outstanding shares:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
OWNER --------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
- ---------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
RCM Capital Management.................................... 1,534,000 8.2%
RCM Limited L.P.
RCM General Corporation
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
The Prudential Insurance Company of America............... 943,200 5.0%
Prudential Plaza
Newark, NJ 07102-3777
</TABLE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
As of October 29, 1996, the directors and officers of Big B, as a group (12
persons), beneficially owned 2,455,930 Shares (of which 31,250 Shares are
represented by options which are exercisable within sixty days by members of the
group under Big B's Employee Stock Option Plan), constituting approximately
13.1% of the total outstanding Shares of Big B. Set forth in the following table
is information concerning the beneficial ownership of Big B's Shares by certain
of its executive officers on October 29, 1996. Except as set forth above, under
"Stock Ownership of Certain Beneficial Owners," Big B knows of no person
(excluding officers and directors of Big B) who may be deemed to own
beneficially more than 5% of the outstanding Shares of Big B.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------
NUMBER OF SHARES(1) PERCENTAGE OF CLASS
------------------- -------------------
<S> <C> <C>
Anthony J. Bruno..................................... 841,129 4.5%
Arthur M. Jones, Sr.................................. 84,080 .5%
Vincent J. Bruno..................................... 1,332,530 7.1%
James A. Bruno....................................... 77,484 .4%
Bobby W. Little...................................... 35,875 .2%
</TABLE>
- ---------------
(1) The amounts shown represent the total Shares beneficially owned by such
individuals together with Shares which are issuable upon the exercise of all
stock options which are currently exercisable. Specifically, the following
individuals have the right the acquire the Shares indicated after their
names, upon exercise of such options: Arthur M. Jones, Sr., 11,000; Vincent
J. Bruno, 3,500; and James A. Bruno, 5,000, and all officers and directors
as a group, 31,250.
Vincent J. Bruno is the nephew of Anthony J. Bruno. James A. Bruno is the
son of Anthony J. Bruno. These three individuals beneficially own, in the
aggregate, 2,251,148 Shares (of which 12,500 Shares are represented by options
exercisable within sixty days by Vincent J. Bruno and James A. Bruno under Big
B's Employee Stock Option Plan), constituting approximately 12.0% of the total
outstanding Shares of Big B.
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<PAGE> 5
COMMITTEES OF THE BIG B BOARD
Audit Committee. The Audit Committee consists of three non-employee
directors: Susan W. Matlock, Richard Cohn and Charles A. McCallum, D.M.D., M.D.
The Committee, which met once during the past year, has the primary functions of
recommending independent accountants to be engaged by Big B, reviewing the scope
and results of the independent accountants' examinations of Big B's financial
statements, and examining Big B's accounting practices and procedures and
internal accounting controls.
Compensation Committee. The Compensation Committee consists of three
non-employee directors: Richard Cohn, Charles A. McCallum, D.M.D., M.D. and
Susan W. Matlock. The Compensation Committee, which held one meeting during the
past year, reviews and approves salaries and benefits for the executive officers
of Big B.
Nominating Committee. Big B does not have a nominating committee.
MEETINGS; DIRECTOR COMPENSATION AND BENEFITS
The Big B Board held four meetings during the fiscal year ending January
31, 1996. No incumbent director attended fewer than 75% of the aggregate number
of Big B Board and committee meetings on which such Big B Board member served.
Directors fees of $1,000 each for the Big B Board meetings attended were paid to
each non-employee Director of Big B. Big B allows non-employee Directors to
elect to be paid Director fees in Shares of Big B, and all of the non-employee
Directors have elected to be paid in Shares. On October 27, 1996, the Big B
Board approved a payment of $10,000 to each of Charles A. McCallum and Susan W.
Matlock as special compensation in exchange for the substantial additional
services rendered and expected to be rendered by such individuals in connection
with the extraordinary events surrounding the Offer and the Merger, the Big B
Board's consideration of and response to the Offer and the Merger, and the Big B
Board's consideration of alternatives to maximizing shareholder value.
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<PAGE> 6
EXECUTIVE COMPENSATION
COMPENSATION TO EXECUTIVE OFFICERS
The following table is a summary of certain information concerning the
compensation earned by Big B's chief executive officer and each of the other
four most highly compensated executive officers.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER NO. OF
ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME/POSITION YEAR SALARY BONUS (1) OPTIONS (2)
------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Bruno 1996 $266,000 $ -- -- -- $523,000
Chairman of the Board 1995 256,000 98,000 -- -- 45,000
CEO 1994 244,000 125,000 -- -- 48,000
Arthur M. Jones, Sr. 1996 216,000 -- $ 41,000 22,000 60,000
President and 1995 205,000 79,000 32,000 -- 29,000
Chief Operating Officer 1994 185,000 100,000 11,000 18,000 24,000
James A. Bruno 1996 140,000 -- 30,000 10,000 19,000
Executive Vice President; 1995 107,000 47,000 -- -- 9,000
Secretary 1994 82,000 43,000 -- 7,000 8,000
Vincent J. Bruno 1996 127,000 -- 38,000 7,000 68,000
Senior Vice President 1995 120,000 46,000 -- -- 27,000
of Purchasing and 1994 114,000 59,000 40,000 8,000 30,000
Advertising
Bobby W. Little 1996 118,000 -- 16,000 7,000 54,000
Senior Vice President 1995 109,000 42,000 12,000 -- 25,000
of Store Operations 1994 101,000 53,000 -- 7,000 21,000
</TABLE>
- ---------------
(1) Reflects amounts reimbursed by Big B for the payment of taxes resulting from
the exercise of stock options issued under Big B's Employee Stock Option
Plan. No amounts for executive perquisites and other personal benefits,
securities or property are shown because the aggregate dollar amount per
executive is the lesser of either $50,000 or 10% of annual salary and bonus.
(2) The amounts listed in this column represent (i) Big B's contributions under
its Profit Sharing Plan for the benefit of the following executives for
1996, 1995, and 1994: Anthony J. Bruno $6,000, $6,000 and $6,000; Arthur M.
Jones, Sr. $6,000, $6,000 and $6,000; James A. Bruno $6,000, $5,000 and
$4,000; Vincent J. Bruno $4,000, $6,000 and $6,000; and Bobby W. Little
$6,000, $4,000 and $4,000; (ii) amounts accrued by Big B in 1996, 1995, and
1994 under Employment and Deferred Compensation Agreements to provide future
retirement benefits for its executives as follows: Anthony J. Bruno
$390,000, $20,000 and $25,000; Arthur M. Jones, Sr. $47,000, $20,000 and
$25,000; James A. Bruno $10,000, $2,000 and $2,000; Vincent J. Bruno
$56,000, $18,000 and $21,000; and Bobby W. Little $40,000, $18,000 and
$14,000; and (iii) annual premiums paid by Big B on life insurance provided
by Big B in 1996, 1995 and 1994 for the benefit of its executives as
follows: Anthony M. Jones, Sr. $7,000, $3,000 and $3,000; James A. Bruno
$3,000, $2,000 and $2,000; Vincent J. Bruno $8,000, $3,000 and $3,000; and
Bobby W. Little $8,000, $3,000 and $3,000.
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<PAGE> 7
COMPENSATION REPORT
Big B's Compensation Committee has established for executives specific
compensation policies which seek to enhance the profitability of Big B with an
appropriate balance between long-term and short-term profitability goals and to
assure the ability of Big B to attract and retain executive employees with
compensation packages competitive in the marketplace.
The compensation program of Big B seeks specifically to motivate the
executives of Big B to achieve objectives which benefit Big B within their
respective areas of responsibility, with particular emphasis, in the following
order of priority, on the ultimate realization of profits for Big B, continued
growth in revenues, and control over operating expenses through the achievement
of operating efficiencies.
The key elements of Big B's compensation program include base compensation,
an incentive bonus, a Stock Option Plan and retirement benefits typically
offered to executives of similar businesses.
Big B has also sought to align the interests of the executives with the
long-term interests of the shareholders through its Stock Option Plan and an
attractive deferred compensation plan for the executives.
The fiscal 1996 compensation of Anthony J. Bruno, Big B's Chief Executive
Officer, was based on a review of salaries paid by other retail drug companies
of a similar size to that of Big B, taking into account the successful
performance of Big B during the preceding year and the leadership provided by
him in his role as CEO. The base salaries of all of the executives are set on a
general and subjective basis after a review of certain factors, including
salaries paid by other retail drug companies of a similar size to that of Big B
for executives of similar experience and skills, the overall performance by each
executive during the preceding year, Big B's financial performance during the
preceding year, and any changes in the scope of the executive's responsibilities
from the preceding year. In addition to base salary, each executive, including
the CEO, may earn a cash bonus of up to 50% of base pay if certain earnings
objectives, established at the beginning of each fiscal year, are achieved with
the maximum potential bonus being reduced in proportion to any shortfall in
these set earnings objectives.
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<PAGE> 8
STOCK OPTION GRANTS
PRIVATE OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL VALUE
AT ASSUMED
% OF TOTAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION
GRANTED IN FISCAL PRICE EXPIRATION TERMS (2)
NAME (#)(1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------- ------- ----------- --------- ---------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Bruno............. 0 0 0 -- -- --
Arthur M. Jones, Sr.......... 22,000 22% 10.00 1/31/98 156,000 212,000
Vincent J. Bruno............. 7,000 7% 10.00 1/31/98 50,000 67,000
James A. Bruno............... 10,000 10% 10.00 1/31/98 71,000 96,000
Bobby W. Little.............. 7,000 7% 10.00 1/31/98 50,000 67,000
Total........................ 46,000 46% 327,000 442,000
</TABLE>
- ---------------
(1) All options outstanding were issued under Big B's Employee Stock Option
Plan. Options are exercisable 50% on January 31, 1996, and 50% on January
31, 1997, at a price of $10.00 per share, with the options expiring January
31, 1988.
(2) Based upon the market price on the date of grant and an annual appreciation
at the rate stated of such market price through the expiration date of such
options. The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the SEC and, therefore, are not
intended to forecast possible future appreciation, if any, of Big B's Share
price. Big B did not use an alternative formula for a grant date valuation,
as Big B is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table shows information concerning the exercise of stock
options during the fiscal year 1996 by each of the named executive officers and
the fiscal year-end value of unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF VALUE OF
SECURITIES SECURITIES UNEXERCISED UNEXERCISED
UNDERLYING UNDERLYING IN-THE-MONEY IN-THE-MONEY
SHARES UNEXERCISED UNEXERCISED OPTIONS OPTIONS
ACQUIRED VALUE OPTIONS OPTIONS AT FY-END AT FY-END
ON EXERCISE REALIZED AT FY-END AT FY-END ($) ($)
NAME (#) ($) (#) EXERCISABLE (#) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- -------- --------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Bruno..... 0 0 0 0 0 0
Arthur M. Jones,
Sr................. 16,000 135,000 17,000 11,000 17,000 0
Vincent J. Bruno..... 8,000 75,000 13,500 3,500 29,000 0
James A. Bruno....... 7,000 60,000 9,000 5,000 12,000 0
Bobby W. Little...... 3,500 32,000 3,500 3,500 0 0
-
------ ------- ------ ------ ------
Total.............. 34,500 302,000 43,000 23,000 58,000 0
====== ======= ====== ====== ====== =
</TABLE>
TREATMENT OF STOCK OPTIONS IN THE MERGER
Pursuant to the Merger Agreement as soon as practicable following the date
of the Merger Agreement, the Big B Board (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
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<PAGE> 9
stock appreciation rights plan, program or arrangement of Big B (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 Big B 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 Big B or
any interest in respect of any capital stock of Big B shall be deleted as of the
effectiveness of the Merger, and Big B 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 Big B or the Surviving Corporation.
RETIREMENT PLANS
Profit Sharing 401(k) Retirement Plan. Big B maintains a profit sharing
cash and deferred retirement plan (the "Plan") pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended. All employees who are not eligible to
participate in a union-sponsored or co-sponsored qualified retirement plan will
participate after one year of service and attainment of age 21.
Big B may make discretionary contributions in an amount determined annually
by the Big B Board. Company contributions are allocated to each participant on
the basis of compensation. Participants may make contributions to the Plan on a
payroll deduction basis and Big B may make matching contributions on behalf of
each participant. A separate salary reduction account and matching employer
contribution account are maintained for each participant. All contributions are
paid to NationsBank, as Trustee, to hold, invest and reinvest the funds. All
accounts are vested at retirement, death or disability. Upon any other
termination of employment, matching and discretionary contributions are vested
after the fifth year of service. Subject to certain restrictions and tax
penalties, participants may make early withdrawals from their salary reduction
accounts.
Revco acknowledges in the Merger Agreement that, in connection with the
Plan, for the fiscal year ending February 1, 1997, Big B shall make a
discretionary contribution for such fiscal year in an aggregate amount of
$3,100,000.
Severance Agreements. The executive officers of Big B are parties to
Employment Continuity Agreements (the "Severance Agreements") with Big B. Under
the terms of the Severance Agreements, a participating executive will generally
become entitled to receive benefits if the executives employment is terminated
by Big B for "Good Reason" or by Big B without "Cause" within two years
following a "Change of Control." For purposes of the Severance Agreements, a
"Change of Control" is deemed to include (i) any acquisition of Shares if the
acquiring person would thereafter be the beneficial owner of 25% or more of Big
B's voting Shares, (ii) a merger or consolidation of Big B in which Big B is not
the surviving corporation, (iii) a sale or exchange of all or substantially all
of the property and assets of Big B, or (iv) any change over a two-year period
or less in a majority of the Big B Board that is not approved by 2/3 of the
Directors either in office at the commencement of such two-year period or who
were elected with the approval of a majority of Directors in office at the
commencement of such two-year period. The term "Cause" is defined to mean the
commission of certain crimes or a willful breach of duty if such neglect is not
cured within 30 days of notice. An executive's termination of employment is
deemed for "Good Reason" if any of the following occurred within two years of
such termination; (i) a substantial change in the nature, or diminution in the
status, of the individual's duties or position, (ii) a reduction in the annual
base salary provided to the individual, (iii) removal from the then current
executive position, (iv) a failure to provide substantially the same support
staff, (v) a material reduction in other benefits,
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<PAGE> 10
(vi) relocation of the executives principal place of business outside
Birmingham, Alabama, or (vii) a failure to assume the Severance Agreement. Big B
considers it unlikely that the employment of all of the executives anticipated
to be covered under the Severance Agreements would be terminated following a
Change of Control.
The benefits payable under the Severance Agreements consist of a lump sum
cash payment equal to three times, for Anthony J. Bruno, Arthur M. Jones, Sr.
and James A. Bruno, two times for Vincent J. Bruno, Bobby W. Little and Michael
Tortorice, and one times for Eugene Beckmann, Steven Taylor and Paul Bruno, the
sum of the executive's average annual compensation at the time of termination
and his average incentive compensation bonus for the three years preceding
termination. Other benefits provided include the continuation of certain health,
disability, and life insurance benefits for ten years.
For a description of certain amendments to be made to the Severance
Agreements in contemplation of the Offer and the Merger, see "Amendment
Agreements" below.
Employment and Deferred Compensation Agreements. The 1995 Employment and
Deferred Compensation Agreements (the "Employment Agreements") between Big B and
the executive officers of Big B provide that certain retirement benefits are to
be paid to those officers upon their retirement after age 65 or after 1.5 years
of employment with Big B. These benefits become vested in the employee ratably
over a 25 year period until age 68 is reached at which time full vesting is
achieved. Cash retirement benefits in a monthly amount equal to 4.2% of his
average annual compensation for the three fiscal years ended immediately prior
to his retirement date are to be paid to the employee for a period of 120 months
following the date of his retirement. In addition, he is entitled to participate
in Big B's health insurance plan for the remainder of his life. In the event of
his death after retirement and during such 120-month period, Big B will be
obligated to continue the payments to his spouse or heirs for the remainder of
the 120-month term. In the event an officer becomes permanently disabled or dies
prior to attaining age 65, Big B will be obligated to make the monthly cash
payments to him, or to his wife or heirs in the event of his death, for such
120-month period. Big B accrues the present value of such retirement benefits
from the date of such agreement to the normal retirement date. The occurrence of
any event which entitles an executive officer to receive payment under his
Severance Agreement is treated as a "retirement" under his Employment Agreement,
entitling him to receive payments thereunder and a right to elect to receive a
present value lump sum payment.
For a description of certain amendments to be made to the Employment
Agreements in contemplation of the Offer and the Merger, see "Amendment
Agreements" below.
AMENDMENT AGREEMENTS
The Big B Board, at its meeting on October 27, 1996, authorized Big B to
enter into amendments (collectively, the "Amendment Agreements") to the
Severance Agreements and to the Employment Agreements. Pursuant to the Amendment
Agreements, each such officer will be entitled to receive the full amount of his
severance benefit under his Severance Agreement if his employment is terminated,
by Big B other than for dishonesty or violation of corporate policy or by the
officer for any reason, between the 90th day and the 180th day after the
completion of the Offer. In addition, the Amendment Agreements will provide
that, upon any termination of employment that would entitle an officer to
payments under his Severance Agreement, such officer will be entitled to receive
under his Employment Agreement certain health insurance benefits and the
immediate commencement of the payment of the 120 monthly installments of
deferred compensation provided for in such agreement (such commencement date to
be reflected in the calculation of the lump sum payment that the officer may
elect under such agreement). Finally, the Amendment Agreements will provide
that, pursuant to certain option agreements between Big B and certain of its
officers in respect of options issued under Big B's Stock Option Plan, any such
officer shall be paid an amount
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equal to 50% of any taxable income resulting from the exercise of currently
outstanding options, whether vested or unvested, or as a result of the "cash
out" of such options in the Merger, which amount is intended as reimbursement
for income taxes in respect of such taxable income and has historically been
paid by Big B.
INTEREST OF OFFICERS, DIRECTORS AND OTHERS IN CERTAIN TRANSACTION
Big B leases a drug store in Hoover, Alabama, from Nancy Bruno, the mother
of Vincent Bruno, Senior Vice President of Purchasing and Advertising and a
Director of Big B. The annual minimum rental is $55,000, plus 2% of store sales
(excluding sales of beer, wine or tobacco products) in excess of $2,750,000. For
the last fiscal year, Nancy Bruno received no payments under provisions relating
to sales in excess of the specified minimum. The term of this lease is through
2005.
Big B leases from Theresa L. Bruno, the sister-in-law of Anthony J. Bruno,
Chairman and CEO of Big B, five Big B Drug Stores, located in Birmingham,
Gadsden, Clanton and Talladega, Alabama, and in Pensacola, Florida, under
long-term leases with remaining terms ranging from 5 to 10 years and with three
to four five-year renewal options. Each of the leases provides for an annual
minimum guaranteed rent, plus an additional rent equal to 2% of annual sales in
excess of a specified amount for each of the five drug stores. Future minimum
lease payments under these net operating leases with noncancelable terms in
excess of one year aggregate $1,816,000. Minimum lease payments were $266,000 in
fiscal 1996, $257,000 in fiscal 1995, and $244,000 in fiscal 1994. No excess
rentals were paid in fiscal 1996, 1995, or 1994.
Big B utilizes the services of Perry Harper & Perry, Inc., an advertising
agency, located in Birmingham, Alabama, of which Theresa Bruno, the wife of
James A. Bruno, Executive Vice President, Secretary and a Director of Big B, is
a shareholder and employee. In fiscal 1996, Big B paid to Perry Harper & Perry
approximately $234,800 of commissions for its services.
In the opinion of Management and a majority of the disinterested members of
the Big B Board, the terms of each of these leases and Big B's arrangement with
its advertising agency are no less favorable than terms that could have been
obtained from unaffiliated parties.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Vincent J. Bruno is co-trustee, along with his sister, of a trust
established under the Last Will and Testament of his father, Lee J. Bruno.
Vincent Bruno's mother is the income beneficiary of the trust for her life and a
private charitable foundation is the remainder beneficiary. The trust acquired a
total of 215,000 Shares in a series of open market transactions between November
20, 1995, and June 21, 1996, at prices ranging from $9.00 to $11.75 per share.
Vincent Bruno failed to report these transactions in a timely manner on Form 4
filed with the Commission because he mistakenly did not believe himself to be
considered the beneficial owner of Shares held by the trust under Section 16 of
the Exchange Act. Upon consulting with legal counsel, Mr. Bruno was advised that
he was in fact deemed to be the beneficial owner of the Big B Shares owned by
the trust and that the transactions should be reported on Form 4. An appropriate
Form 4 filing will be made with the Commission.
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