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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 8 TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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BIG B, INC.
(NAME OF SUBJECT COMPANY)
BIG B, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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088891106
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ANTHONY J. BRUNO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BIG B, INC.
2600 MORGAN ROAD, S.E.
BESSEMER, AL 35023
(205) 424-3421
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
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COPIES TO:
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RICHARD COHN, ESQ. AND RANDALL H. DOUD, ESQ.
SIROTE & PERMUTT, P.C. SKADDEN, ARPS, SLATE,
2222 ARLINGTON AVENUE SOUTH MEAGHER & FLOM LLP
BIRMINGHAM, AL 35205 919 THIRD AVENUE
(205) 930-5130 NEW YORK, NY 10022
(212) 735-3000
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This statement amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, (as amended, the "Schedule 14D-9") of Big B, Inc.,
an Alabama corporation ("Big B"), filed with the Securities and Exchange
Commission (the "Commission") on September 23, 1996, with respect to the tender
offer (the "Original Offer") made by Revco D.S., Inc., a Delaware corporation
("Revco"), and RDS Acquisition Inc., a Delaware corporation and a wholly-owned
subsidiary of Revco ("Sub"), to purchase all outstanding shares of Big B common
stock, par value $.001 per share (such common stock and the associated common
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of September 23, 1996, between Big B and First National Bank of Boston
(as amended from time to time, the "Rights Agreement") being hereinafter
collectively referred to as the "Shares") at an original price of $15 per share
(the "Original Offer"), since increased to $17.25 per share, net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated September 10, 1996, of Revco and Sub and the related Letter of
Transmittal, in each case as amended or supplemented.
The following items of the Schedule 14D-9 are hereby amended and
supplemented by adding the following:
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the amended tender offer made by Revco and Sub to
purchase all of the outstanding Shares at $17.25 per Share, net to the seller in
cash (the "Offer Price"), without interest thereon, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated September 10, 1996,
of Revco and Sub (the "Offer to Purchase"), the Supplement to the Offer to
Purchase dated October 29, 1996 (the "Supplement"), and the related revised
Letter of Transmittal (collectively, the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 27, 1996, among Big B, Revco and Sub (the "Merger Agreement"). The
Merger Agreement provides that, subject to the conditions contained in the
Merger Agreement, as soon as practicable after consummation of the Offer and, if
required by law, subject to obtaining a vote in favor of the Merger (as defined
below), the Merger Agreement and the transactions contemplated thereby by the
holders of at least two-thirds of the outstanding Shares, at the election of
Revco, (i) Sub will be merged with and into Big B, with Big B surviving or (ii)
Big B will be merged with and into Sub with Sub surviving (in either case, the
"Merger"). In the Merger, each outstanding Share (other than Shares owned by
shareholders who properly exercise appraisal rights or Shares owned by Big B,
Revco, Sub, or any of their subsidiaries) will be converted into the right to
receive an amount in cash equal to the Offer Price. A copy of the Merger
Agreement is filed as Exhibit 20 hereto and is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND
CERTAIN ARRANGEMENTS CONCERNING BIG B OFFICERS AND DIRECTORS. The Board of
Directors of Big B (the "Big B Board"), at its meeting on October 27, 1996,
authorized Big B to enter into amendments (collectively, the "Amendment
Agreements") to the Employment Continuity Agreements (the "Severance
Agreements") between Big B and nine of Big B's executive officers and to the
1995 Employment and Deferred Compensation Agreements (the "Employment
Agreements") between Big B and such officers. 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
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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 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.
On October 27, 1996, the Big B Board approved a payment of $10,000 to each
of Charles A. McCallum and Susan W. Matlock, both members of the Big B Board, 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. Neither Mr.
McCallum nor Mr. Matlock is an officer of Big B.
For a description of certain provisions of the Merger Agreement relating to
benefits arrangements for directors and officers, see "The Merger
Agreement -- Treatment of Stock Options; Certain Employee Benefits" and
"-- Indemnification and Insurance."
THE MERGER AGREEMENT. Big B, Revco and Sub have entered into the Merger
Agreement. The following is a summary of certain provisions of the Merger
Agreement. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. In the Merger Agreement, Sub has agreed, among other things, to
amend the Original 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
Original Offer to those set forth in Section 8 of the Supplement. The Merger
Agreement provides that, without the consent of Big B, Sub 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 the
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
condition that at least a majority of the outstanding Shares on a fully diluted
basis be tendered pursuant to the Offer (the "Minimum Tender Condition").
Notwithstanding the foregoing, Sub may, without the consent of Big B, (a) extend
the Offer if, at the scheduled expiration date of the Offer, any of the
conditions to Sub'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 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 Section 8 of
the Supplement (relating to certain actions by governmental entities which could
impede the Offer or the Merger) is not satisfied at the scheduled expiration
date of the Offer, Sub shall, and Revco 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 Revco 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 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
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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 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 Revco's election, Sub
will be merged with and into Big B, with Big B continuing as the surviving
corporation or Big B will be merged with and into Sub, with Sub continuing as
the surviving corporation (in either case, the "Surviving Corporation"), and in
either event, each then outstanding Share (other than Shares held in the
treasury of Big B, Shares owned by Revco, Sub or any other subsidiary of Revco
or of Big B, 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.
Representations and Warranties. The Merger Agreement contains
representations and warranties by Big B with respect to, among other things, its
organization, its capitalization, its authority to enter into the Merger
Agreement and the Support Agreement (as defined below, and together, the
"Operative Agreements"), its filings with the Commission and its financial
statements, the absence of certain changes in its business, the information
supplied by Big B in connection with the Offer, Big B's employee benefit plans
and other compensation arrangements, the absence of certain litigation with
respect to Big B, compliance by Big B with applicable law, the inapplicability
of the Rights Agreement to the Offer and the Merger, tax matters relating to Big
B, certain facts and the absence of certain provisions of the articles of
incorporation and By-laws of Big B's subsidiaries related to certain state
anti-takeover statutes and real property matters.
The Merger Agreement also contains representations and warranties by Revco
and Sub 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 Revco.
Covenants of Big B. In the Merger Agreement, Big B has agreed that, among
other things, during the period from the date of the Merger Agreement until the
time the Merger is effective, (a) Big B 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) Big B 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 Big B 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 Big B or (z) repurchase, redeem or otherwise acquire, any
shares of capital stock of Big B 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 Big B's 6.5% Convertible Subordinated Debentures
Due 2003 (the "Convertible Debentures") the Convertible Debentures); (iii) amend
its Articles of Incorporation, By-laws or
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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 Big B 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
Revco; (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 Big B 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 Big B or
any direct or indirect wholly owned subsidiary of Big B; (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 Revco, 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 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 Big B 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 Big B 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, Big B 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 Big B 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 the 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, Big B has
agreed that Big B 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, Big B
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
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(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 Big B Board 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 Big B shareholders under applicable law, Big B may deliver a
written notice to that effect promptly to Revco 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
Big B than the Revco Confidentiality Agreement (as defined below), information
with respect to Big B 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 Big B or any of its subsidiaries or any investment
banker, financial advisor, attorney, accountant or other advisor, representative
or agent of Big B or any of its subsidiaries, whether or not such person is
purporting to act on behalf of Big B or any of its subsidiaries or otherwise,
shall be deemed to be a breach of the provisions described in this paragraph by
Big B. 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 Big B
and subsidiaries (taken as a whole) or an interest in any substantial amount of
voting securities of Big B or any Significant Subsidiary (as defined in the
Merger Agreement), any tender offer or exchange offer that if consummated would
result in any person beneficially owning any voting securities of Big B or any
Significant Subsidiary, any merger, consolidation, business combination, sale of
all or substantially all the assets, recapitalization, liquidation, dissolution
or similar transaction involving Big B 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 Revco or Sub
of the transactions contemplated by the Operative Agreements.
The Merger Agreement also provides that neither the Big B Board nor any
committee thereof may (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Revco or Sub, the adoption, approval or recommendation by
the Big B Board 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 (except, at the request of Revco upon five
business days' prior written notice, redeem the Rights prior to the
effectiveness of the Merger), or make any determination, under the Rights
Agreement to facilitate any Takeover Proposal or (iii) cause or permit Big B 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 Big B Board 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 Big B's shareholders under applicable law,
the Big B Board may withdraw or modify its adoption, approval or recommendation
of the Offer, the Merger Agreement and the Merger at any time following Revco's
receipt of written notice (a "Notice of Superior Proposal") advising Revco that
the Big B Board 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 Big B Board determines in its good faith judgment (based on the
written opinion of R-H (as defined below) 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 Big B shareholders, in each case, than the Merger
Agreement, the Offer and the Merger taken as a whole.
In addition to the obligations of Big B described in the two preceding
paragraphs, the Merger Agreement provides that Big B shall immediately advise
Revco orally and in writing of any request
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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. Big B shall keep
Revco 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 Big B 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 Big B shareholders if the Big B Board
determines in good faith, after consultation with outside counsel, failure so to
disclose would be inconsistent with its fiduciary duties to the Big B
shareholders under applicable law; provided, however, that neither Big B nor the
Big B Board 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.
Shareholder Approval; Preparation of Proxy Statement. The Merger Agreement
provides that if shareholder approval of the Merger Agreement is required by
law, Big B, shall, at Revco'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 Big
B shall, through the Big B Board, 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 Big B Board 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, Big B 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 Big B of any Takeover Proposal or (ii) the
withdrawal or modification by the Big B Board of its approval or recommendation
of the Offer, the Merger Agreement or the Merger. The Merger Agreement also
provides that, if requested by Revco, Big B shall from time to time postpone or
adjourn the Shareholders Meeting to allow Revco and Big B 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, Big B shall at Revco'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 Big B shareholders as promptly as practicable
after such filing. The Merger Agreement provides that Big B shall notify Revco
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 Revco with copies
of all correspondence between Big B or any of its representatives, on the one
hand, and the Commission 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 Big B shareholders there
shall occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, Big B shall promptly prepare and mail to its shareholders
such an amendment or supplement. The Merger Agreement provides that Big B shall
not mail any Proxy Statement, or any amendment or supplement thereto, to which
Revco reasonably objects. The Merger Agreement provides that Revco shall cause
all Shares purchased pursuant to the Offer and all other Shares owned by Sub or
any other subsidiary of Revco to be voted in favor of the approval of the Merger
Agreement.
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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 Big B, Big B shall, and shall cause each of its subsidiaries to, afford to
Revco, and to Revco'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, Big B shall, and shall cause each of its subsidiaries to,
furnish promptly to Revco (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 Revco may reasonably
request.
The Merger Agreement provides that except as required by law, Revco 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 Big B. The Merger
Agreement provides that in the event of termination of the Merger Agreement for
any reason, Revco shall promptly return or destroy all documents containing
nonpublic information so obtained from Big B or any of its subsidiaries and any
copies made of such documents. The Merger Agreement provides that Big B or its
representatives have requested the return or destruction of confidential
information of Big B provided by Big B or its representatives from each of the
parties that executed confidentiality or standstill agreements following public
announcement of the Original Offer and Big B agreed not to waive, amend or
modify any provision of any such agreement without prior written consent of
Revco.
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 Big B Board 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,
Big B and the Big B Board 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
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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 Big B
Board 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 Big B shall give prompt notice to Revco,
and Revco or Sub shall give prompt notice to Big B, 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.
The Rights Agreement. Big B has agreed in the Merger Agreement that, at the
request of Revco upon five business days' prior notice, the Big B Board shall
redeem the Rights prior to the effectiveness of the Merger. Big B 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 (as defined in the Rights Agreement) 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 Revco, the Big
B Board 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 Sub's acceptance for payment and payment for, Shares pursuant to the
Offer, Sub will be entitled to designate such number of directors on the Big B
Board as will give Sub, subject to compliance with Section 14(f) of the Exchange
Act and Alabama law, a majority of such directors. The Merger Agreement further
provides that, notwithstanding the foregoing, until the effectiveness of the
Merger, Big B shall have on the Big B Board at least three directors who were
directors of Big B as of the date of the Merger Agreement. Subject to applicable
law, Big B has agreed to take all action necessary to effect the election of the
Sub designees to the Big B Board and in connection therewith, Big B will
promptly, at the option of Revco, either increase the size of the Big B Board
and/or obtain the resignation of such number of its current directors as is
necessary to enable the Sub designees to be elected to the Big B Board and in
connection therewith, Big B will promptly, at the option of Revco, either
increase the size of the Big B Board and/or obtain the resignation of such
number of its current directors as is necessary to enable the Sub designees to
be elected to the Big B Board 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 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 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
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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.
Except as provided in the provisions in the immediately preceding
paragraph, the Merger Agreement provides that Revco shall cause the Surviving
Corporation to maintain for a period of one year after the effectiveness of the
Merger the Benefit Plans of Big B and its subsidiaries in effect on the date of
the Merger Agreement or to provide benefits for such period to employees of Big
B 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, Revco agrees to cause the Surviving Corporation to
honor all severance policies and agreements, deferred compensation agreements,
employment agreements and death benefit agreements with Big B's officers and
employees disclosed to Revco, including certain proposed additional agreements
and modifications disclosed to Revco; 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. Revco
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.
Revco acknowledges in the Merger Agreement that, in connection with Big B's
annual bonus plan for the fiscal year ending February 1, 1997, (i) Big B shall
be deemed to have achieved all targets under such plan and (ii) any employee of
Big B whose employment with Big B is terminated by Big B (other than termination
for dishonesty or violation of Big B policy) or who terminates his or her
employment with the prior written consent of Big B 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
Big B 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 Revco or whose employment with Big B is terminated
prior to such date for dishonesty or violation of Big B policy.
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.
Indemnification and Insurance. In the Merger Agreement, Revco and Sub 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 Big
B 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, Revco
will, for a period of six years from the effectiveness of the Merger maintain in
effect Big B's current directors' and officers' liability insurance covering
those persons who are currently covered by Big B'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
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cost (such 225% amount, the "Maximum Premium"), Revco will be obligated to use
its reasonable efforts to purchase only so much coverage as may then be obtained
for such amount. Big B represented in the Merger Agreement to Revco 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 affirmative vote of the Big B shareholders; 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 Revco 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 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 Revco 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
Big B, Revco or Sub any damages that are material in relation to Big B and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership
or operation by Big B, Revco or any of their respective subsidiaries of any
material portion of the business or assets of Big B, Revco or any of their
respective subsidiaries, or to compel Big B, Revco or any of their respective
subsidiaries to dispose of or hold separate any material portion of the business
or assets of Big B, Revco 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 Revco 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 Big B shareholders or (iv) seeking to prohibit
Revco or any of its subsidiaries from effectively controlling in any material
respect the business or operations of Big B or its subsidiaries.
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 Big B shareholders:
(a) by mutual written consent of Revco and Big B; (b) by either Revco or Big B:
(i) if, upon a vote at a duly held Shareholders Meeting or any adjournment
thereof at which Revco voted all Shares beneficially owned by it in accordance
with the Merger Agreement, any required approval of the Big B shareholders shall
not have been obtained; provided, however, that Big B 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) Big B 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 the Supplement, the
Offer shall have terminated or expired in accordance with its terms without Sub
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 Big B
if (i) Big B shall have given Revco a Notice of Superior Proposal with respect
to a Takeover Proposal,
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(ii) at least five business days later, the Big B Board 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 Big B shareholders, in
each case, than the Merger Agreement, the Offer and the Merger taken as a whole
in light of any improved terms proposed by Revco or Sub prior to the expiration
of such five business day period and (iii) Big B has paid to Revco the
Termination Fee as described in "Fees and Expenses" below; or (d) by Revco 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, Big B will pay to Revco 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 the 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 the Supplement, (x) the Minimum Tender Condition (as defined in
Section 8 of the 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 Big B Board,
within five business days of being requested to do so by Revco, 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
Big B 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 Big B 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 Revco or Sub,
Revco shall pay Big B in cash, payable in same day funds, $5 million (the
"Expenses") in lieu of reimbursement of Big B 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,
Big B shall pay Revco in cash, payable in same day funds, the Expenses. The
Merger Agreement further provides that any amount paid by Big B pursuant to the
immediately preceding sentence shall be a credit against any amounts
subsequently due from Big B pursuant to clause (ii) of the first sentence of
this paragraph.
Litigation. The Merger Agreement provides that Revco and Big B 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
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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) Big B shall not reinstate (or
permit its affiliates or representatives to reinstate) any such litigation so
long as Revco and Sub are not in material breach of their respective obligations
under the Merger Agreement and (b) each of Revco and Sub shall not reinstate (or
permit its affiliates or representatives to reinstate) any such litigation so
long as Big B 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 Big B shareholders, 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. Revco and Sub have entered in a Support Agreement,
dated as of October 27, 1996 (the "Support Agreement"), with Anthony J. Bruno,
Arthur M. Jones, Sr., Vincent J. Bruno and James A. Bruno, each of whom is an
officer and a director of Big B. The following is a summary of certain
provisions of the Support Agreement. Such summary is qualified in its entirety
by reference to the Support Agreement, a copy of which is filed as Exhibit 21
hereto and is incorporated herein by reference.
Revco and Sub 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 Big B 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 Big B or any
other Takeover Proposal, (ii) any amendment of Big B's Articles 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 Revco or Sub of the transactions contemplated
by the Merger Agreement and (iii) against any candidate for election to the Big
B Board not approved by Revco.
There are 1,187,486 Shares (the "Subject Shares"), representing
approximately 6.3% of the outstanding Shares, which are covered by the terms of
the Support Agreement. 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 Sub or the Sub 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
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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 Revco, with full power of substitution, a proxy
covering all the Subject Shares of such Shareholder to vote such Subject Share
in accordance with the requirements of the Support Agreement. The proxy is
coupled with an interest and is irrevocable to the maximum extent permitted by
Alabama law. 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 Big B 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 Revco and Big B 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 related entities, holding in the aggregate approximately 11% of the
outstanding Shares (which includes the 1,187,486 Subject Shares), have informed
Revco that they do not expect to tender their Shares pursuant to the Offer.
ITEM 4. THE SOLICITATION AND RECOMMENDATION
(a) AND (b). Beginning on September 23, 1996, Big B entered into
confidentiality agreements (collectively, the "Confidentiality Agreements") with
a number of parties (other than Revco) which had expressed interest in
developing acquisition proposals for Big B. Pursuant to the Confidentiality
Agreements, Big B provided certain confidential financial information to each
such interested party.
On October 3, 1996, Big B and Revco entered into a confidentiality
agreement (the "Revco Confidentiality Agreement") which differed in various
respects from the Confidentiality Agreements. Beginning on October 4, 1996, Big
B communicated to the various parties which had previously executed the
Confidentiality Agreements Big B's offer to revise such agreements to conform
with the terms of the Revco Confidentiality Agreement. The majority of parties
that had entered into Confidentiality Agreements subsequently amended such
agreements consistent with the foregoing.
Following the execution of the Revco Confidentiality Agreement, Big B made
available to Revco the confidential information that had been made available to
the parties that had previously executed Confidentiality Agreements.
Beginning on October 7, 1996, Revco and several other parties which had
executed Confidentiality Agreements and which had at that date continued to
express an interest in developing acquisition proposals for Big B (the
"Interested Parties") were provided additional information about Big B,
including through data room visits and access to Big B management. On October
14, 1996, officers and representatives of Revco met with Arthur M. Jones, Sr.,
President of Big B, and reviewed documents and other information made available
by Big B as part of Revco's due diligence investigation of Big B.
On October 15, 1996, R-H on behalf of Big B sent a letter to each of the
Interested Parties that advised that any party interested in acquiring Big B
should submit a written bid and a proposed form of merger agreement to R-H not
later than 5:00 p.m., Atlanta time, on Friday, October 25, 1996. Such letter
also stated that Big B's legal advisors would be available before that time to
discuss with the legal advisors for any Interested Party certain legal issues in
connection with any proposed acquisition transaction, including the proposed
terms of any potential merger agreement.
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Between October 15, 1996 and October 25, 1996, Big B's legal advisors had
general discussions with the legal advisors for several of the Interested
Parties (including Revco's legal advisors) regarding such legal issues and the
proposed terms of a potential merger agreement.
On the evening of October 25, 1996, Big B received and, together with its
financial and legal advisors, reviewed proposals from Revco and one other
Interested Party (together, the "Bidding Parties"). Big B had previously heard
from the remaining Interested Parties that such Interested Parties would not be
submitting proposals to Big B. Revco's proposal, which was subject to the
negotiation of a definitive merger agreement, proposed a transaction in which
each Big B shareholder would receive cash consideration of $17.00 per Share. The
proposal from the other Bidding Party, which was also subject to the negotiation
of a definitive merger agreement, proposed cash consideration in excess of
$17.00 for each Share.
Late in the evening of October 25, 1996, R-H on behalf of Big B sent a
letter by facsimile to Revco and the other Bidding Party in which each Bidding
Party was invited to come to Birmingham, Alabama the next morning to discuss its
proposal with a view to developing such party's final and best proposal to be
submitted to the Big B Board for its consideration over the weekend. In the same
letter, Revco and the other Bidding Party were advised that it was expected that
the Big B Board would approve a merger transaction over the course of the
weekend and that any merger agreement entered into by Big B following such
approval would likely provide for a termination fee (together with reimbursement
of expenses) in the range of $15-20 million, such amount to be payable by Big B,
in the event that Big B terminates the merger agreement to accept a superior
offer to acquire Big B, or the transactions contemplated by the merger agreement
fail to be completed by reason of a competing offer to acquire Big B. R-H then
communicated with each Bidding Party by telephone to confirm receipt of such
letter and to determine such party's intentions with respect to travelling to
Birmingham.
On October 26, 1996, Big B's financial and legal advisors conferred with,
either in person or by telephone, representatives of Revco and the other Bidding
Party and discussed various provisions of the proposed merger agreements.
On October 27, 1996, Big B's advisors continued to negotiate with Revco's
advisors concerning the provisions of Revco's proposed merger agreement and
encouraged Revco to submit its best bid before 2:00 p.m., Birmingham time, when
the Big B Board was scheduled to meet. Prior to the meeting of the Big B Board,
Revco revised its proposal to include cash consideration of $17.25 for each
Share. Also prior to the meeting of the Big B Board, the other Bidding Party
advised the representatives of Big B that it had withdrawn its proposal to
acquire Big B.
In the afternoon of October 27, 1996, the Big B Board met to review and
consider, with the assistance of Big B's management and financial and legal
advisors, the events since October 25, 1996 and the results of the negotiations
with Revco and the other Bidding Party. After full consideration of such
matters, including the terms of the Offer, the Merger Agreement and the Support
Agreement, the Big B Board then (i) approved the terms of the Merger Agreement
and authorized the execution and delivery thereof, (ii) determined that the
Offer and the Merger, taken together, are fair to and in the best interests of
Big B shareholders, and (iii) determined to recommend that Big B shareholders
tender their Shares pursuant to the Offer and, to the extent required by
applicable law, approve the Merger, the Merger Agreement and the transactions
contemplated thereby. In connection with the foregoing, the Big B Board
authorized an amendment to the Rights Agreement in order to exempt Revco, Sub
and any of their subsidiaries from being deemed an Acquiring Person for purposes
of such agreement by reason of (i) the acquisition of Shares pursuant to the
Offer and the Merger as contemplated by the Merger Agreement or (ii) any deemed
beneficial ownership arising pursuant to the Support Agreement. A copy of the
Amendment to the Rights Agreement is filed hereto as Exhibit 22 and is
incorporated herein by reference.
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On October 28, 1996, Big B and Revco announced that they had entered into
the Merger Agreement. By virtue of such announcement, the "standstill"
provisions in each of the Confidentiality Agreements ceased to be in effect.
ACCORDINGLY, THE BIG B BOARD UNANIMOUSLY RECOMMENDS THAT BIG B SHAREHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to the Big B shareholders communicating the Big B
Board's recommendation is filed hereto as Exhibit 23 and is incorporated herein
by reference.
In reaching its conclusions and the recommendations described above, the
Big B Board considered a number of factors in addition to those described,
including, among other things, the following:
(i) the financial and other terms and conditions of the Offer, the
Merger, the Merger Agreement and the Support Agreement;
(ii) the written opinion of R-H, dated October 27, 1996 (the "R-H
Opinion"), that the cash consideration to be received by the holders of
Shares (other than Revco 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. A copy of the R-H Opinion is filed as Exhibit 24 hereto and is
incorporated herein by reference. Such opinion should be read in its
entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and limitations on the review
undertaken by R-H;
(iii) the fact that the consideration to be received by the Big B
shareholders pursuant to the Offer and the Merger represents a 15% premium
over the $15.00 per Share offer price in the Original Offer and a
substantial premium over the trading range for the Shares during the period
prior to September 8, 1996, the date on which Revco and Sub announced its
intention to commence the Original Offer;
(iv) the recommendation of Big B's management that the Offer, the
Merger and the Merger Agreement be approved; and
(v) the belief of the Big B Board that, in view of the number of
parties canvassed by R-H and the number of parties who participated in the
process and received information with respect to Big B, it was unlikely
that any party potentially interested in submitting a proposal to acquire
Big B and who was financially able to do so had not been afforded the
opportunity to do so;
(vi) the fact that, if required by the fiduciary duties of the Big B
Board under Alabama law, Big B could (x) approve or recommend a tender
offer competing with the Offer or (y) terminate the Merger Agreement and
enter into a definitive acquisition agreement with another party, in
connection with a transaction which is financially superior to the Offer
and the Merger, provided that under the circumstances described in the
Merger Agreement, Big B could pay Revco a termination fee of up to $15
million (see "The Merger Agreement -- Fees and Expenses" in Item 3 above);
(vii) the Big B Board's knowledge of Big B's business and financial
condition and its long-term strategic plan and future prospects.
The foregoing discussion of the information and factors considered and
given weight by the Big B Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Big B Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Big B
Board may have given different weights to different factors.
15
<PAGE> 17
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) AND (b). Pursuant to the Support Agreement, Anthony J. Bruno, Arthur M.
Jones, Sr., Vincent J. Bruno and James A. Bruno, each an officer and director of
the Company, and certain related entities have agreed to vote an aggregate of
1,187,486 Shares owned by them (representing approximately 6.3% of the
outstanding Shares) in favor of the Merger, to vote their Shares against any
competing merger or business combination proposal or any other proposal that
could impede the Merger, to not sell or transfer their Shares to anyone other
than Sub or its designee (other than by operation of law) and to not solicit any
Takeover Proposal (as defined in the Merger Agreement). In addition, such
persons and entities have granted to Sub an irrevocable proxy to vote their
Shares in accordance with the foregoing. See "The Support Agreement" under Item
3 above.
Because of restrictions imposed by Section 16 of the Exchange Act, Anthony
J. Bruno, Vincent J. Bruno and certain related entities do not expect to tender
their Shares in the Offer but expect to receive the cash consideration in the
Merger in exchange for their Shares. Except as described in the preceding
sentence, all of the directors and executive officers of Big B currently intend
to tender all of their Shares in the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) AND (b). As described under Item 3 above, Big B has agreed in the
Merger Agreement not to engage in certain activities in connection with any
proposal to engage in a business combination with, or acquire an interest in or
assets of, Big B. See "The Merger Agreement -- Prohibition on Solicitation" in
Item 3 above.
Except in accordance with the exercise of fiduciary duties as advised by
counsel as described under Item 3 hereof, Big B does not presently intend to
undertake any negotiations in response to the Offer which relate to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving Big B or any of its subsidiaries; (ii) a purchase, sale or transfer of
a material amount of assets by Big B or any of its subsidiaries; (iii) a tender
offer for or other acquisition of securities by or of Big B; (iv) any material
change in the present capitalization or dividend policy of Big B.
Except as described herein, there are no transactions, board resolutions,
agreements in principle or signed contracts in response to the Offer which
relate to or would result in one or more of the events referred to in the
preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Pursuant to the Merger Agreement, Big B and Revco have agreed to dismiss
without prejudice all litigation currently pending between them or their
respective affiliates or representatives. See "The Merger
Agreement -- Litigation" under Item 3 above.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 20: Agreement and Plan of Merger, dated as of October 27, 1996, among Big B,
Inc., Revco D.S., Inc. and RDS Acquisition Inc.
Exhibit 21: Support Agreement, dated as of October 27, 1996, among Revco D.S., Inc., RDS
Acquisition Inc. and the parties listed on Schedule A thereto
Exhibit 22: Amendment to Rights Agreement, dated as of October 27, 1996
Exhibit 23: Letter to Shareholders of Big B, Inc., dated October 30, 1996*
Exhibit 24: Opinion of The Robinson-Humphrey Company, Inc., dated October 27, 1996.**
</TABLE>
- ---------------
* Included in Amendment No. 8 to Schedule 14D-9 mailed to shareholders.
** Included as Annex B in Amendment No. 8 to Schedule 14D-9 mailed to
shareholders.
16
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of his knowledge and belief, the
undersigned certifies that the information set forth in this Amendment is true,
complete and correct.
BIG B, INC.
By: /s/ Arthur M. Jones, Sr.
Name: Arthur M. Jones, Sr.
Title: President and Chief
Operating Officer
Dated: October 30, 1996
17
<PAGE> 19
ANNEX A
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
A-1
<PAGE> 20
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.
A-2
<PAGE> 21
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.
A-3
<PAGE> 22
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.
A-4
<PAGE> 23
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 1995 fiscal year. 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.
A-5
<PAGE> 24
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.
A-6
<PAGE> 25
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.
A-7
<PAGE> 26
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
A-8
<PAGE> 27
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,
A-9
<PAGE> 28
(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 Employment
Continuity 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 and
Deferred Compensation 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
A-10
<PAGE> 29
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.
A-11
<PAGE> 30
ANNEX B
[LETTERHEAD OF THE ROBINSON-HUMPHREY COMPANY, INC.]
October 27, 1996
Board of Directors
Big B, Inc.
2600 Morgan Road, S.E.
Bessemer, Alabama 35023
To the Members of the Board:
We understand that Big B, Inc. (the "Company"), Revco D.S., Inc. (the
"Acquiror") and RDS Acquisition Inc., a wholly owned subsidiary of the Acquiror
(the "Acquisition Sub"), propose to enter into an Agreement and Plan of Merger
(the "Agreement") pursuant to which the Acquisition Sub will amend its existing
tender offer (the "Offer") for all shares of the Company's common stock, par
value $.001 per share (the "Shares"), to among other things, increase the price
to $17.25 per Share, net to the seller in cash. The Offer is expected to be so
amended on October 28, 1996. The Agreement also provides that, following
consummation of the Offer, the Company and the Acquisition Sub will merge in a
transaction (the "Merger") in which each remaining Share will be converted into
the right to receive $17.25 in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Shares (other than the Acquiror and its
affiliates) in the Offer and the Merger, taken as a whole, is fair to such
shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available information concerning the Company which we
believe to be relevant to our analysis;
(2) Reviewed certain information, including financial and operating
information with respect to the business, operations and prospects of
the Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations and present financial condition of
the Company with those of certain publicly traded companies which we
deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the transaction contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(7) Conducted a process to explore the Company's alternatives to maximize
value to its shareholders and reviewed information obtained as a part
of that process;
(8) Reviewed an October 27, 1996 draft of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
<PAGE> 31
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company. We have not conducted a physical inspection of the
properties and facilities of the Company, and we have not made nor obtained any
evaluations or appraisals of the assets or liabilities of the Company. Our
opinion is necessarily based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company (the "Board") and may not be used for any other purpose
without our prior written consent. We hereby consent to the inclusion of this
letter in the amendment to the Company's Solicitation/Recommendation Statement
as Schedule 14D-9 to be filed in connection with the Board's recommendation
regarding the Offer. This opinion is not intended to be and shall not constitute
a recommendation to any shareholder of the Company as to whether to tender
Shares pursuant to the Offer.
We have acted as financial advisor to the Company in connection with the
proposed transaction and will receive a fee for our services which is in part
contingent upon the consummation of the proposed transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. We have provided investment banking services for the
Company in the past and have received customary fees for these services. In the
ordinary course of our business, we actively trade in the common stock of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Shares
(other than the Acquiror and its affiliates) pursuant to the Offer and the
Merger is, taken as a whole, fair to such shareholders from a financial point of
view.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Exhibit 20: Agreement and Plan of Merger, dated as of October 27, 1996, among Big B,
Inc., Revco D.S., Inc. and RDS Acquisition Inc............................
Exhibit 21: Support Agreement, dated as of October 27, 1996, among Revco D.S., Inc.,
RDS Acquisition Inc. and the parties listed on Schedule A thereto.........
Exhibit 22: Amendment to Rights Agreement, dated as of October 27, 1996...............
Exhibit 23: Letter to Shareholders of Big B, Inc., dated October 30, 1996*............
Exhibit 24: Opinion of The Robinson-Humphrey Company, Inc., dated October 27,
1996.**...................................................................
</TABLE>
- ---------------
* Included in Amendment No. 8 to Schedule 14D-9 mailed to shareholders.
** Included as Annex B in Amendment No. 8 to Schedule 14D-9 mailed to
shareholders.
<PAGE> 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.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
</TABLE>
<PAGE> 3
2
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
</TABLE>
<PAGE> 4
3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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:
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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.
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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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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;
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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",
<PAGE> 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
<PAGE> 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.
<PAGE> 8
Schedule A
List of Shareholders
<TABLE>
<CAPTION>
Subject Shares
---------------
<S> <C>
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
</TABLE>
<PAGE> 9
Schedule B
List of Shareholder Trusts
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 1
EXHIBIT 22
AMENDMENT TO RIGHTS AGREEMENT
Amendment, dated as of October 27, 1996, to the Rights Agreement, dated as
of September 23, 1996, between Big B, Inc., an Alabama corporation (the
"Company"), and First National Bank of Boston, as Rights Agent (the "Rights
Agent").
The Company and the Rights Agent have heretofore executed and entered into
the Rights Agreement. Pursuant to Section 26 of the Rights Agreement, the
Company and the Rights Agent may from time to time supplement or amend the
Rights Agreement in accordance with the provisions of Section 26 thereof. All
acts and things necessary to make this Amendment a valid agreement, enforceable
according to its terms, have been done and performed, and the execution and
delivery of this Amendment by the Company and the Rights Agent have been in all
respects duly authorized by the Company and the Rights Agent.
In consideration of the foregoing and the mutual agreements set forth
herein, the parties have hereto agreed as follows:
1. Section 1(a) of the Rights Agreement is hereby amended to read in
its entirety as follows:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 10% or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary
of the Company, (iii) any employee benefit plan of the Company or of any
Subsidiary of the Company, (iv) any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of
any such plan, (v) any member of the Bruno family, consisting of any of
Anthony J. Bruno, Vincent J. Bruno, James A. Bruno, or 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 which have been or
may be entered into among members of such family, (vi) Revco D.S., Inc.
("Revco"), RDS Acquisition Inc. ("RDS Acquisition"), or any of their
subsidiaries, which might otherwise be an Acquiring Person by reason of
(A) the acquisition of shares of Common Stock made pursuant to the Offer
and the Merger contemplated by the Agreement and Plan of Merger, dated
as of October 27, 1996, among the Company, Revco and RDS Acquisition and
otherwise in accordance with the provisions of such Agreement and Plan
of Merger, or (B) any deemed beneficial ownership by Revco, RDS
Acquisition, or any of their subsidiaries, arising pursuant to the
Support Agreement, dated as of October 27, 1996, between Revco and RDS
Acquisition and Anthony J. Bruno, Arthur M. Jones, Sr., Vincent J. Bruno
and James A. Bruno, (vii) any such Person who has reported or is
required to report such ownership (but who is the Beneficial Owner of
less than 15% of the shares of Common Stock outstanding) on Schedule 13G
under the Exchange Act (or any comparable or successor report) or on
Schedule 13D under the Exchange Act (or any comparable or successor
report) which Schedule 13D does not state any intention to or reserve
the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such
Schedule (other than the disposition of the Common Stock) and, within 10
Business Days of being requested by the Company to advise it regarding
the same, certifies to the Company that such Person acquired shares of
Common Stock in excess of 10% inadvertently or without knowledge of the
terms of the Rights and who, together with all Affiliates and
Associates, thereafter does not acquire additional shares of Common
Stock while the Beneficial Owner of 10% or more of the shares of Common
Stock then outstanding; provided, however, that if the Person requested
to so certify fails to do so within 10 Business Days, then such Person
-1-
<PAGE> 2
shall become an Acquiring Person immediately after such 10 Business Day
Period or (viii) any such Person who as of the date of this Agreement is
the Beneficial Owner of 10% or more of the shares of Common Stock
outstanding and who within 5 Business Days following the date of this
Agreement disposes of sufficient shares such that such Person shall be
and then remain thereafter a Beneficial Owner of less than 10% of the
shares of Common Stock then outstanding.
2. This Amendment to the Rights Agreement shall be governed by and
construed in accordance with the laws of Delaware applicable to contracts
made and to be performed entirely within such State.
3. This Amendment to the Rights Agreement may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument. Terms
not defined herein shall, unless the context otherwise requires, have the
meanings assigned to such terms in the Rights Agreement.
4. If any term, provision, covenant or restriction of this Amendment
to the Rights Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment to the
Rights Agreement, and of the Rights Agreement, shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.
<TABLE>
<S> <C>
Attest: BIG B, INC.
By: /s/ JAMES A. BRUNO By: /s/ MICHAEL J. TORTORICE
---------------------------------------- ----------------------------------------
Name: James A. Bruno Name: Michael J. Tortorice
Title: Secretary Title: Vice President and
Chief Financial Officer
Attest: FIRST NATIONAL BANK OF BOSTON
By: /s/ JOSHUA P. McGINN By: /s/ COLLEEN SHEA-KEATING
---------------------------------------- ----------------------------------------
Name: Joshua P. McGinn Name: Colleen Shea-Keating
Title: Senior Account Manager Title: Administration Manager
</TABLE>
-2-
<PAGE> 1
[BIG B LOGO]
October 30, 1996
Dear Shareholder:
We are pleased to inform you that on October 27, 1996, Big B, Inc. entered
into a merger agreement (the "Merger Agreement") with Revco D.S., Inc. ("Revco")
pursuant to which Revco's wholly-owned subsidiary has amended its pending tender
offer for all outstanding shares of Big B's common stock to, among other things,
increase the offer price to $17.25 in cash per share. This represents a 15%
increase over Revco's previous $15 per share offer. The revised tender offer is
to be followed by a merger in which the holders of any remaining Big B shares
will receive $17.25 in cash per share.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT WITH
REVCO AND HAS DETERMINED THAT THE REVISED TENDER OFFER AND THE MERGER, TAKEN
TOGETHER, ARE FAIR TO AND IN THE BEST INTERESTS OF BIG B SHAREHOLDERS AND
RECOMMENDS THAT BIG B SHAREHOLDERS TENDER THEIR SHARES PURSUANT TO REVCO'S
REVISED TENDER OFFER.
The Merger Agreement represents the culmination of a comprehensive effort
by your Board to develop a transaction which would provide maximum benefits to
shareholders. In pursuit of the goal, your Board, with the assistance of its
financial advisor, The Robinson-Humphrey Company, Inc. ("R-H"), sought to elicit
the highest and best proposals to acquire Big B from all credible interested
parties and evaluated various alternative transactions.
In determining to approve the Merger Agreement and the transactions
contemplated thereby, your Board gave careful consideration to a number of
factors described in the attached Amendment No. 8 to the Schedule 14D-9 that has
been filed with the Securities and Exchange Commission. Among other things, your
Board considered the opinion of R-H, dated October 27, 1996, that the cash
consideration to be received by the holders of Big B common stock (other than
Revco and its affiliates) pursuant to the revised tender offer and the merger
is, taken as a whole, fair to such holders from a financial point of view.
The enclosed Amendment No. 8 to the Schedule 14D-9 describes the Board's
decision and contains other important information relating to such decision. We
urge you to read it carefully.
Very truly yours,
/s/ Anthony J. Bruno
Anthony J. Bruno
Chairman and Chief Executive Officer
