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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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REVCO D.S., INC.
(Name of Subject Company)
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REVCO D.S., INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
761339 10 0
(CUSIP Number of Class of Securities)
JACK A. STAPH, ESQ.
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
REVCO D.S., INC.
1925 ENTERPRISE PARKWAY
TWINSBURG, OHIO 44087
(216) 425-9811
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications on Behalf of the Person(s) Filing
Statement)
WITH A COPY TO:
MICHAEL K.L. WAGER, ESQ.
BENESCH, FRIEDLANDER, COPLAN & ARONOFF
2300 BP AMERICA BUILDING
200 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 363-4500
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Revco D.S., Inc., a Delaware corporation
(the "Company"), and the address of the principal executive offices of the
Company is 1925 Enterprise Parkway, Twinsburg, Ohio 44087. The title of the
class of equity securities to which this statement relates is the common stock,
par value $.01 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by Ocean Acquisition Corporation,
a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Rite
Aid Corporation, a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated December 4, 1995, to purchase 35,144,833
Shares at a price of $27.50 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated December
4, 1995 (the "Offer to Purchase") and the related Letter of Transmittal (which,
as amended from time to time, together constitute the "Offer"). The Offer is
conditioned upon, among other things, 35,144,833 Shares, or such other number of
Shares as equals 50.1% of the Shares outstanding on a fully diluted basis as of
the expiration of the Offer, being validly tendered and not withdrawn prior to
the expiration of the Offer (the "Minimum Condition"). If more Shares are
tendered pursuant to the Offer than Parent is willing to accept, Parent will
purchase a number of Shares prorated among the Shares tendered pursuant to the
Offer. Purchaser has reserved the right, in its sole discretion (but subject to
the terms of the Merger Agreement), at any time and from time to time, to
increase the number of Shares sought in the Offer up to and including all of the
issued and outstanding Shares. The Offer is scheduled to expire on January 2,
1996, unless extended by the Purchaser.
The Merger Agreement. The Offer is being made pursuant to an Agreement and
Plan of Merger dated as of November 29, 1995 (the "Merger Agreement") by and
among Parent, the Purchaser and the Company. The Merger Agreement provides for,
among other things, the making of the Offer by the Purchaser and further
provides that, as soon as practicable after the consummation of the Offer and
satisfaction or waiver of all conditions, the Purchaser will be merged with and
into the Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation") and will be a wholly owned subsidiary
of Parent.
At the effective time of the Merger (the "Effective Time"), each issued and
outstanding Share (other than any Shares held in the treasury of the Company or
owned by Parent, the Purchaser or any other direct or indirect wholly owned
subsidiary of Parent and other than Dissenting Shares) shall be cancelled and
converted automatically into the right to receive, upon the surrender of the
certificate formerly representing such Share, either (i) a number of duly
authorized, validly issued, fully paid and nonassessable shares of common stock,
par value $1.00 per share, of Parent (the "Parent Common Stock") determined as
set forth below; provided that Parent shall not issue more than 1.12500 nor less
than .91666 shares of Parent Common Stock per Share (the "Exchange Ratio"), or
(ii) if the Alternative Consideration (as defined below) is applicable, then the
Alternative Consideration, plus, in each of clauses (i) and (ii) above, any
Additional Consideration (as defined below).
The number of shares of Parent Common Stock which stockholders of the
Company will receive in the Merger for each Share will be determined using the
average closing price of Parent Common Stock on fifteen (15) trading days
randomly selected from the forty (40) trading day-period ending five (5) days
before the meeting of the stockholders of the Company to consider the Merger
(the "Average Parent Share Price"). Stockholders of the Company will receive one
(1) share of Parent Common Stock if the Average Parent Share Price is $27.50. If
the Average Parent Share Price is greater than $27.50, stockholders of the
Company will receive, for each Share, that amount of Parent Common Stock having
a value of $27.50 plus 50% of the amount by which the Average Parent Share Price
exceeds $27.50, provided that in no event would Parent issue less than .91666
shares of Parent Common Stock for each Share in the Merger. Similarly, if the
Average Parent Share Price is less than $27.50, stockholders of the Company will
receive, for each Share, that amount of Parent Common Stock having a value of
$27.50 less 50% of the amount by which the Average Parent Share Price is below
$27.50, provided that in no event would Parent issue more than 1.12500 shares of
Parent
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Common Stock for each Share in the Merger. Alternatively, if the Average Parent
Share Price is less than $27.50, Parent will have the option of delivering, for
each Share, one share of Parent Common Stock plus cash in an amount equal to 50%
of the amount by which the Average Parent Share Price is below $27.50, provided
that in no event would more than $2.75 per Share be paid in cash.
In the event that the stockholders of Parent do not approve the issuance of
Parent Common Stock pursuant to the Merger, but all conditions to the Merger are
otherwise satisfied or waived (if permissible), the Company, Parent and the
Purchaser will nonetheless consummate the Merger and each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held in
treasury and Shares owned by Parent, the Purchaser or any other direct or
indirect wholly owned subsidiary of Parent and other than Dissenting Shares)
will, at the Effective Time, be converted into the right to receive a
combination of (x) shares of Parent Common Stock which will represent in the
aggregate 19.9% of the then outstanding shares of Parent Common Stock (which
will be determined in a manner consistent with the determination of the Exchange
Ratio) and (y) cash based on a pro rata portion of $27.50 (the "Alternative
Consideration").
In the event that (i) the Merger is not consummated prior to April 29,
1996, and (ii) the Company has not materially breached the Merger Agreement
(other than by acts caused or permitted by Parent), then the stockholders of the
Company will be entitled to receive interest on the amount of the consideration
that they receive pursuant to the immediately preceding two paragraphs (the
"Merger Consideration"), from April 29, 1996 until the earlier of the Effective
Time or June 30, 1996, calculated at an annual rate equal to the prime rate of
interest (as announced from time to time by Morgan Guaranty Trust Company of New
York).
In the event Parent and/or the Purchaser, in violation of their obligations
under the Merger Agreement, fail or refuse to consummate the Merger on or prior
to June 30, 1996 and the Company has not materially breached the Merger
Agreement (other than by acts caused or permitted by Parent), then, in addition
to any rights or remedies that the Company and its stockholders otherwise have
in law or at equity as a result thereof, the stockholders of the Company will be
entitled to receive interest from June 30, 1996 on the amount of the Merger
Consideration not paid until such Merger Consideration is paid, calculated at
the annual rate of the higher of (i) the prime rate of interest (as announced
from time to time by Morgan Guaranty Trust Company of New York) plus 300 basis
points, or (ii) the amount otherwise permitted by law. Any additional
consideration paid or payable pursuant to this paragraph or the immediately
preceding paragraph is referred to herein as "Additional Consideration".
A copy of the Merger Agreement has been filed as Exhibit 3 to this Schedule
14D-9 and is incorporated herein by reference. Unless otherwise noted,
capitalized terms not defined in this Schedule 14D-9 shall have the meaning
given to them in the Merger Agreement.
Conditions of the Offer. Notwithstanding any other provisions of the Offer,
and in addition to (and not in limitation of) the Purchaser's rights to extend
and amend the Offer at any time in its sole discretion (subject to the
provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
Securities and Exchange Commission (the "Commission"), including Rule 14e-1(c)
under the Securities Exchange Act of 1934, as amended from time to time (the
"Exchange Act") (relating to the Purchaser's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay for,
and may delay the acceptance for payment of or, subject to the restriction
referred to above, the payment for, any tendered Shares, and may terminate the
Offer as to any Shares not then paid for, if (i) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from
time to time (the "HSR Act"), has not expired or terminated prior to the
expiration of the Offer, (ii) the Minimum Condition has not been satisfied, or
(iii) at any time on or after November 17, 1995, and prior to the acceptance for
payment of any Shares, any of the following events shall occur or shall be
determined by the Purchaser to have occurred:
(a) there shall be instituted, pending or threatened any action or
proceeding by any government or governmental authority or agency, domestic
or foreign, (i) challenging or seeking to make illegal, to delay materially
or otherwise directly or indirectly to restrain or prohibit the making of
the Offer, the acceptance for payment of or payment for some of or all the
Shares by Parent or the Purchaser or the
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consummation by Parent or the Purchaser of the Merger, seeking to obtain
material damages relating to the Merger Agreement, the Stockholder
Agreement (as defined below), the Stock Option Agreement (as defined
below), or any of the transactions contemplated thereby or otherwise
seeking to prohibit directly or indirectly the transactions contemplated by
the Offer or the Merger, or challenging or seeking to make illegal the
transactions contemplated by the Stockholder Agreement, Stock Option
Agreement or otherwise directly or indirectly to restrain, prohibit or
delay the transactions contemplated by the Stockholder Agreement or the
Stock Option Agreement, (ii) seeking to restrain, prohibit or delay
Parent's, the Purchaser's or any of their subsidiaries' ownership or
operation of all or any portion (other than an immaterial portion), of the
business or assets of the Company or its subsidiaries, or to compel Parent
or any of its subsidiaries to dispose of or hold separate all or any
portion (other than an immaterial portion) of the business or assets of the
Company or Parent or their respective subsidiaries, (iii) seeking to impose
or confirm material limitations on the ability of Parent, the Purchaser or
any of their subsidiaries or affiliates effectively to exercise full rights
of ownership of the Shares, including, without limitation, the right to
vote any Shares acquired or owned by Parent, the Purchaser or any of their
subsidiaries or affiliates on all matters properly presented to the
Company's stockholders, or (iv) seeking to require divestiture by Parent,
or the Purchaser or any of their subsidiaries of any Shares; or
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, judgment, order or decree enacted, enforced, entered,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency, domestic or foreign,
that, directly or indirectly, results in any of the consequences referred
to in clauses (i) through (iv) of paragraph (a) above; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on the New York Stock Exchange for a period in excess of
three (3) hours, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States (whether or
not mandatory), (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
foreign or United States governmental authority or agency on the extension
of credit by banks or other financial institutions, (v) any decline in
either the Dow Jones Industrial Average or the Standard & Poor's Index of
500 Industrial Companies by an amount in excess of 20% measured from the
close of business on November 29, 1995, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof; or
(d) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct in any material respect as
of the date of consummation of the Offer as though made on or as of such
date, except (i) for changes specifically permitted by the Merger Agreement
and (ii) those representations and warranties that address matters only as
of a particular date which are true and correct as of such date, or the
Company shall have breached or failed in any material respect to perform or
comply with any material obligation, agreement or covenant required by the
Merger Agreement to be performed or complied with by it; or
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) any party to the Stockholder Agreement or the Stock Option
Agreement other than the Purchaser and Parent shall have breached or failed
to perform any of its agreements under such agreements or breached any of
its representations and warranties in such agreements or any such agreement
shall not be valid, binding and enforceable, except for such breaches or
failures or failures to be valid, binding and enforceable that do not
materially and adversely affect the benefits expected to be received by
Parent and the Purchaser under the Merger Agreement, the Stockholder
Agreement or the Stock Option Agreement; or
(g) (i) it shall have been publicly disclosed or Parent or the
Purchaser shall have otherwise learned that any person, entity or "group"
(as defined in Section 13(d)(3) of the Exchange Act), other than
Zell/Chilmark Fund, L.P. or Magten Asset Management Corporation or FMR
Corp. (including any of FMR Corp.'s affiliates), Parent or its affiliates
or any group of which any of them is a member, shall have
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acquired beneficial ownership (determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 14.9% of any class or
series of capital stock of the Company (including the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall have
been granted an option, right or warrant, conditional or otherwise, to
acquire beneficial ownership of more than 14.9% of any class or series of
capital stock of the Company (including the Shares); or (ii) any person,
entity or group shall have entered into a definitive agreement or agreement
in principle with the Company with respect to a merger, consolidation or
other business combination with the Company; or
(h) a tender or exchange offer for some or all of the Shares or
proposal for a Takeover Proposal (as defined below) shall have been
publicly proposed to be made or shall have been made by another person or
entity; or
(i) the Company Board of Directors shall have withdrawn, or modified
or changed in a manner adverse to Parent or the Purchaser (including by
amendment of this Schedule 14D-9), its approval or recommendation of the
Offer, the Merger Agreement, or the Merger, or recommended another proposal
or offer, or shall have resolved to do any of the foregoing; or
(j) there shall have occurred any event, change or effect (including
the incurrence of any liability of any nature, whether or not accrued,
contingent or otherwise) which has individually or in the aggregate, a
material adverse effect on or with respect to the financial condition,
business, results of operations, assets, liabilities, properties or
prospects of the Company and its Subsidiaries;
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser giving rise to such condition) makes it inadvisable to proceed
with the Offer or with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be asserted by Parent or the Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Parent or
the Purchaser in whole or in part at any time and from time to time in their
sole discretion. The failure by Parent or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to other facts and
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Based on the information in the Offer to Purchase, the principal executive
offices of Parent and the Purchaser are located at 30 Hunter Lane, Camp Hill,
Pennsylvania 17011.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as described below or incorporated herein by reference, to the
knowledge of the Company, as of the date hereof, there exists no material
contract, agreement, arrangement or understanding, nor any actual or potential
conflict of interest, between the Company or its affiliates and (i) the Company,
its executive officers, directors or affiliates, or (ii) the Purchaser, its
executive officers, directors or affiliates.
EMPLOYEE MATTERS
Described below under "Existing Arrangements" are material employment and
employee benefit agreements and arrangements as they currently exist. Pursuant
to the terms of the Merger Agreement, certain terms and conditions of such
agreements and arrangements will be amended. A description of such amendments
follows under the heading "The Merger Agreement."
EXISTING ARRANGEMENTS
Existing Employment Agreements. The Company maintains employment agreements
with, among others, its eight (8) executive officers and fifteen (15) other
officers (collectively, the "Covered Executives"
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or, individually, a "Covered Executive"), with one form of agreement for
executive officers and one form of agreement for non-executive officers. Except
for the severance period (described below), the form of these agreements is
substantially similar. A copy of each form of agreement has been filed as
Exhibit 8 to this Schedule 14D-9 and is incorporated herein by reference. The
significant provisions of the agreements are as follows:
Term of the Agreement. The agreement continues until terminated by reason
of (a) the employee's death, (b) the employee's disability, (c) thirty (30) day
written notice of termination by either the Company or the employee, (d) notice
by the employee of his resignation for "good reason," (as defined below), or (e)
notice by the Company of the employee's "gross misconduct" (as defined below).
For purposes of the employment agreements, "good reason" means (i) the
occurrence of a material reduction in the aggregate direct remuneration or any
reduction in the position of the employee, (ii) any material reduction in
responsibilities or duties provided for in accordance with employee's
arrangement with the Company, (iii) any material adverse change or reduction in
the aggregate employee benefits, perquisites or fringe benefits contemplated
under such arrangement, (iv) a change in the employee's reporting relationship,
or (v) any relocation of the employee's principal place of work. For purposes of
the employment agreements, "gross misconduct" includes, but is not limited to,
(i) commission of an act of fraud, embezzlement, theft, or other criminal act
constituting a felony, or (ii) breach or default by the employee of any of his
agreements or obligations under the agreement which is not cured in all
substantial respects within ten (10) days after the Company gives notice to the
employee of such breach or default.
Salary and Bonus. The agreement provides for the payment of base salary and
participation in the Company's bonus plan, described more fully below. The
following table summarizes the Company's executive officers, their positions and
their base salaries (hereinafter referred to as "Group A Executives"):
<TABLE>
<CAPTION>
NAME POSITION BASE SALARY
- ------------------------- ------------------------------------------ -----------
<S> <C> <C>
D. Dwayne Hoven President and Chief Executive Officer $ 640,016
Carl A. Bellini Executive VP and Chief Operating Officer $ 420,000
James J. Hagan Executive VP and Chief Financial Officer $ 270,000
James P. Mastrian Executive VP of Marketing $ 313,500
Douglas W. Coffey Senior VP of Human Resources $ 245,700
Edwin R. Gropp, Jr. Senior VP of Information Services $ 203,963
Clarence D. Nichols Senior VP, Store Operations $ 226,740
Jack A. Staph Senior VP, Secretary and General Counsel $ 247,323
</TABLE>
Other Benefits. The agreement provides that the employee will be eligible
to participate in the Company's other employee benefit programs for the
provision of welfare and other benefits.
Severance. The agreement provides for the payment of an employee's base
salary and the continuation of other benefits for a specified period upon
termination of employment by the Company other than for gross misconduct or by
the employee for good reason. The severance period for Group A Executives is two
(2) years and, for the other fifteen (15) officers ("Group B Executives"), is
one (1) year.
Economic Value Added (EVA) Incentive Plan (the "Bonus Plan"). Each of the
Covered Executives is eligible to participate in the Bonus Plan. Awards pursuant
to the Bonus Plan are based upon the achievement of a combination of performance
objectives by the Company and the individual participant. Each participant in
the Bonus Plan is credited with bonus units equal to his base salary multiplied
by a target bonus percentage. If the target bonus is exceeded by a specified
amount, the excess is deposited into a bonus bank on behalf of the individual
participant for the following year. A copy of the Bonus Plan has been filed as
Exhibit 9 to this Schedule 14D-9 and is incorporated herein by reference.
Supplemental Retirement and Survivor Benefit Plan (the "SERP"). Each of the
Covered Executives participates in the SERP, which provides supplemental
retirement benefits generally commencing upon either
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(i) retirement or disability at age sixty (60), or (ii) upon termination of
employment at age sixty-five (65). The basic supplemental benefit is an amount
that, when added to other benefits (pension plan benefits, social security
benefits and other monthly retirement income as provided), equals 70% of a
participant's final salary (as reduced for early retirement). Upon execution of
an individual agreement under the SERP, a participant is 50% vested. Thereafter,
a participant vests in his SERP benefits at a rate of 10% each year. Mr. Hoven
and Mr. Staph are eligible for a reduced early retirement benefit, which is
provided for a participant who is at least fifty-five (55) years of age and has
at least ten (10) years of service. Such benefits, reduced by estimated social
security and pension plan benefits, are also subject to a reduction based upon
age on a scale from 40% at age fifty-five (55) to a maximum of 70% at age
sixty-five (65). A copy of the SERP has been filed as Exhibit 10 to this
Schedule 14D-9 and is incorporated herein by reference.
1992 Long-Term Incentive Plan (the "LTIP"). Each of the Covered Executives
participates in the LTIP, which provides for the grant of incentive and
non-qualified stock options, reload options, stock appreciation rights,
restricted stock awards, stock bonus awards and performance plan awards. To
date, long-term incentive awards granted under the LTIP have consisted solely of
non-qualified stock options. Pursuant to the LTIP, 20% of the options are
immediately exercisable upon the date of the grant. Thereafter, an additional
20% of the options are exercisable each year until 100% of the options are
exercisable five (5) years from the date of the grant. The exercise price of the
options granted increases annually by 5% until the shares subject to the option
vest. In the event of a "change in control," as defined in the LTIP, the options
granted to the Company's officers become fully exercisable. The consummation of
the Offer constitutes a "change in control" for purposes of the LTIP. Option
awards to Group A Executives contain a gross-up provision for excise taxes
resulting from application of Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"). A copy of the LTIP has
been filed as Exhibit 11 to this Schedule 14D-9 and is incorporated herein by
reference.
The estimated amount of gain associated with the options of Group A
Executives that vest upon a "change in control" is:
<TABLE>
<S> <C>
Mr. Hoven..................................................... $5,098,674
Mr. Bellini................................................... $1,940,324
Mr. Hagan..................................................... $ 797,095
Mr. Mastrian.................................................. $1,357,569
Mr. Coffey.................................................... $ 438,627
Mr. Gropp..................................................... $ 322,573
Mr. Nichols................................................... $ 758,784
Mr. Staph..................................................... $ 942,912
</TABLE>
The estimated aggregate amount of gain associated with the options of Group
B Executives that vest upon a "change in control" is approximately $3,200,000.
1992 Non-Employee Directors' Stock Option Plan (the "Non-Employee
Directors' Plan"). All of the directors who are not officers or key employees of
the Company are eligible to participate in the Non-Employee Directors' Plan,
which provides for the grant of options to purchase shares of the Company's
common stock. The options vest at a rate of 20% each year until they are 100%
exercisable after five (5) years from the date of grant. The exercise price of
the options granted increases annually by 5% until the shares subject to the
options vest. In the event of a "change in control," as defined in the
Non-Employee Directors' Plan, the options granted to the participants become
fully exercisable. The consummation of the Offer constitutes a "change in
control" for purposes of the Non-Employee Directors' Plan. The estimated
aggregate amount of gain associated with the options of non-employee Directors
that vest upon a "change in control" is approximately $577,000. A copy of the
Non-Employee Directors' Plan has been filed as Exhibit 12 to this Schedule 14D-9
and is incorporated herein by reference.
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Employee Stock Purchase Plan (the "ESPP"). Each of the Covered Executives
is eligible to participate in the ESPP, which permits participants to purchase
the Company's common stock at the lesser of (a) 85% of the fair market value of
the stock on the first day of the offering period, or (b) 85% of the fair market
value of the stock on the last day of the offering period. A copy of the ESPP
has been filed as Exhibit 13 to this Schedule 14D-9 and is incorporated herein
by reference.
THE MERGER AGREEMENT.
The Merger Agreement provides that, effective as of the Effective Time,
Parent will cause the Surviving Corporation to provide to employees of the
Company certain payments and benefits, as described below.
Treatment of Stock Options. The Merger Agreement provides that, effective
as of the Effective Time, each option granted by the Company to purchase Shares
that is outstanding and unexercised immediately prior thereto (the "Company
Stock Options"), will cease to represent a right to acquire Shares and will be
converted automatically into an option to purchase shares of Parent Common Stock
in an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of the LTIP and the Non-Employee Directors' Plan
(together the "Option Plans"), and the agreements evidencing grants thereunder).
The number of shares of Parent Common Stock subject to, and the option price and
terms and conditions of, the new option shall be determined in a manner that
preserves both (i) the aggregate gain (or loss) on the Company Stock Option
immediately prior to the Effective Time and (ii) the ratio of the exercise price
per share subject to the Company Stock Option to the fair market value
(determined immediately prior to the Effective Time) per share subject to such
option, provided that any fractional shares of Parent Common Stock resulting
from such determination will be rounded down to the nearest share. The Merger
Agreement also provides that, effective as of the Effective Time, the Surviving
Corporation will assume each Company Stock Option agreement, each as amended, as
provided therein. The adjustment provided herein with respect to any Company
Stock Options that are "incentive stock options" (as defined in Section 422 of
the Code) shall be and is intended to be effected in a manner that is consistent
with Section 424(a) of the Code. The duration, vesting and other terms of the
new options will be the same as the Company Stock Options that they replace,
except that all references to the Company shall be deemed to be references to
Parent. In the event that a holder of a Company Stock Option is terminated
without Cause (as defined in the Merger Agreement) within 12 months of the
Effective Time, then such holder's new option will become 100% exercisable as of
such date of termination.
The Merger Agreement further provides that, notwithstanding the immediately
preceding paragraph, outstanding vested options under the LTIP held by Covered
Executives, including options that become vested in connection with a "change in
control" under the terms of existing award agreements under the LTIP, will,
effective as of the Effective Time become exercisable under a cashless exercise
procedure made available by the Company (subject to applicable law and any
administrative procedures and policies deemed appropriate by the Company).
Individuals subject to Section 16 of the Exchange Act ("Section 16") will be
provided with a cash payment approximating the benefits that would be deprived
by reason of Section 16.
The Merger Agreement provides that, effective as of the Effective Time, the
Option Plans will terminate and the provisions in any other plan, program,
agreement or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any of its
Subsidiaries, will be deleted. Furthermore, the Company will take all actions
necessary to ensure that following the Effective Time, no holder of Company
Stock Options or any participant in the Option Plans or any other plans,
programs, agreements or arrangements will have any right thereunder to acquire
any equity securities of the Company, the Surviving Corporation or any
subsidiary of either of the foregoing.
Bonus; Severance Benefits. As soon as practicable following the earlier of
(i) the Effective Time and (ii) the end of the Company's 1996 fiscal year, the
Company will pay, pursuant to the terms of the Bonus Plan as modified by the
terms of the Merger Agreement, bonuses for fiscal year 1996, calculated based on
the Company's financial results as of February 10, 1996, and annualized to equal
a bonus for a twelve (12) month period.
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With respect to the Covered Executives, effective as soon as practicable
following the Effective Time (or if later, the date of termination of employment
of the Covered Executive), the Company will pay to each Covered Executive
severance payments (the "Severance Payments"), on a basis consistent with
Parent's executive payroll practices, based on one of the two formulae set forth
below, pursuant to elections made by each Covered Executive prior to the
Effective Time:
(i) Severance Payments equal to, on an annualized basis, "Base Pay"
(as defined below), continuing for a period of three (3) years with respect
to Group A Executives, and for a period of 18 months with respect to Group
B Executives. For purposes of this provision, "Base Pay" means the highest
base pay paid to the Covered Executive during any one of the 1994, 1995 or
1996 fiscal years, provided that Base Pay for fiscal year 1996 will be
calculated on an annualized basis; or
(ii) Severance Payments equal to, on an annualized basis, "Base Plus
Bonus Pay" (as defined below), continuing for a period of two (2) years
with respect to Group A Executives, and for a period of one (1) year with
respect to Group B Executives. For purposes of this provision "Base Plus
Bonus Pay" means Base Pay plus the amount that would have been paid to the
executive under the Bonus Plan for fiscal year 1995 as the targeted bonus
(the "1995 Target Bonus").
In lieu of the Severance Payments described in clauses (i) and (ii) above,
Mr. Hoven and Mr. Mastrian will receive Severance Payments, continuing for three
(3) years, equal to, on an annualized basis, Base Plus Bonus Pay. The period
during which a Covered Executive continues to receive Severance Payments is
hereinafter referred to as the "Severance Period" for such Covered Executive.
The estimated cost of providing the additional severance payments to Group
A Executives upon termination of employment is:
<TABLE>
<S> <C>
Mr. Hoven.................................................... $1,726,943
Mr. Bellini.................................................. $ 420,000
Mr. Hagan.................................................... $ 270,000
Mr. Mastrian................................................. $ 701,496
Mr. Coffey................................................... $ 245,700
Mr. Gropp.................................................... $ 203,963
Mr. Nichols.................................................. $ 226,740
Mr. Staph.................................................... $ 247,323
</TABLE>
The aggregate estimated cost of providing the additional severance payments
to Group B Executives is $1,190,738.
During the Severance Period, each Covered Executive will continue to
receive, at the Company's expense, continuation of benefits described in such
Covered Executive's employment agreement with the Company on terms at least as
favorable to the Covered Executive as is currently in effect, which benefits may
be provided under benefit plans and programs maintained by Parent; provided,
however, that to the extent any such Covered Executive receives comparable
benefits from, and at the expense of, a subsequent employer, such benefits from
the Surviving Corporation will cease.
Notwithstanding anything to the contrary in the Merger Agreement, the
Severance Payments described in clauses (i) and (ii) above will be paid to a
Covered Executive only if such Covered Executive is actively employed by the
Company immediately prior to the Effective Time. In the event that a Covered
Executive who continues employment with the Company following the Effective Time
is terminated prior to the expiration of the Severance Period that would have
applied had such Covered Executive been terminated effective as of the Effective
Time, then such Covered Executive will be entitled to receive the Severance
Payments described above.
Each employee, other than any Covered Executive, of the Company who is
covered by the Company's severance pay plan as in effect on November 1, 1995
(each, a "Severance-Eligible Employee") and who is employed by the Company
immediately prior to the Effective Time and terminated for other than Cause, (as
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<PAGE> 10
defined below) within twelve (12) months following the Effective Time, will be
entitled to receive bi-weekly severance payments, made on a basis consistent
with Parent's payroll practices, for a six (6) month period commencing on such
Severance-Eligible Employee's date of termination of employment, equal to, on an
annualized basis, such Severance-Eligible Employee's Base Pay; provided,
however, that such payments will be reduced (but not below zero) by the amount
of compensation such Severance-Eligible Employee receives from a subsequent
employer to the extent that such Severance-Eligible Employee is employed during
such six (6)month period.
For purposes of the Merger Agreement, "Cause" will mean the conviction of
an employee or executive (as the case may be) for the commission of a felony,
including the entry of a guilty or nolo contendere plea, any willful, grossly
negligent or fraudulent action or inaction by an employee or executive, as the
case may be, or the employee's or executive's willful and continued failure to
substantially perform an employee's or executive's assigned duties.
SERP. Each Company employee who is (i) covered by the SERP and (ii)
actively employed by the Company, in either case, immediately prior to the
Effective Time (each, a "SERP Executive") will be eligible to receive benefits
under the SERP based on the terms of the SERP, as modified by the terms of the
Merger Agreement. For each SERP Executive (i) the amount of service taken into
account for purposes of calculating benefits and vesting under the SERP will be
equal to the SERP Executive's service with the Company prior to the Effective
Time plus the Covered Executive's Severance Period, if any, and (ii)
compensation for each SERP Executive for purposes of the SERP will include
one-half of the 1995 Target Bonus for such SERP Executive.
The estimated present value (using a 7.5% discount factor) of the
additional SERP benefits for the Group A Executives is:
<TABLE>
<S> <C>
Mr. Hoven.................................................... $1,503,112
Mr. Bellini.................................................. $1,877,388
Mr. Hagan.................................................... $ 56,756
Mr. Mastrian................................................. $ 487,121
Mr. Coffey................................................... $ 234,699
Mr. Gropp.................................................... $ 12,028
Mr. Nichols.................................................. $ 161,405
Mr. Staph.................................................... $ 191,735
</TABLE>
The aggregate estimated present value (using a 7.5% discount factor) of the
additional SERP benefits for Group B Executives is $762,150.
Gross-Up Payments. The Company will provide each Group A Executive with a
cash gross-up payment to make such executive whole for the excise taxes imposed
on all benefits and other amounts paid or payable to such executive on account
of the transactions contemplated by the Merger Agreement as a result of the
application of Sections 280G and 4999 of the Code. With respect to all other
employees of the Company who are entitled to benefits and other amounts paid or
payable to such employee on account of the transactions contemplated by the
Merger Agreement as a result of the application of Sections 280G and 4999 of the
Code, the Company shall not be obligated to pay or provide to any such employee
any payments or benefits to the extent that such payments or benefits would
constitute a "parachute payment" within the meaning of Section 280G(b)(2)(A) of
the Code.
Based upon preliminary estimates, the aggregate cost of the gross-up
payments is expected to be between $6,000,000 and $9,000,000.
ESPP. Each Covered Executive who is subject to Section 16 will be provided
with a cash payment approximating the benefits that would be deprived by reason
of Section 16. The Company will amend the
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<PAGE> 11
ESPP to provide that the option period that was in effect as of November 29,
1995 will cease as soon a practicable thereafter.
Other Benefits. The Company will provide outplacement services from a
recognized outplacement provider selected by Parent to all employees of the
Company as of the Effective Time who were based in Twinsburg, Ohio as of the
Effective Time, and are terminated without Cause within one (1) year of the
Effective Time.
In addition, pursuant to the Merger Agreement, employees of the Company who
continue to be employed by the Company as of the Effective Time will receive
employee benefits comparable to those benefits provided to similarly situated
employees of Parent. In addition, with respect to medical benefits provided to
continuing employees as of the Effective Time, waiting periods and pre-existing
condition requirements under the plans covering the continuing employees will be
waived, and these employees will be given credit for any copayments and
deductibles actually paid by such employees under the Company's medical plans
during the calendar year in which the closing of the Merger occurs. Finally,
service with the Company will be recognized for purposes of eligibility under
Parent's welfare plans as well as for purposes of Parent's programs or policies
for vacation pay and sick pay.
Certain additional information with respect to executive compensation and
related employee benefits and other information concerning the Company's
executive officers and directors, as modified by the foregoing discussion set
forth in this Item 3(b), is set forth in the Company's Notice of Annual Meeting
of Stockholders and Proxy Statement dated August 28, 1995 (the "1995 Proxy
Statement") under the sections titled "The Board of Directors -- Compensation of
the Board," "Security Ownership of Certain Persons," "Executive Compensation"
and "Report of the Human Resources Committee" and is incorporated herein by
reference. A copy of the pertinent sections of the 1995 Proxy Statement has been
filed as Exhibit 14 to this Schedule 14D-9 and is incorporated herein by
reference.
CERTAIN OTHER MATTERS
Confidentiality Agreement. The Company delivered certain confidential
information to Parent in order to allow Parent to evaluate a proposed business
combination with the Company (the "Proposed Transaction"). As a condition to the
delivery by the Company of the confidential information, Parent entered into a
Confidentiality Agreement (the "Confidentiality Agreement"), dated August 17,
1995, with the Company pursuant to which Parent has agreed, among other things,
to keep confidential certain non-public confidential or proprietary information
of the Company furnished to Parent by or on behalf of the Company. The
Confidentiality Agreement provides that, except with respect to the Proposed
Transaction, for a period of eighteen (18) months from the date of the
Confidentiality Agreement neither Parent nor any of its directors, officers,
employees, agents or representatives will, without the prior written consent of
the Company: (a) publicly announce or otherwise disclose, or enter into or agree
to enter into, singly or with any other person, (i) any form of business
combination, acquisition or other transaction relating to the Company or any of
its affiliates, or (ii) any form of restructuring, recapitalization or similar
transaction with respect to the Company or any of its affiliates, or, except as
consented to by the Company in writing, as a principal; (b) acquire, or offer,
propose or agree to acquire, by purchase or otherwise, any securities of the
Company, any options or other rights to acquire any such securities ("Company
Securities"); (c) make, or in any way participate in, any solicitation of
proxies with respect to any Company Securities, become a participant in any
election contest with respect to the Company, seek to influence any person with
respect to any Company Securities or demand a copy of the Company's list of its
stockholders or other books and records relating to holders of Company
Securities; (d) participate in or encourage the formation of any partnership,
syndicate or other group which owns or seeks or offers to acquire beneficial
ownership of any Company Securities or which seeks to affect control of the
Company or for the purpose of circumventing any provision of the Confidentiality
Agreement; or (e) otherwise act, alone or in concert with others (including by
providing financing for another person), to seek or to offer to control or
influence the management, Board of Directors or policies or operations of the
Company. A copy of the Confidentiality Agreement has been filed as Exhibit 6 to
this Schedule 14D-9 and is incorporated herein by reference.
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<PAGE> 12
The Merger Agreement provides that any provision in the Confidentiality
Agreement which in any manner limits, restricts or prohibits the voting or
acquisition of Shares by Parent or any of its affiliates or the representation
of Parent's designees on the Company Board or which in any manner would be
inconsistent with the Merger Agreement, the Stock Option Agreement or the
Stockholder Agreement or the transactions contemplated thereby terminated as of
the date of the Merger Agreement. The Merger Agreement further provides that the
Company will not take any action that would impede, bar, restrict or otherwise
interfere in any manner with Parent's rights under the Stockholder Agreement or
the Stock Option Agreement, including, without limitation, Parent's right to
exercise the Stock Option.
Takeover Proposals. The Company has agreed that neither it nor any of its
Subsidiaries or affiliates shall (and the Company shall use its best efforts to
cause its officers, directors, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any tender or exchange
offer, merger, consolidation, business combination, sale of a substantial equity
interest, sale of a substantial portion of the business or assets,
recapitalization, restructuring or similar transactions involving the Company or
its Subsidiaries. The Company further agreed that it will immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the foregoing,
the Company may, directly or indirectly, furnish access and information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group, and may negotiate and participate in
discussions and negotiations with such entity or group concerning a Takeover
Proposal if such entity or group has submitted a bona fide written proposal to
the Board of Directors relating to any such transaction and if the Company's
Board of Directors determines after having received the oral or written opinion
of outside legal counsel, that the failure to provide such information or access
or to engage in such discussions or negotiations would result in a breach of
their fiduciary duties to the Company's stockholders under applicable law. The
Company has also agreed to notify the Purchaser within twenty-four (24) hours of
any such proposal, or if an inquiry is made, and to keep the Purchaser apprised
of all developments with respect to any such Takeover Proposal.
As used in the Merger Agreement and herein, "Takeover Proposal" when used
in connection with any Person shall mean any tender or exchange offer involving
the capital stock of such Person, any proposal for a merger, consolidation or
other business combination involving such Person or any Subsidiary of such
Person, any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the business or assets of, such Person
or any Subsidiary of such Person, any proposal or offer with respect to any
recapitalization or restructuring with respect to such Person or any Subsidiary
of such Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any Subsidiary of
such Person other than pursuant to the transactions to be effected pursuant to
the Merger Agreement.
Termination Fee. The Merger Agreement provides that in the event the Merger
Agreement is terminated (a) by the Board of Directors of the Company based upon
its withdrawal, modification or change in a manner adverse to Parent or the
Purchaser of its approval or recommendation of the Offer, the Merger Agreement
or the Merger in order to approve and permit the Company to execute a definitive
agreement relating to a Takeover Proposal after determining, based on the
opinion of outside independent legal counsel to the Company, that the failure to
take such action would result in a breach of the Board of Directors' fiduciary
duties under applicable law; (b) by the Board of Directors of Parent based upon,
prior to the purchase of the Shares pursuant to the Offer, (i) the withdrawal,
modification or change, in a manner adverse to Parent or Purchaser, by the Board
of Directors of the Company of its approval or recommendation of the Offer, the
Merger Agreement or the Merger, (ii) the Company's Board of Directors
recommendation of a Takeover Proposal or other business combination, or (iii)
the Company's entering into an agreement in principal (or similar agreement) or
definitive agreement providing for a Takeover Proposal or other business
combination with a person or entity other than Parent, the Purchaser or their
subsidiaries (or the Company's Board of Directors resolves to do any of the
foregoing); (c) by the Board of Directors of Parent if it shall have been
publicly disclosed or Parent shall have learned that any Person (as defined in
Section 13(d)(3) of the
11
<PAGE> 13
Exchange Act) other than Parent, the Purchaser, Zell/Chilmark Fund, L.P., Magten
Asset Management Corporation, FMR Corp. (including any of FMR Corp.'s
affiliates), shall have acquired beneficial ownership of more than 14.9% of any
class of shares of stock of the Company or shall have been granted an option,
right or warrant (conditional or otherwise) to acquire such amount of stock and
thereafter within nine (9) months of such termination such other Person shall
acquire or beneficially own a majority of the Shares or have obtained
representation on the Company's Board of Directors or shall have entered into a
definitive agreement with the Company with respect to a Takeover Proposal or
similar business combination, or (d) by the Board of Directors of Parent if the
Purchaser does not commence the Offer or if the Purchaser shall have terminated
the Offer or let the Offer expire without purchasing any Shares due to (i) a
material breach of the representations and warranties of the Company in the
Merger Agreement, or (ii) a material breach of, or failure to perform or comply
with, by the Company of any material obligation, agreement or covenant of the
Company contained in the Merger Agreement (all of such events are referred to
individually as a "Trigger Event"), then the Company shall pay Parent a
termination fee of $45 million.
Fees and Expenses. Except as described in the preceding paragraph, and
except for expenses incurred in connection with printing the Offer Documents,
this Schedule 14D-9, the Proxy Statement/Prospectus and the Registration
Statement, as well as the filing fees relating thereto and relating to the
filing under the HSR Act, which costs (other than the filing fee for
registration of Parent Common Stock which will be paid by Parent) shall be
shared equally by Parent and the Company, and all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such costs or expenses, whether or not the
Offer and the Merger are consummated; provided that the Surviving Corporation
shall pay any and all property or transfer taxes imposed on the Surviving
Corporation or any gains taxes.
INDEMNIFICATION UNDER DELAWARE LAW, THE COMPANY'S
CHARTER, BY-LAWS AND THE MERGER AGREEMENT
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law (the "Delaware Law"), provides that a corporation may indemnify
any person who was or is, or is threatened to be made, a party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise (an "Indemnified Party"). The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the indemnified
person in connection with such action, suit or proceeding, provided such
officer, director, employee or agent acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the corporation's best
interest and, for criminal proceedings, had no reasonable cause to believe that
his or her conduct was unlawful. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses that such officer or director actually and reasonably
incurred.
Reference is also made to Section 102(b)(7) of the Delaware Law, which
enables a corporation in its original certificate of incorporation or an
amendment thereto to eliminate or limit the personal liability of a director to
the corporation or its stockholders for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware Law (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which a director derived an
improper personal benefit.
The By-laws of the Company provide for the indemnification, to the extent
permitted by Section 145 of the Delaware Law, of directors, officers, employees
or agents of the Company against expenses reasonably
12
<PAGE> 14
incurred with respect to civil, criminal, administrative or investigative
actions, suits or proceedings (except actions by or in the right of the
Company), provided that such director, officer, employee or agent, with respect
to civil matters, acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interest of the Company, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Respecting action or suits by or in the right of the
Company, the By-laws provide for the indemnification of directors, officers,
employees or agents of the Company against expenses reasonably incurred if acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Company; however, no indemnification may be made in
respect of any such claim, issue or matter as to which such person shall have
been adjudged to be liable for the negligence or misconduct in the performance
of his or her duty to the Company, except to the extent that the Court of
Chancery of Delaware or the Court in which such action or suit was brought shall
determine that despite such adjudication and in view of all the circumstances of
the case, such person is fairly and reasonably entitled to such indemnity as
such Court deems proper. The Company has directors' and officers' liability
insurance covering certain liabilities incurred by the officers and directors of
the Company in connection with the performance of their duties.
Article Seventh of the Certificate of Incorporation of the Company provides
that, to the fullest extent permitted by the Delaware Law, a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of Article Seventh by the stockholders of the Company shall be prospective only
and shall not adversely affect any right or protection of a director of the
Company existing at the time of such repeal or modification.
The Merger Agreement provides that Parent shall, and shall cause the
Surviving Corporation to, maintain in effect for not less than four (4) years
after the Effective Time the policies of officers' and directors' liability
insurance maintained by the Company and its Subsidiaries in effect as of the
date of the Merger Agreement with respect to matters existing or occurring prior
to the Effective Time; provided that Parent may substitute therefor policies of
at least the same coverage containing terms and conditions which are no less
advantageous to the persons currently covered by such policies; provided,
however, that in no event shall the Surviving Corporation be required to expend
more than an amount per year equal to 200% of the aggregate annual premiums
currently paid by the Company. If the aggregate annual premiums paid by Parent
or the Surviving Corporation during the four (4) years following the Effective
Time exceed 200% of the aggregate annual premiums currently paid by the Company,
Parent will cause the Surviving Corporation to, and the Surviving Corporation
will, provide the maximum coverage then available at an annual premium equal to
200% of such rate.
The Merger Agreement further provides that at all times after the Effective
Time, Parent shall cause the Surviving Corporation and its subsidiaries to
indemnify each person who is now, or has been at any time prior to the date of
the Merger Agreement, an employee, agent, director or officer of the Company or
any of its Subsidiaries, successors and assigns, to the fullest extent permitted
by law with respect to any claim, liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense, including
reasonable fees and expenses of legal counsel (whenever asserted or claimed)
based in whole or in part on, or arising in whole or in part out of, any matter
existing or occurring at or prior to the Effective Time whether commenced,
asserted or claimed before or after the Effective Time.
STOCKHOLDER AGREEMENT
The following is a summary of the material terms of the Stockholder
Agreement (the "Stockholder Agreement") dated as of November 29, 1995, among
Parent, the Purchaser and Zell/Chilmark Fund, L.P. (the "Stockholder"). This
summary is not intended to be a complete description of the terms and conditions
thereof and is qualified in its entirety by reference to the full text thereof
which is incorporated herein by reference and copies of which have been filed as
Exhibit 4 to this Schedule 14D-9 and is incorporated herein by reference.
Capitalized terms not otherwise defined herein or in the following summaries
shall have the meanings set forth in the Stockholder Agreement.
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<PAGE> 15
Tender of Shares. Immediately after the execution of the Merger Agreement,
the Purchaser and the Stockholder entered into the Stockholder Agreement. Upon
the terms and subject to the conditions of such
agreement, the Stockholder has agreed to validly tender (or cause the record
owner of such Shares to tender), and not to withdraw, pursuant to and in
accordance with the terms of the Offer, prior to the expiration of the Offer,
13,102,288 Shares (and together with any Shares acquired by the Stockholder in
any capacity after the date thereof and prior to the termination of the
Stockholder Agreement whether upon the exercise of options, warrants or rights,
the conversion or exchange of convertible or exchangeable securities, or by
means of purchase, dividend, distribution, gift, bequest, inheritance or as a
successor in interest in any capacity or otherwise, the "Stockholder Shares")
Beneficially Owned by the Stockholder, which Shares represent approximately
19.7% of the issued and outstanding Shares. The Stockholder Agreement also
provides that the transfer by the Stockholder of the Stockholder Shares to the
Purchaser in the Offer will pass to and unconditionally vest in the Purchaser
good and valid title to such Shares.
Voting of Company Common Stock. The Stockholder Agreement provides that
during the period commencing on the date of the Stockholder Agreement and
continuing until the first to occur of (i) the Effective Time, or (ii)
termination of the Merger Agreement in accordance with its terms, at any meeting
(whether annual or special and whether or not an adjourned or postponed meeting)
of the Company's stockholders, however called, or in connection with any written
consent of the stockholders of the Company, the Stockholder will vote (or cause
to be voted) the Stockholder Shares held of record or Beneficially Owned by such
Stockholder: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval and adoption of the terms
thereof and each of the other actions contemplated by the Merger Agreement and
the Stockholder Agreement and any actions required in furtherance thereof; (ii)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement or the Stockholder Agreement; and (iii)
except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Stockholder Agreement and the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its Subsidiaries; (B) any sale, lease or
transfer of a material amount of assets of the Company or its Subsidiaries, or a
reorganization, restructuring, recapitalization, special dividend, dissolution
or liquidation of the Company or its Subsidiaries; or (C)(1) any change in a
majority of the persons who constitute the Company Board; (2) any change in the
present capitalization of the Company, including any proposal to sell a
substantial equity interest in the Company and its Subsidiaries; (3) any
amendment of the Company's Certificate of Incorporation or By-laws; (4) any
other change in the Company's corporate structure or business; or (5) any other
action which, in the case of each of the matters referred to in clauses (C)(1),
(2), (3) or (4), is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially adversely affect the Offer, the
Merger and the transactions contemplated by the Stockholder Agreement and the
Merger Agreement. The Stockholder Agreement further provides that the
Stockholder will not enter into any agreement or understanding with any person
or entity the effect of which would be inconsistent or violative of the
provisions and agreements described in the above paragraph.
Stockholder Covenant. The Stockholder Agreement provides that, except as
contemplated by the Stockholder Agreement, the Stockholder shall not for a
period of six (6) months following the termination of the Stockholder Agreement
(other than as a result of a breach by Parent or the Purchaser) enter into,
execute, or be a party to any agreement or understanding, written or otherwise,
with any Person whereby the Stockholder: (i) grants or otherwise gives to such
Person an option or right to purchase or acquire any or all of the Stockholder
Shares other than sales made in open market transactions; (ii) agrees or
covenants to vote or to grant a proxy to vote any or all of the Stockholder
Shares held of record or Beneficially Owned by the Stockholder, at any meeting
(whether annual or special and whether or not an adjourned or postponed meeting)
of the holders of Shares, however called, or in connection with any written
consent of the holders of Shares; or (iii) agrees or covenants to tender any or
all of the Stockholder Shares held of record or Beneficially Owned by the
Stockholder into any tender offer or exchange offer relating to the Stockholder
Shares.
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<PAGE> 16
No Solicitation. The Stockholder Agreement provides that the Stockholder
will not, and will cause its affiliates and officers, directors, employees,
partners, investment bankers, attorneys, accountants and other agents and
representatives of the Stockholder and such affiliates (such affiliates,
officers, directors, employees, partners, investment bankers, attorneys,
accountants, agents and representatives of any Person are hereinafter
collectively referred to as the "Representatives" of such Person) not to,
directly or indirectly (i) initiate, solicit or encourage, or take any action to
facilitate the making of, any offer or proposal which constitutes or is
reasonably likely to lead to any Takeover Proposal for the Company or any
affiliate or any inquiry with respect thereto, or (ii) in the event of an
unsolicited Takeover Proposal for the Company or any affiliate of the Company,
engage in negotiations or discussions with, or provide any information or data
to, any Person (other than Parent, any of its affiliates or representatives)
relating to any Takeover Proposal. Notwithstanding the restrictions set forth in
this paragraph, any person who is an officer or director of the Company may
exercise his fiduciary duties in his capacity as a director or officer of the
Company consistent with the terms of the Merger Agreement.
The Stockholder Agreement also provides that the Stockholder notify Parent
and the Purchaser orally and in writing of any such offers, proposals, or
inquiries relating to the purchase or acquisition by any Person of the
Stockholder Shares (including, without limitation, the terms and conditions
thereof and the identity of the Person making it), within twenty-four (24) hours
of the receipt thereof. The Stockholder has also agreed to, and to cause its
Representatives to, immediately cease and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any parties
conducted heretofore with respect to any Takeover Proposal relating to the
Company, other than discussions or negotiations with Parent and its affiliates.
Distribution of Shares of Parent Common Stock. The Stockholder Agreement
provides that upon the consummation of the Merger, the Stockholder shall within
ninety (90) days thereafter either distribute the shares of Parent Common Stock
to each of the limited partners of the Stockholder or sell or otherwise dispose
of such shares of Parent Common Stock, in each case in accordance with the
governing documents thereto and applicable law; provided that no such sale or
other disposition shall be made if immediately following such sale or other
disposition the acquiror of such Parent Common Stock, together with the
acquiror's affiliates and any members of a group of which the acquiror is a
party, would Beneficially Own in the aggregate 4.9% or more of the shares of
Parent Common Stock then outstanding.
Restriction on Transfer, Proxies and Non-Interference. The Stockholder
Agreement also provides that, except as otherwise provided in the Stockholder
Agreement, the Stockholder will not, directly or indirectly: (i) offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Stockholder
Shares or any interest therein; (ii) grant any proxies or powers of attorney,
deposit the Stockholder Shares into a voting trust or enter into a voting
agreement with respect to the Stockholder Shares; or (iii) take any action that
would make any representation or warranty of the Stockholder contained in the
Stockholder Agreement untrue or incorrect or would result in a breach by the
Stockholder of its obligations under the Stockholder Agreement or a breach by
the Company of its obligations under the Merger Agreement.
Termination. Except as otherwise provided therein, the covenants and
agreements contained in the Stockholder Agreement with respect to the
Stockholder Shares shall terminate upon the earlier of (i) the consummation of
the Merger, and (ii) the termination of the Merger Agreement in accordance with
its terms, except that the covenant and agreement set forth in the Stockholder
Covenant described in the fifth preceding paragraph shall survive for six (6)
months after such termination (other than a termination as a result of a breach
by Parent or the Purchaser).
STOCK OPTION AGREEMENT
The following is a summary of the material terms of the Stock Option
Agreement dated as of November 29, 1995, among the Company, Parent and the
Purchaser (the "Stock Option Agreement"). This summary is
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<PAGE> 17
not intended to be a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof which is
incorporated herein by reference and a copy of which has been filed as Exhibit 5
to this Schedule 14D-9 and is incorporated herein by reference. Capitalized
terms not otherwise defined herein or in the following summary shall have the
meanings set forth in the Stock Option Agreement.
Grant of Stock Option. The Stock Option Agreement provides for the grant by
the Company to Parent of an unconditional, irrevocable option (a "Stock Option")
to purchase up to 13,251,010 fully paid and nonassessable Shares at a purchase
price of $27.50 per Share (the "Option Price"), or such other number of Shares
as equals 19.9% of the Company's issued and outstanding Shares at the time of
exercise of the Stock Option; provided that in no event shall the number of
Shares for which the Stock Option is exercisable exceed 19.9% of the Shares
issued and outstanding at the time of exercise of the Stock Option (the "Option
Shares").
Exercise of Stock Option. The Stock Option Agreement also provides that
upon (x) the occurrence of a Trigger Event, or (y) the occurrence of a tender or
exchange offer for some or all of the Shares or if a proposal for a Takeover
Proposal shall have been publicly proposed to be made or shall have been made by
another person or entity, the Stock Option shall become immediately exercisable,
in whole or in part, and remain exercisable in whole or in part until the later
of (i) the date which is six (6) months after the date the Stock Option first
became exercisable, and (ii) the fifth business day following expiration or
termination of any applicable waiting period under the HSR Act (the "Option
Period").
Sale of Option Shares. The Stock Option Agreement also provides that if, at
any time following the exercise of the Stock Option, Parent will either (i)
transfer, sell or otherwise dispose of any or all of the Option Shares,
including, without limitation, by means of tender or exchange of any or all of
the Option Shares pursuant to a tender or exchange offer involving the capital
stock of the Company, or (ii) convert such Option Shares into cash, capital
stock, other securities or any other consideration of any third party in a
merger, any recapitalization or restructuring or similar business combination
transaction (a "Business Combination Transaction"), Parent will pay to the
Company within five (5) days the amount equal to the Profit (as defined below)
Parent will receive, if any, pursuant to such Disposition or Business
Combination Transaction. "Profit," for purposes of this paragraph, will equal
(i) the product of (a) the number of Option Shares Parent transfers, sells,
tenders, exchanges or otherwise disposes of pursuant to a Disposition or a
Business Combination Transaction (the "Selling Shares") multiplied by (b) the
excess of the per Share consideration received by Parent pursuant to such
Disposition or Business Combination Transaction, valuing any non-cash
consideration at its fair market value on the date of such consummation (not
including any increase in such aggregate per Share consideration after the date
thereof), over the Purchase Price. For purposes hereof, the fair market value of
any non-cash consideration shall be the closing price or the last sale price,
or, in case no such sale takes place on the day of consummation of such Business
Combination Transaction, the average of the closing bid and asked prices, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the principal
national securities exchange on which such consideration is listed or admitted
to trading or, if such consideration is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or, if not so determinable,
the fair value of such consideration on such date will be determined in good
faith by the Board of Directors of Parent.
Adjustment Upon Changes in Capitalization. The Stock Option Agreement
provides that in the event of any change in Shares by reason of stock dividends,
split-ups, recapitalizations, combinations, exchanges of shares or the like, the
type and number of Shares subject to the Stock Option and the Option Price shall
be appropriately adjusted and proper provision shall be made so that, in the
event that any additional Shares are issued or otherwise become outstanding as a
result of any such change after the date of the Stock Option Agreement (other
than pursuant to the Stock Option Agreement), the number of Shares subject to
the Stock Option shall be adjusted so that, after such issuance and together
with Shares previously issued pursuant to the exercise of the Stock Option (as
adjusted on account of any of the foregoing changes in Shares), it equals 19.9%
of the number of Shares then issued and outstanding.
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<PAGE> 18
Termination. The Stock Option Agreement will terminate, except as otherwise
provided therein, upon the earlier of (i) the consummation of the Merger, or
(ii) the expiration of the Option Period.
TERMINATION OF CERTAIN STOCKHOLDER AGREEMENTS
Pursuant to the Merger Agreement, the Company and the Stockholder entered
into a Termination Agreement dated as of November 29, 1995, providing for the
termination of (i) the Stockholder Agreement dated as of June 1, 1992, between
the Stockholder and the Company, and (ii) the Registration Rights Agreement
dated as of June 1, 1992 between the Stockholder and the Company. In addition,
pursuant to the Merger Agreement, the Company and Magten Asset Management
Corporation, as agent for and on behalf of individual investment advisory
clients ("Magten") entered into a Termination Agreement dated as of November 29,
1995, providing for the termination of the Registration Rights Agreement dated
as of January 20, 1993, between Magten and the Company. Copies of the
Termination Agreements have been filed as Exhibits 15 and 16 to this Schedule
14D-9 and are incorporated herein by reference.
CERTAIN LITIGATION.
On November 30, 1995, a purported class action entitled Silvert v. Revco
D.S. Inc., et al., ("Silvert"), was filed in the Court of Chancery of the State
of Delaware, New Castle County, on behalf of the class of all the Company's
stockholders. The Silvert complaint named the Company, all of the Company's
directors and Parent as defendants. The Silvert complaint alleges that the
$27.50 per Share price offered by Parent in the Offer is insufficient and that
the Offer is unfair to the Company's stockholders and represents an attempt by
the defendants to enrich themselves at the expense of the plaintiff class. The
plaintiff in the Silvert action asserts that defendants violated their fiduciary
duties to the Company's stockholders by allegedly failing adequately to evaluate
the Company as a potential acquisition candidate; to take adequate steps to
enhance the Company's value as an acquisition candidate; and to create an active
and open auction for the Company. The Silvert complaint further alleges that the
Stock Option impedes the maximization of Company stockholder value. The Silvert
complaint seeks, among other relief, a preliminary and permanent injunction
barring defendants from taking any steps to accomplish the proposed Merger at a
price that is not fair and equitable to the plaintiffs and enjoining any
improper device or transaction which will impede maximization of stockholder
value. The Silvert complaint also seeks unspecified damages for losses suffered
and to be suffered by the plaintiff class as a result of the acts alleged in the
Silvert complaint. A copy of the complaint filed in Silvert has been filed as
Exhibit 17 to this Schedule 14D-9 and is incorporated herein by reference. The
Company believes that the suit is without merit and intends to vigorously defend
against it.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
The Board of Directors has determined that the Merger Agreement and the
transactions contemplated thereby, including, without limitation, the Offer, the
Merger, the Stockholder Agreement, the Stock Option Agreement and the
transactions contemplated thereby, are fair to and in the best interest of the
stockholders of the Company. In addition, the Board of Directors has approved
the Merger Agreement and the transactions contemplated thereby, including,
without limitation, the Offer and the Merger, and has approved the Stockholder
Agreement, the Stock Option Agreement and the transactions contemplated thereby.
The Board of Directors recommends that all holders who desire to receive cash
for their Shares accept the Offer and tender their Shares pursuant to the Offer.
(b) Background; Reasons for the Recommendation.
The Company's Board of Directors and senior management regularly review the
current and future state of the Company's strategic position and short-term and
long-term prospects.
On August 17, 1995, Mr. Martin Grass, Chairman and Chief Executive Officer
of Parent, spoke by telephone with Mr. David Schulte, a general partner of the
general partner of the Stockholder and a member of the Company Board. In the
conversation, Mr. Grass told Mr. Schulte that Parent was possibly interested in
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<PAGE> 19
purchasing the Company in a merger transaction involving a combination of cash
and stock. Mr. Schulte told Mr. Grass that he would contact Mr. Dwayne Hoven,
President and Chief Executive Officer of the Company, to ask him to send Mr.
Grass a Confidentiality Agreement. After execution of the Confidentiality
Agreement, the Company provided certain due diligence information requested by
Parent.
On August 28, 1995, Mr. Grass, Mr. Franklin Brown, Executive Vice President
and Chief Legal Counsel of Parent, and Mr. Frank Bergonzi, Executive Vice
President and Chief Financial Officer of Parent, met in Chicago with Mr.
Schulte, Ms. Sheli Rosenberg, a member of the Company Board, Mr. Joel Friedland,
a general partner of Chilmark Partners, L.P., an affiliate of the Stockholder,
Mr. Hoven, and Mr. James Hagan, Executive Vice President and Chief Financial
Officer of the Company. A dinner meeting took place and issues such as the
possible price and synergies that would be created from a merger were discussed.
The parties ended the meeting without any definitive conclusions about a future
meeting.
On September 21, 1995, Mr. Grass and Mr. Brown were in Cleveland, Ohio, for
a meeting on another business matter with Mr. Hoven. After the meeting, Mr.
Grass met with Mr. Hoven for a brief period to discuss the possible acquisition
of the Company by Parent. At the meeting, Mr. Grass advised Mr. Hoven that if an
acceptable price could be negotiated, Mr. Grass believed that the transaction
would create the opportunity to build a more successful company than if either
company continued on a stand-alone basis.
On September 28, 1995, Mr. Grass spoke by telephone with Mr. Sam Zell,
Co-Chairman of the Company, and discussed the terms and price range Mr. Grass
would offer for the Company.
On October 6, 1995, Mr. Hoven spoke with Mr. Grass by telephone and
discussed questions that Mr. Grass had about the due diligence review Parent was
conducting with respect to the Company.
During the week of October 9, 1995, Mr. Rod Dammeyer, a member of the
Company Board, called Mr. Grass and a meeting was arranged for October 31, 1995
in Chicago. At the October 31, 1995 meeting, Mr. Grass and Mr. Brown met with
Mr. Dammeyer and Ms. Rosenberg and established a preliminary basis for
continuing discussions to seek to reach an agreement concerning a transaction,
subject to mutual due diligence, receipt of fairness opinions and Board
approvals. Such officers of Parent and representatives of the Company and the
Stockholder determined to continue discussions on the basis of tentative terms
as follows: Parent would acquire a majority of the outstanding shares at $27.50
per Share and the remaining Shares would be acquired for shares of Parent Common
Stock based on a target price of $27.50 for Parent Common Stock subject to
negotiating the terms of a "collar" mechanism. In addition, the Stockholder
would enter into a Stockholder Agreement with Parent in which it would agree to
support the transaction. On November 1, 1995, Mr. Grass and Mr. Brown held a
telephone call with Mr. Dammeyer, Ms. Rosenberg, Mr. Schulte and Mr. Friedland
to discuss the collar. At the end of the conversation, the parties had
tentatively agreed upon the terms of a 20% "collar" mechanism which would
provide that stockholders of the Company participate in 50% of any increase or
decrease in the market value of Parent Common Stock above or below $27.50 during
an agreed upon pricing period.
On November 3, 1995, counsel for Parent distributed a draft Merger
Agreement and Stockholder Agreement to the Company and its legal and financial
advisors.
On November 7, 1995, representatives of Parent and its legal advisors met
with representatives of the Company and its legal advisors to commence
negotiations with respect to the terms of the proposed Merger Agreement and
Stockholder Agreement. Such negotiations continued throughout such week,
On November 9, 1995, the Board of Directors of Parent held a meeting. At
such meeting, members of Parent's senior management, Parent's outside legal
advisors and Donaldson, Lufkin & Jenrette Securities Corporation made
presentations to the Board regarding the proposed acquisition of the Company.
The Board of Directors analyzed and discussed the proposed Merger Agreement,
Offer, Merger and Stockholder Agreement and it was the consensus of Parent's
Board that senior management of Parent should continue with
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<PAGE> 20
the negotiations relating to the proposed transaction and report back to the
Board once such negotiations were completed.
On November 10, 1995, the Human Resources Committee of the Company's Board
of Directors held a special meeting to discuss the need to provide for
continuity of management in light of the proposed transaction, including
adequate change of control mechanisms and severance benefit levels. After a
detailed discussion, the Human Resources Committee adopted the severance and
compensation enhancements described in Item 3(b) "Employee Matters -- The Merger
Agreement."
During the week of November 13, 1995, members of senior management of
Parent and its legal advisors continued to negotiate the terms of the Merger
Agreement and Stockholder Agreement with representatives of the Company and the
Stockholder, including Mr. Dammeyer and Ms. Rosenberg, and their legal advisors.
During the course of the negotiations, Parent insisted upon, and negotiated
with the Company to obtain, an option to purchase 19.9% of the Company's
outstanding Shares at a price of $27.50 per Share. Representatives of the
Company advised Parent that they would be willing to recommend entering into
such a Stock Option Agreement subject to negotiation of satisfactory terms. The
parties continued to negotiate various modifications to the Merger Agreement,
Stock Option Agreement and Stockholder Agreement. Such negotiations continued
through November 29, 1995.
On November 28, 1995, the Board of Directors of Parent held a special
meeting to review, with the advice and assistance of the Board's financial and
legal advisors, the proposed Merger Agreement, the Stock Option Agreement, the
Stockholder Agreement and the transactions contemplated thereby, including the
Offer and Merger. At such meeting, Parent's management and legal advisors made
presentations to the Board concerning the transaction and Parent's financial
advisor, Donaldson, Lufkin & Jenrette Securites Corporation, provided its
opinion to the effect that the consideration to be paid by Parent pursuant to
the Merger Agreement, taken as a whole, is fair to the stockholders of Parent
from a financial point of view. Following the Board's review of the transaction,
the Board, subject to the resolution of remaining open issues, unanimously
authorized and approved the proposed Merger Agreement, Stock Option Agreement,
Stockholder Agreement and the transactions contemplated thereby, and authorized
the execution and delivery of such Agreements.
Also on November 28, 1995, the Board of Directors of the Company held a
special meeting to review, with the advice and assistance of the Board's
financial and legal advisors, the proposed Merger Agreement, Stock Option
Agreement, Stockholder Agreement and the transactions contemplated thereby,
including the Offer and Merger. At such meeting, the Company's management and
financial and legal advisors discussed the transaction with the Company Board
and the Company's financial advisor, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), provided its written opinion to the effect that the consideration to
be received by the holders of Shares pursuant to the Offer and the Merger, taken
together, is fair from a financial point of view to such holders. Following the
Company Board's review of the transaction, the Company Board, subject to the
resolution of remaining open issues, unanimously (with one director absent and
two directors abstaining) approved the proposed Merger Agreement, Stock Option
Agreement and the transactions contemplated thereby, authorized the execution
and delivery of such Agreements, determined that the Offer and the Merger are
fair to and in the best interests of the holders of Shares, recommended that
stockholders of the Company who desire to receive cash for their Shares accept
the Offer and tender their shares pursuant to the Offer, and recommended that
stockholders of the Company approve and adopt the Merger Agreement. The Board's
approval of the Merger Agreement, the Stock Option Agreement, the Stockholder
Agreement and the transactions contemplated thereby constituted approval for
purposes of Section 203 of the Delaware Law such that the provisions of the
statute are not applicable to such Agreements or the transactions contemplated
thereby. In addition, the Board approved the actions taken by the Board's Human
Resources Committee on November 10, 1995.
Negotiations between members of senior management of Parent and its legal
advisors and representatives of the Company and their legal advisors to finalize
the remaining issues in the Merger Agreement continued through November 29,
1995. On the evening of November 29, 1995, following the resolution of such open
issues, Parent, the Purchaser and the Company executed and delivered the Merger
Agreement and the Stock
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<PAGE> 21
Option Agreement, and Parent, the Purchaser and the Stockholder executed and
delivered the Stockholder Agreement.
On November 30, 1995, Parent and the Company issued a joint press release
announcing the execution of the Merger Agreement, Stockholder Agreement and
Stock Option Agreement. The Purchaser commenced the Offer on December 4, 1995. A
copy of the joint press release has been filed as Exhibit 2 to this Schedule
14D-9 and is incorporated herein by reference.
A copy of a letter to stockholders of the Company, which accompanies this
Schedule 14D-9, has been filed as Exhibit 1 to this Schedule 14D-9 and is
incorporated herein by reference.
In reaching its conclusion to approve the Merger Agreement and recommend
that holders of Shares tender their Shares pursuant to the Offer, the Board of
Directors considered a number of factors, including, without limitation, the
following:
(1) the terms of the Merger Agreement, the Stock Option Agreement, the
Stockholder Agreement and the other documents to be executed in connection
therewith;
(2) presentations by management of the Company (at a Board meeting
held on November 28, 1995, and at previous Board meetings) regarding the
financial condition, results of operations, business and prospects of the
Company, including the prospects of the Company if it remained independent;
(3) the fact that the proposed structure of the Offer and the Merger
involves an immediate cash tender offer for one-half of the outstanding
Shares, thereby enabling the stockholders of the Company to obtain cash for
at least one-half of their Shares at the earliest possible time;
(4) the historical market prices for the Shares, particularly the fact
that the $27.50 per Share price in the Offer represents (x) a premium of
approximately 6.4% over the closing price of $25.75 for the Shares on
November 27, 1995, the last trading day prior to the approval of the Merger
Agreement, and (y) a higher price than the Shares have ever traded;
(5) the expected future trading values of the Shares in light of,
among other things, the historical trading multiples of other companies in
the Company's line of business;
(6) the presentation of Morgan Stanley to the Board of Directors on
November 28, 1995 and the written opinion of Morgan Stanley dated November
29, 1995 to the effect that, as of such date and based upon its review and
analysis and subject to the limitations set forth therein, the
consideration to be received by the holders of Shares pursuant to the Offer
and the Merger, taken together, is fair from a financial point of view to
such holders. A copy of the written opinion dated November 29, 1995 of
Morgan Stanley, which accompanies this Schedule 14D-9, setting forth the
assumptions made, factors considered and scope of the review undertaken by
Morgan Stanley, has been filed as Exhibit 7 to this Schedule 14D-9 and is
incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ THE
OPINION OF MORGAN STANLEY CAREFULLY AND IN ITS ENTIRETY;
(7) the fact that the Merger offers the opportunity for substantial
synergies and the transaction structure allows the stockholders who receive
Parent Common Stock to participate in those synergies through continued
ownership of the combined company;
(8) the views expressed by management and Morgan Stanley that there
did not appear to be any other party with which the Company would be as
good a strategic fit as Parent;
(9) the fact that the Stockholder has agreed to tender all of its
Shares in the Offer and is prepared to support the Merger Agreement by
entering into the Stockholder Agreement;
(10) the fact that the Offer and the Merger are not conditioned on the
availability of financing;
(11) the fact that the Merger Agreement, which prohibits the Company,
its Subsidiaries or its affiliates from initiating, soliciting or
encouraging any potential acquisition proposal, does permit the Company to
furnish information to and participate in discussions or negotiations with
any third party if
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<PAGE> 22
the conditions described above in Item 3(b) under "Certain Other Matters --
Takeover Proposals" are satisified;
(12) the fact that if the Board decided to accept an acquisition
proposal by a third party, the Board may terminate the Merger Agreement and
pay Parent a termination fee of $45 million (as described above in Item
3(b) under "Certain Other Matters -- Termination Fee"), or approximately
$.68 per issued and outstanding Share, which the Board did not believe
would be a significant deterrent to a higher offer by a third party
interested in acquiring the Company; and
(13) the regulatory approvals required to consummate the Merger,
including, among other things, antitrust approvals, and the prospects of
receiving such approvals.
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations as being based on the totality
of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a Letter Agreement dated November 6, 1995, with the Company
(the "Engagement Letter"), Morgan Stanley was engaged to render a financial
opinion letter (the "Opinion Letter") to the Company's Board of Directors with
respect to the consideration to be received by the Company's stockholders in
connection with the possible sale or other business combination of the Company
to Parent. In the Engagement Letter the Company agreed to pay Morgan Stanley a
fee of $2,250,000 upon delivery of the Opinion Letter to the Company's Board of
Directors. The Company also agreed to reimburse Morgan Stanley for its expenses
(including fees of outside counsel and other professional advisors), and to
indemnify Morgan Stanley against certain liabilities related to, arising out of,
or in connection with, the engagement of Morgan Stanley under the Engagement
Letter.
In the ordinary course of its business, Morgan Stanley or its affiliates
may actively trade the securities of the Company and Parent for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past sixty
(60) days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company except for:
(i) the Stock Option Agreement; and (ii) the following transaction: Clarence D.
Nichols, Senior Vice President, Store Operations, gifted 1,418 Shares to his
church on October 1, 1995, exercised a stock option for 15,000 Shares on October
17, 1995, and sold such Shares on October 19, 1995, and sold 1,473 Shares on
October 27, 1995.
(b) The Stockholder has agreed to validly tender the Stockholder Shares,
which Shares represent approximately 19.7% of the issued and outstanding Shares.
The Company is not aware that any executive officer, director or affiliate
presently intends not to tender its unrestricted Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth above or in Items 3(b) and 4(b), the Company is not
engaged in any negotiation in response to the Offer which relates to or would
result in: (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any Subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any Subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
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(b) Except as set forth above or in Items 3(b) or 4, there are no
transactions, Board of Directors resolutions, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Parent, on behalf of the Company, is furnishing the Company's stockholders
with an Information Statement attached as Schedule II to the Schedule 14D-1 in
connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders.
No appraisal rights are available in connection with the Offer. If only
shares of Parent Common Stock are issued in the Merger, then stockholders will
not have any appraisal rights. However, if the Merger is consummated and in the
event (i) the Alternative Consideration or any Additional Consideration
contemplated by the Merger Agreement is applicable or (ii) that Parent elects to
pay any Cash Adjustment Amount, stockholders of the Company may have certain
rights under the Delaware Law to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their Shares.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<S> <C>
Exhibit 1 Letter to Stockholders of the Company dated December 4, 1995.*
Exhibit 2 Press Release issued jointly by Parent and the Company dated November 30, 1995.
Exhibit 3 Agreement and Plan of Merger dated as of November 29, 1995, by and among
Parent, the Purchaser and the Company.
Exhibit 4 Stockholder Agreement dated as of November 29, 1995, by and among Parent, the
Purchaser and Zell/Chilmark Fund, L.P.
Exhibit 5 Stock Option Agreement dated as of November 29, 1995, by and among Parent, the
Purchaser and the Company.
Exhibit 6 Confidentiality Agreement, dated August 17, 1995, between the Company and
Parent.
Exhibit 7 Opinion of Morgan Stanley & Co. Incorporated dated November 29, 1995.*
Exhibit 8 Forms of Employment Agreements between the Company and certain executive
officers and between the Company and certain non-executive officers, with a
description of the differences between the individually executed employment
agreements.
Exhibit 9 Economic Value Added ("EVA") Incentive Plan.
Exhibit 10 Revco D.S., Inc. Supplemental Retirement and Survivor Benefit Plan (SERP).
Exhibit 11 1992 Long-Term Incentive Plan of Revco D.S., Inc.
Exhibit 12 1992 Non-Employee Directors' Stock Option Plan of Revco D.S., Inc.
Exhibit 13 Revco D.S., Inc. 1993 Employee Stock Purchase Plan.
Exhibit 14 Pages 5-6 and 10-20 of the Company's Notice of Annual Meeting to Stockholders
and Proxy Statement dated August 28, 1995 containing the pertinent sections
thereof referred to in Item 3(b) of this Schedule 14D-9.
Exhibit 15 Termination Agreement dated as of November 29, 1995, between the Company and
Zell/Chilmark Fund, L.P.
Exhibit 16 Termination Agreement dated as of November 29, 1995, between the Company and
Magten Asset Management Corporation, as agent for and on behalf of individual
investment advisory clients.
Exhibit 17 Complaint entitled Silvert v. Revco D.S., Inc., et. al., filed in the Chancery
Court of the State of Delaware, New Castle County.
</TABLE>
- ---------------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: December 4, 1995
REVCO D.S., INC.
By: /s/ Jack A. Staph
Name: Jack A. Staph
Title: Senior Vice President,
Secretary
and General Counsel
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<PAGE> 1
December 4, 1995
To Our Stockholders:
On behalf of the Board of Directors of Revco D.S., Inc. (the "Company"), I
wish to inform you that the Company has entered into an Agreement and Plan of
Merger dated as of November 29, 1995 (the "Merger Agreement") with Rite Aid
Corporation ("Parent") and Ocean Acquisition Corporation, its wholly owned
subsidiary (the "Purchaser"), pursuant to which the Purchaser has today
commenced a cash tender offer (the "Offer") to purchase such number of shares of
common stock, par value $.01 per share (the "Shares"), of the Company as equals
50.1% of the issued and outstanding Shares at $27.50 per Share.
Under the Merger Agreement, the Offer will be followed by a merger (the
"Merger") in which any remaining Shares will be converted into the right to
receive either: (i) a number of shares of common stock of Parent ("Parent Common
Stock") to be determined based on the formula set forth in the Merger Agreement,
subject to a collar which provides that the exchange ratio shall not be greater
than 1.12500 nor less than .91666 shares of Parent Common Stock per Share; or
(ii) in the event that the stockholders of Parent do not approve the issuance of
Parent Common Stock, a combination of Parent Common Stock and cash based on a
formula set forth in the Merger Agreement, whereby the number of shares of
Parent Common Stock in the aggregate to be issued in the Merger will not exceed
19.9% of the shares of Parent Common Stock outstanding immediately prior to the
Merger. As described in the attached Schedule 14D-9 relating to the Offer, the
number of shares of Parent Common Stock to be received for each Share in the
Merger will increase to the extent the average value of Parent Common Stock is
greater than $27.50 per share during a pricing period and will decrease if the
average value of Parent Common Stock is less than $27.50 per share during such
pricing period.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS AND HAS APPROVED
THE OFFER AND THE MERGER. THE BOARD OF DIRECTORS RECOMMENDS THAT ALL
STOCKHOLDERS WHO DESIRE TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including, among
other things, the opinion dated November 29, 1995 of Morgan Stanley & Co.
Incorporated, that the consideration to be received by the holders of the Shares
pursuant to the Offer and the Merger, taken together, is fair from a financial
point of view to such holders.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase dated December 4, 1995 of the Purchaser,
together with related materials, including a Letter of Transmittal, to be used
for tendering your Shares pursuant to the Offer. These documents state the terms
and conditions of the Offer and provide instructions as to how to tender your
Shares. We urge you to read these documents carefully in making your decision
with respect to tendering your Shares pursuant to the Offer.
On behalf of the Board of Directors,
D. DWAYNE HOVEN
President and Chief Executive
Officer
Revco D.S., Inc., 1925 Enterprise Parkway, Twinsburg, Ohio 44087, 216/425-9811
<PAGE> 1
FOR IMMEDIATE RELEASE Exhibit 2
RITE AID CORPORATION AND REVCO COMBINE TO CREATE
NATION'S LARGEST DRUGSTORE CHAIN
Merger Creates Company with over $11 Billion in Revenues
Cash Tender Scheduled To Commence Early Next Week
______________________________________________________
CAMP HILL, PA (November 30, 1995) -- Rite Aid Corporation
(RAD:NYSE,PSE) and Revco D.S., Inc. (RXR: NYSE) today announced that they have
entered into a definitive merger agreement in which Rite Aid would acquire
Revco. The merger creates the nation's largest drugstore chain with expected
annualized revenues of over $11 billion and more than 4,500 stores in 22 states
and the District of Columbia. The transaction is expected to be accretive to
Rite Aid's earnings per share by the end of the first year of operations
following the merger.
Under the agreement, Rite Aid would purchase, in a first-step tender
offer, at least 50.1% of the outstanding shares of Revco on a fully-diluted
basis for $27.50 per share in cash and the remainder of the outstanding shares
would be converted into Rite Aid stock in a second-step merger. As described
below, the value of Rite Aid shares to be received for each Revco share in the
second-step merger will increase to the extent the average value of Rite Aid
stock is greater than $27.50 per share during a pricing period and will
decrease if the average value of Rite Aid stock is less than $27.50 per share
during such pricing period, but in no event will more than 1.125 shares or less
than .91666 shares of Rite Aid stock be issued for each Revco share in the
merger.
The tender offer is not conditioned on obtaining financing. The total
value of the merger is approximately $1.8 billion.
The merger, which was approved by each company's Board of Directors,
is expected to be completed in the first quarter of 1996. The tender offer is
scheduled to commence early next week.
Martin Grass, Chairman of the Board of Directors and Chief Executive
Officer of Rite Aid, said, "The combination of these two great companies will
create the preeminent retail drugstore chain in the United States. This
transaction will nearly double our revenues and number of stores. Our
significant investment in technology and infrastructure coupled with our
innovative management changes have prepared us to seize the competitive
advantage this merger represents. We anticipate a quick and smooth integration
of the two companies.
<PAGE> 2
"The merger will increase Rite Aid's competitive advantage in our
prescription benefits management subsidiary, Eagle Managed Care," Mr. Grass
continued. "The addition of Revco's mail order capacity, as well as the
increased number of outlets available in the combined entity, complements and
broadens Rite Aid's managed healthcare delivery system. This expanded capacity
is important leverage in attracting new contracts to the company.
"We will be the best-positioned retail drugstore chain in the country
to compete with the three large vertically integrated pharmacy benefit managers
owned by the major pharmaceutical manufacturers. This combination should allow
Rite Aid to offer customers the most competitive pharmacy prescription prices
and services."
D. Dwayne Hoven, President and Chief Executive Officer of Revco, said,
"In an environment of consolidation, Revco's Board of Directors felt that this
offer was fair and reasonable and in the best interest of our stockholders.
This offer is the culmination of one of the most remarkable turnarounds in
corporate history. We built a company with productive real estate, clean
inventories and great people. Revco people should not lose sight of what they
have accomplished."
Rite Aid expects to achieve synergies of $156 million through
elimination of overlapping positions, streamlining distribution, reducing
redundant advertising, and enhanced purchasing power. As in past Rite Aid
mergers, Rite Aid will provide excellent severance packages, including
out-placement counseling, to all affected personnel. Following completion of
the merger, the Revco stores will operate under the Rite Aid banner. The
headquarters of Rite Aid will remain in Camp Hill, Pennsylvania.
Rite Aid indicated that it plans to take a pre-tax charge to earnings
of $163 million to cover the cost of integrating the two companies. Rite Aid
anticipates that only a small percentage of the combined company's stores will
be closed. A decision on which drugstores will be closed will occur after the
merger is completed.
The merger agreement provides for Ocean Acquisition Corporation, a
subsidiary of Rite Aid, to make a cash tender offer for at least 50.1% of the
outstanding shares of common stock of Revco on a fully diluted basis at a price
of $27.50 per share. The tender offer will be followed by a second-step merger
in which each share of Revco not acquired in the tender offer will be converted
into the right to receive Rite Aid common stock and/or, under certain
circumstances, cash.
The per share value of Rite Aid common stock which stockholders of
Revco would receive in the second-step merger will be determined during a
randomly selected fifteen-day pricing period during the forty trading days
ending five days before the meeting of stockholders of Revco to consider the
merger. Stockholders of Revco would receive one share of Rite Aid common stock
if the average market value of Rite Aid common stock during the pricing period
is $27.50.
If the average value of Rite Aid common stock is greater than $27.50
during the selected fifteen-day pricing period, stockholders of Revco will
receive, for each Revco share, Rite Aid
<PAGE> 3
common stock having a value of $27.50 plus 50% of the increase in market value
of Rite Aid common stock over $27.50, provided that in no event would Rite Aid
issue less than .91666 shares of Rite Aid common stock for each Revco share in
the merger. Similarly, if the average value of Rite Aid common stock during
the pricing period is less than $27.50, stockholders of Revco will receive, for
each Revco share, Rite Aid common stock having a value of $27.50 less 50% of
the decrease in market value of Rite Aid common stock below $27.50, provided
that in no event would Rite Aid issue more than 1.125 shares of Rite Aid common
stock.
If the average value of Rite Aid common stock during the pricing
period is less than $27.50, Rite Aid would have the option of delivering, for
each Revco share, one share of Rite Aid common stock plus cash in an amount
equal to 50% of the decrease in market value of Rite Aid common stock below
$27.50, provided that in no event would more than $2.75 per Revco share be paid
in cash.
In the event that the stockholders of Rite Aid do not approve the
issuance of Rite Aid common stock pursuant to the merger, but all conditions to
the merger are otherwise satisfied or waived, each Revco share would be
converted into the right to receive a combination of cash and shares of Rite
Aid common stock (determined based on the formulas described above)
representing in the aggregate 19.9% of Rite Aid's outstanding shares.
Rite Aid also stated that it has entered into a stockholder agreement
with Zell/Chilmark Fund L.P., the major stockholder of Revco, pursuant to which
Zell/Chilmark has agreed to tender its Revco shares (representing approximately
19.7% of Revco's outstanding shares) into Rite Aid's tender offer and to vote
in favor of the merger. Revco has granted Rite Aid an option to purchase 19.9%
of Revco's shares under certain circumstances at $27.50 per share.
The tender offer is conditioned on, among other things, the valid
tender of 50.1% of the outstanding Revco shares on a fully diluted basis and
the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Donaldson, Lufkin & Jenrette Securities Corporation provided a
fairness opinion for Rite Aid. Morgan Stanley & Co. Incorporated provided a
fairness opinion for Revco.
Revco D.S., Inc., based in Twinsburg, Ohio, operates over 2,100 stores
in 14 Midwestern, Southeastern and Eastern states and has annual sales of
approximately $4.4 billion.
Rite Aid Corporation, based in Camp Hill, Pennsylvania, is the
nation's largest drugstore chain, with over 2,700 stores in 21 and the District
of Columbia.
General information about Rite Aid including corporate background and
press releases is available, free of charge, through the company's
News-On-Demand fax service at 800/916-7788.
<PAGE> 1
Exhibit 3
==========================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RITE AID CORPORATION
OCEAN ACQUISITION CORPORATION
AND
REVCO D.S., INC.
DATED AS OF
NOVEMBER 29, 1995
==========================================================
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<TABLE>
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ARTICLE I THE OFFER AND MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.4 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.6 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.7 Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Alternative Consideration and Additional
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.3 Issuance of Parent Common Stock or Payment of Cash Consideration . . . . . . . . . . . . . . . . . 15
Section 2.4 Treatment of Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.5 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.6 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.3 Corporate Authorization; Validity of Agreement; Company Action . . . . . . . . . . . . . . . . . . 24
Section 3.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.7 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.8 Information in Proxy Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.9 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.11 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.13 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.14 Assets; Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.15 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.16 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.17 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.19 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.20 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.21 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
SUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.3 Corporate Authorization; Validity of Agreement; Necessary Action . . . . . . . . . . . . . . . . . 40
Section 4.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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0139329.08-01S2a
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Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.7 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.8 Information in Proxy Statement/Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.11 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.12 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.13 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.14 Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.1 Interim Operations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.2 Treatment of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.5 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.6 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.7 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.10 Directors' and Officers' Insurance and Indemnification . . . . . . . . . . . . . . . . . . . . . . 61
Section 5.11 Rule 145 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.12 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.13 Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 5.14 New York State Real Property Transfer and Gains Taxes. . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.15 Confidentiality/Standstill Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.16 Stock Exchange Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE VI CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 6.1 Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.3 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.2 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.3 Amendment and Modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.4 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership . . . . . . . . . . . . . . . . 72
Section 8.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.10 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
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Section 8.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.13 Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Exhibits
Annexes
</TABLE>
0139329.08-01S2a iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of November 29, 1995,
by and among Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), and Revco D.S., Inc., a Delaware corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Sub and the
Company have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished
by Sub commencing a cash tender offer for Shares (as defined in Section 1.1) to
be followed by a merger of Sub with and into the Company (the "Merger"), with
the Company being the surviving corporation;
WHEREAS, as a condition and inducement to Parent and Sub
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent is
entering into a Stockholder Agreement with Zell/Chilmark Fund, L.P. in the form
of Exhibit A hereto (the "Zell/Chilmark Stockholder Agreement"), pursuant to
which, among other things, such stockholder has agreed to vote the Shares then
owned by such stockholder in favor of the Merger provided for herein;
WHEREAS, as a condition and inducement to Parent and Sub
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent and the
Company are entering into a Stock Option Agreement in the form of Exhibit B
hereto (the "Stock Option Agreement"), pursuant to which, among other things,
the Company has granted Parent the right to purchase Shares representing 19.9%
of the outstanding Shares at the date of exercise under certain circumstances;
WHEREAS, the Board of Directors of the Company has approved
the transactions contemplated by this Agreement, the Zell/Chilmark Stockholder
Agreement and the Stock Option Agreement in accordance with the provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL") and has
resolved to recommend the acceptance
0139329.08-01S2a
<PAGE> 6
of the Offer (as defined in Section 1.1) and the approval of the Merger by the
holders of Shares; and
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Zell/Chilmark Stockholder Agreement and the Stock Option
Agreement, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 THE OFFER. (a) As promptly as practicable (but
in no event later than five business days after the public announcement of the
execution hereof), Sub shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) an offer
(the "Offer") to purchase for cash not less than 35,144,833 shares and up to
all of the issued and outstanding common stock, par value $.01 per share
(referred to herein as either the "Shares" or "Company Common Stock"), of the
Company at a price of $27.50 per Share, net to the seller in cash (such price,
or such higher price per Share as may be paid in the Offer, being referred to
herein as the "Offer Price"), the exact number of Shares within such range to
be determined by Parent in its sole discretion, it being hereby agreed that
Parent may change the amount of Shares sought to be purchased in the Offer
within such range at any time prior to consummation of the Offer, provided that
Parent complies with the requirements of Rule 14e-1 of the Exchange Act. The
Offer shall be subject to there being validly tendered and not withdrawn prior
to the expiration of the Offer, at least 35,144,833 Shares or such other number
of Shares as shall equal 50.1% of the Shares outstanding on a fully-diluted
basis as of the expiration of the Offer (the "Minimum Condition") and to the
other conditions set forth in Annex A hereto. Sub shall, on the terms and
subject to the prior satisfaction or waiver of the conditions of the Offer,
accept for payment and pay for Shares tendered as soon as practicable after the
later of the satisfaction of the conditions to the Offer and the expiration of
the Offer; PROVIDED, HOWEVER, that no such payment shall be made until after
any calculation of proration as required by applicable
0139329.08-01S2a 2
<PAGE> 7
law. The obligations of Sub to commence the Offer and to accept for payment
and to pay for any Shares validly tendered on or prior to the expiration of the
Offer and not withdrawn shall be subject only to the conditions set forth in
Annex A hereto. The Offer shall be made by means of an offer to purchase (the
"Offer to Purchase") containing the terms set forth in this Agreement and the
conditions set forth in Annex A hereto. Without the written consent of the
Company, Sub shall not amend or waive the Minimum Condition, decrease the Offer
Price, change the number of Shares sought to an amount less than 50.1% of the
outstanding Shares on a fully-diluted basis, change the form of consideration
to be paid pursuant to the Offer or impose conditions to the Offer in addition
to those set forth in Annex A hereto, or amend any other term or condition of
the Offer in any manner which is adverse to the holders of Shares; provided,
however, that if on the initial scheduled expiration date of the Offer (as it
may be extended in accordance with the terms hereof), all conditions to the
Offer shall not have been satisfied or waived, the Offer may be extended from
time to time without the consent of the Company for such period of time as is
reasonably expected to be necessary to satisfy the unsatisfied conditions. In
addition, the Offer Price may be increased and the Offer may be extended to the
extent required by law in connection with such increase in each case without
the consent of the Company.
(b) Parent and Sub shall file with the United
States Securities and Exchange Commission (the "SEC") as soon as practicable on
the date the Offer is commenced, a Tender Offer Statement on Schedule 14D-1
with respect to the Offer (together with all amendments and supplements thereto
and including the exhibits thereto, the "Schedule 14D-1") which will include,
as exhibits, the Offer to Purchase and a form of letter of transmittal and
summary advertisement (collectively, together with the Schedule 14D-1 and any
amendments and supplements thereto, the "Offer Documents"). Parent and Sub
represent that the Offer Documents will comply in all material respects with
the provisions of applicable federal securities laws and, on the date filed
with the SEC and on the date first published, sent or given to the Company's
stockholders, will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the
0139329.08-01S2a 3
<PAGE> 8
circumstances under which they were made, not misleading, except that no
representation is made by Parent or Sub with respect to information supplied by
the Company in writing for inclusion in the Offer Documents. The information
supplied by the Company for inclusion in the Offer Documents will not, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of Parent and Sub further agrees to take all
steps necessary to cause the Offer Documents to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. Each of Parent and Sub, on the one
hand, and the Company, on the other hand, agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false and misleading in any material respect, and
Parent and Sub further agree to take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given the
opportunity to review the Schedule 14D-1 and the Offer Documents before they
are filed with the SEC. In addition, Parent and Sub agree to provide the
Company and its counsel in writing with any comments Parent, Sub or their
counsel may receive from time to time from the SEC or its staff with respect to
the Offer Documents promptly after the receipt of such comments. Parent and
Sub will cooperate with the Company in responding to any comments received from
the SEC with respect to the Offer and amending the Offer in response to any
such comments.
Section 1.2 COMPANY ACTIONS.
(a) The Company hereby approves of and consents to
the Offer and represents that the Board of Directors, at a meeting duly called
and held, has unanimously (with one director absent and two directors
abstaining) (i) determined that this Agreement and the transactions
contemplated hereby, including, without limitation, the Offer, the Merger, the
Zell/Chilmark
0139329.08-01S2a 4
<PAGE> 9
Stockholder Agreement, the Stock Option Agreement and the transactions
contemplated thereby, are fair to and in the best interests of the holders of
Shares, (ii) approved this Agreement and the transactions contemplated hereby,
including, without limitation, the Offer and the Merger, and approved the
Zell/Chilmark Stockholder Agreement, the Stock Option Agreement and the
transactions contemplated thereby, such determination and approval constituting
approval thereof for purposes of Section 203 of the DGCL, and (iii) resolved to
recommend that the stockholders of the Company who desire to receive cash for
their Shares accept the Offer and tender their Shares thereunder to Sub and
that all stockholders of the Company approve and adopt this Agreement;
provided, however, that prior to the purchase by Sub of Shares pursuant to the
Offer, the Company may modify, withdraw or change such recommendation only to
the extent that the Board of Directors of the Company determines, after having
received the oral or written opinion of outside legal counsel to the Company,
that the failure to so withdraw, modify or change would result in a breach of
the Board of Directors' fiduciary duties under applicable laws.
(b) Concurrently with the commencement of the
Offer, the Company shall file with the SEC a Solicita- tion/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto and including the exhibits thereto, the "Schedule 14D-9") which shall
contain the recommendation referred to in clauses (i), (ii) and (iii) of
Section 1.2(a) hereof; provided, however, that the Company may modify, withdraw
or change such recommendation only to the extent that the Board of Directors of
the Company determines, after having received the oral or written opinion of
outside legal counsel to the Company, that the failure to so withdraw, modify
or change would result in a breach of the Board of Directors' fiduciary duties
under applicable laws and any such withdrawal, change or modification shall not
constitute a breach of this Agreement. The Company represents that the
Schedule 14D-9 will comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with the SEC and on
the date first published, sent or given to the Company's stockholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the
0139329.08-01S2a 5
<PAGE> 10
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Sub for inclusion in the Schedule 14D-9. The information supplied by
Parent and Sub for inclusion in the Schedule 14D-9 will not, on the date filed
with the SEC and on the date first published, sent or given to the Company's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company further agrees to take all steps necessary
to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Each of the Company, on the one hand, and Parent and
Sub, on the other hand, agrees promptly to correct any information provided by
it for use in the Schedule 14D-9 if and to the extent that it shall have become
false and misleading in any material respect and the Company further agrees to
take all steps necessary to cause the Schedule 14D-9 as so corrected to be
filed with the SEC and to be disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws. Parent and
its counsel shall be given the opportunity to review the Schedule 14D-9 before
it is filed with the SEC. In addition, the Company agrees to provide Parent,
Sub and their counsel in writing with any comments the Company or its counsel
may receive from time to time from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments. The Company will
cooperate with Parent and Sub in responding to any comments received from the
SEC with respect to the Schedule 14D-9 and amending the Schedule 14D-9 in
response to any such comments.
(c) In connection with the Offer, if requested by
Sub, the Company will promptly furnish or cause to be furnished to Sub mailing
labels, security position listings and any available listing or computer file
containing the names and addresses of the record holders of the Shares as of a
recent date, and shall furnish Sub with such information and assistance as Sub
or its agents may reasonably request in communicating the Offer to the
stockholders of the Company. Except for such steps as are necessary to
disseminate the Offer
0139329.08-01S2a 6
<PAGE> 11
Documents, Parent and Sub shall hold in confidence the information contained in
any of such labels and lists and the additional information referred to in the
preceding sentence, will use such information only in connection with the
Offer, and, if this Agreement is terminated, will upon request of the Company
deliver or cause to be delivered to the Company all copies of such information
then in its possession or the possession of its agents or representatives.
(d) The Board of Directors of the Company has
received the written opinion of Morgan Stanley & Co. Incorporated ("Company
Financial Advisor"), dated as of a date which is on or prior to the date of
this Agreement, to the effect that, as of such date, the consideration to be
received by holders of Shares (other than Sub and its affiliates) pursuant to
the Offer and Merger, taken together, is fair from a financial point of view to
such holders (the "Company Fairness Opinion"). The Company has delivered to
Sub a copy of the Company Fairness Opinion, together with Company Financial
Advisor's authorization to the inclusion of the Company Fairness Opinion in the
Offer Documents and the Proxy Statement/Prospectus (as defined in Section 1.7).
Section 1.3 THE MERGER. Subject to the terms and
conditions of this Agreement and in accordance with the DGCL at the Effective
Time, the Company and Sub shall consummate a merger (the "Merger") pursuant to
which (i) Sub shall be merged with and into the Company and the separate
corporate existence of Sub shall thereupon cease, and (ii) the Company shall be
the successor or surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware. Pursuant to the Merger, (x) the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorpo- ration of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation, and (y) the
By-laws of the Company, as in effect immediately prior to the Effective Time,
shall be the By-laws of the Surviving Corporation until thereafter amended as
provided by law, the Certificate of Incorporation of the Surviving Corporation
and such By-laws. The Merger shall have the effects set forth in the DGCL.
0139329.08-01S2a 7
<PAGE> 12
Section 1.4 EFFECTIVE TIME. (a) Parent, Sub and the
Company will cause a Certificate of Merger (the "Certificate of Merger") with
respect to the Merger to be executed and filed on the date of the Closing (as
defined in Section 1.5) (or on such other date as Parent and the Company may
agree) with the Secretary of State of the State of Delaware as provided in the
DGCL. The Merger shall become effective on the date on which the Certificate
of Merger has been duly filed with the Secretary of State or such time as is
agreed upon by the parties and specified in the Certificate of Merger, and such
time is hereinafter referred to as the "Effective Time".
(b) If Shares are purchased in the Offer, Parent
and Sub covenant and agree to consummate the Merger pursuant to the terms of
this Agreement not later than June 30, 1996.
Section 1.5 CLOSING. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., New York City time, on a date to be
specified by the parties, which shall be no later than the third business day
after satisfaction or waiver of all of the conditions set forth in Article VII
hereof (the "Closing Date"), at the offices of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York, unless another time, date or place
is agreed to in writing by the parties hereto.
Section 1.6 DIRECTORS AND OFFICERS. (a) Promptly upon the
acceptance for payment of any Shares by Parent or any of its Subsidiaries (as
defined in Section 3.1 hereof) pursuant to the Offer, Parent shall be entitled
to designate such number of directors, rounded up to the next whole number, on
the Board of Directors of the Company as is equal to the product of the total
number of directors on such Board (giving effect to the directors designated by
Parent pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Sub, Parent and any of their
affiliates bears to the total number of shares of Company Common Stock then
outstanding. The Company shall, upon request of Parent, use its best efforts
promptly either to increase the size of its Board of Directors or, at the
Company's election, secure the resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be so elected to the
Company's Board, and shall cause Parent's designees to be
0139329.08-01S2a 8
<PAGE> 13
so elected. At such time, the Company shall also cause persons designated by
Parent to constitute the same percentage (rounded up to the next whole number)
as is on the Company's Board of Directors of (i) each committee of the
Company's Board of Directors, (ii) each board of directors (or similar body) of
each Subsidiary of the Company and (iii) each committee (or similar body) of
each such board, in each case only to the extent permitted by applicable law or
the rules of any stock exchange on which the Company Common Stock is listed.
Notwithstanding the foregoing, until the Effective Time, each of Parent, Sub
and the Company shall use its best efforts to retain as a member of the
Company's Board of Directors at least two directors who are directors of the
Company on the date hereof (the "Continuing Directors"); PROVIDED, THAT
subsequent to the purchase of and payment for Shares pursuant to the Offer,
Parent shall always have its designees represent at least a majority of the
entire Board of Directors. In the event of a vacancy on the Board of Directors
resulting from the resignation or death of any Continuing Director, such
vacancy shall be filled by the remaining Continuing Directors, or if there are
no remaining Continuing Directors by the designees of Zell/Chilmark Fund, L.P.
The Company's obligations under this Section 1.6(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to such Section 14(f) and
Rule 14f-1 in order to fulfill its obligations under this Section 1.6(a),
including mailing to stockholders the information required by such Section
14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elected
to the Company's Board of Directors. Parent or Sub will supply the Company any
information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 1.6(a) are in addition to and shall not limit any
rights which Sub, Parent or any of their affiliates may have as a holder or
beneficial owner of Shares as a matter of law with respect to the election of
directors or otherwise.
(b) From and after the time, if any, that Parent's
designees constitute a majority of the Company's Board of Directors and prior
to the Effective Time, (i) any material amendment of this Agreement, (ii) any
termination of this Agreement by the Company, (iii) any exten-
0139329.08-01S2a 9
<PAGE> 14
sion of time for performance of any of the obligations of Parent or Sub
hereunder, (iv) any waiver of any condition or any of the Company's rights
hereunder, (v) any amendment or change to the Certificate of Incorporation or
By-laws of the Company or any of its Subsidiaries, (vi) any amendment or change
to any Benefit Plan (as defined in Section 3.9(a)) or compensation policies or
severance obligations (including those agreements or obligations referenced in
Section 3.9 hereof or set forth in Schedule 3.9 of the Company Disclosure
Schedule) or (vii) any amendment or change to the policies of directors' and
officers' liability insurance maintained by the Company and its Subsidiaries on
the date hereof, may be effected only by the action of a majority of the Board
of Directors of the Company, which majority includes a majority of the
Continuing Directors; PROVIDED, THAT if there shall be no Continuing Directors,
actions may be effected by majority vote of the entire Board of Directors of
the Company. Any actions with respect to the enforcement of this Agreement by
the Company shall be effected only by the action of a majority of the
Continuing Directors.
(c) The directors and officers of Sub at the
Effective Time shall, from and after the Effective Time, be the initial
directors and officers of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
Section 1.7 STOCKHOLDERS' MEETINGS. (a) In order to
consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable law, duly call, give notice of, convene
and hold a special meeting of its stockholders (the "Company Special Meeting"),
as soon as practicable after the registration statement on Form S-4 (together
with all amendments, schedules, and exhibits thereto) to be filed by Parent in
connection with the registration of the Parent Common Stock to be issued by
Parent in the Merger (the "Registration Statement") is declared effective, for
the purpose of considering and taking action upon this Agreement. The Company
shall include in the joint proxy statement/prospectus forming a part of the
Registration Statement (the "Proxy Statement/Prospectus") the recommendation of
the Board of Directors of the Company that
0139329.08-01S2a 10
<PAGE> 15
stockholders of the Company vote in favor of the approval of the Merger and the
adoption of this Agreement. Parent agrees that it will vote, or cause to be
voted, all of the Shares then owned by it, Sub or any of its other
Subsidiaries, in favor of the approval of the Merger and adoption of the Merger
Agreement at the Company Special Meeting.
(b) In order to consummate the Merger, Parent,
acting through its Board of Directors, shall, in accordance with applicable
law, duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Parent Special Meeting" and together with the Company
Special Meeting, the "Special Meetings"), as soon as practicable after the
Registration Statement is declared effective, for the purpose of authorizing
the issuance of shares of Parent Common Stock (as defined below) pursuant to
the Merger. Parent shall include in the Proxy Statement/Prospectus the
recommendation of the Board of Directors of Parent that stockholders of Parent
vote in favor of the issuance of shares of Parent common stock, par value $1.00
per share ("Parent Common Stock"), in the Merger.
(c) Nothing in this Section 1.7 is intended to
impair the fiduciary duties of the Boards of Directors of the Company or Parent
or, in the case of the Board of Directors of the Company, to restrict its
ability to exercise its right of termination pursuant to Section 7.1(c)(1) of
this Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES. (a) Each share of Common
Stock, par value $.01 per share, of Sub issued and outstanding immediately
prior to the Effective Time, without any other action by Parent, Sub or the
Company, shall, at the Effective Time, be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation.
(b) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Shares to be
cancelled pursuant to Section 2.1(d) hereof and other than Dissenting Shares
0139329.08-01S2a 11
<PAGE> 16
(as defined in Section 2.6), if any) shall, at the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into either (i) the right to receive a number of duly authorized,
validly issued, fully paid and nonassessable shares of Parent Common Stock
determined as set forth in clause (c) below; PROVIDED that Parent shall not
issue more than 1.12500 nor less than .91666 shares of Parent Common Stock per
Share (the "Exchange Ratio") or (ii) if the alternative consideration
contemplated by Section 2.2 hereof is applicable, then the right to receive the
Alternative Consideration (as defined in Section 2.2), plus, in each of clause
(i) and (ii) above, any Additional Consideration contemplated by Section 2.2
hereof.
(c) For purposes hereof, "Average Parent Share Price"
shall mean the average closing price per share of Parent Common Stock on the
New York Stock Exchange (the "NYSE") as reported on the NYSE Composite Tape for
fifteen NYSE trading days selected by Parent and the Company by lot from among
the forty NYSE trading days ending on the fifth trading day immediately
preceding the Company Special Meeting. "Transaction Price" shall mean $27.50
per Share. The number of shares of Parent Common Stock into which each Share
shall be converted in the Merger shall be determined as follows:
1. In the event the Average Parent Share Price equals
the Transaction Price, each Share shall be converted into one share of Parent
Common Stock.
2. In the event that the Average Parent Share Price is
greater than the Transaction Price, each Share shall be converted into a number
of shares of Parent Common Stock (rounded to the nearest one one-hundred
thousandth) determined by the following formula:
Number of shares of Transaction Price plus .5 x (Average
Parent Common Stock = Parent Share Price Minus Transaction Price)
------------------------------------------------
Average Parent Share Price
3. In the event that the Average Parent Share Price is
less than the Transaction Price, each Share shall be converted, at the option
of Parent, into either:
0139329.08-01S2a 12
<PAGE> 17
(I) a number of shares of Parent Common Stock (rounded to the nearest one
one-hundred thousandth) determined by the following formula:
Number of shares of Transaction Price minus .5 x (Transaction
Parent Common Stock = Price minus Average Parent Share Price)
-------------------------------------------
Average Parent Share Price
or (II) one share of Parent Common Stock plus the Cash Adjustment Amount,
without any interest thereon, where the Cash Adjustment Amount is determined by
the following formula:
Cash Adjust- = .5 x (Transaction Price minus
ment Amount Average Parent Share Price);
PROVIDED, HOWEVER, in no event shall the Cash Adjustment Amount be greater than
$2.75 per Share.
(d) All shares of Company Common Stock that are
owned by the Company as treasury stock and any shares of Company Common Stock
owned by Parent, Sub or any other direct or indirect wholly owned Subsidiary of
Parent shall, at the Effective Time, be cancelled and retired and shall cease
to exist and no Parent Common Stock or cash, if the alternative consideration
contemplated by Section 2.2 hereof is applicable, shall be delivered in
exchange therefor.
(e) On and after the Effective Time, holders of
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") shall cease to have any rights as
stockholders of the Company, except the right to receive the consideration set
forth in this Article II (other than the Additional Consideration provided by
Section 2.2(c) hereof) (the "Merger Consideration") for each Share held by them
or, if applicable, payments due to holders of Dissenting Shares (as defined in
Section 2.6 hereof).
Section 2.2 ALTERNATIVE CONSIDERATION AND ADDITIONAL
CONSIDERATION. (a) In the event that the stockholders of Parent shall not
approve the issuance of Parent Common Stock pursuant to the Merger at the
Parent Special Meeting, but all conditions to the Merger are otherwise
satisfied or waived (if permissible), the
0139329.08-01S2a 13
<PAGE> 18
Company, Parent and Sub shall nonetheless consummate the Merger and each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than treasury Shares and Shares owned by Parent and its
Subsidiaries) shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder hereof, be converted into the
right to receive the following consideration (the "Alternative Consideration")
in a combination of shares of Parent Common Stock and cash determined as
follows:
1. The number of shares of Parent Common Stock into
which each Share shall be converted in the Merger (the "Adjusted Exchange
Ratio") shall equal the Exchange Ratio determined pursuant to Section 2.1(c)
hereof (assuming no Cash Adjustment Amount is paid) multiplied by a fraction
(the "Adjustment Fraction"), the numerator of which is the number of shares of
Parent Common Stock equal to 19.9% of the then outstanding shares of Parent
Common Stock and the denominator of which is (a) the Exchange Ratio multiplied
by (b) the aggregate number of outstanding Shares (other than treasury Shares
and Shares owned by Parent and its Subsidiaries); and
2. The amount of cash (the "Adjusted Alternative
Cash Consideration") into which each Share shall be converted in the Merger
shall equal the Transaction Price multiplied by 1 minus the Adjustment
Fraction.
(b) In the event the Merger is not consummated
prior to April 29, 1996 and the Company shall not have materially breached this
Agreement (other than by acts caused or permitted by Parent), then the
stockholders of the Company shall be entitled to receive interest on the amount
of the Merger Consideration that they receive, from April 29, 1996 until the
earlier of the Effective Time or June 30, 1996, calculated at an annual rate
equal to the prime rate of interest (as announced from time to time by Morgan
Guaranty Trust Company of New York). For purposes of calculating the Merger
Consideration, the Average Parent Share Price, if not otherwise ascertainable
in accordance with the terms of this Agreement, shall be the average price of
Parent Common Stock based on the 15 highest closing prices of Parent Common
Stock since the consummation of the Offer until the earlier of June 30, 1996 or
the Effective Time.
0139329.08-01S2a 14
<PAGE> 19
(c) In the event Parent and/or Sub, in violation
of their obligations under this Agreement, fails or refuses to consummate the
Merger on or prior to June 30, 1996 and the Company shall not have materially
breached this Agreement (other than by acts caused or permitted by Parent),
then, in addition to any rights or remedies that the Company and its
stockholders otherwise have in law or at equity as a result thereof, the
stockholders of the Company shall be entitled to receive interest from June 30,
1996 on the amount of the Merger Consideration not paid until such Merger
Consideration is paid, calculated at the annual rate of the higher of (i) the
prime rate of interest (as announced from time to time by Morgan Guaranty Trust
Company of New York) plus 300 basis points or (ii) the amount otherwise
permitted by law. For purposes of calculating the Merger Consideration, the
Average Parent Share Price, if not otherwise ascertainable in accordance with
the terms of this Agreement, shall be the average price of Parent Common Stock
based on the 15 highest closing prices of Parent Common Stock since the
consummation of the Offer until such Merger Consideration is paid. Any
additional consideration paid or payable pursuant to Section 2.2(b) or Section
2.2(c) is referred to herein as "Additional Consideration".
Section 2.3 ISSUANCE OF PARENT COMMON STOCK OR PAYMENT OF
CASH CONSIDERATION. (a) The manner in which each Share (other than Shares to
be cancelled as set forth in Section 2.1(d)) shall be converted into Parent
Common Stock or, if the Alternative Consideration contemplated by Section 2.2
hereof is applicable, the right to receive the Alternative Consideration in the
Merger shall be as set forth in this Section 2.3.
(b) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates representing Shares, no dividend or distribution with
respect to shares shall be payable on or with respect to any fractional share
and such fractional share interests shall not entitle the owner thereof to vote
or to any other rights of a stockholder of Parent. In lieu of any such
fractional share of Parent Common Stock, Parent shall pay to each former
stockholder of the Company who otherwise would be entitled to receive a
fractional share of Parent Common Stock an amount in cash determined by
0139329.08-01S2a 15
<PAGE> 20
multiplying (i) the Average Parent Share Price on the date on which the
Effective Time occurs by (ii) the fractional interest in a share of Parent
Common Stock to which such holder would otherwise be entitled.
(c) Parent shall designate a bank or trust company
to act as agent for the holders of shares of Company Common Stock in connection
with the Merger (the "Exchange Agent") to receive the shares of Parent Common
Stock and the Cash Adjustment Amount, if any, or the Alternative Consideration,
as the case may be, and any Additional Consideration to which holders of shares
of Company Common Stock shall become entitled pursuant to this Article II.
(d) As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted pursuant to this Article II into the
right to receive the Merger Consideration (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration and any
Additional Consideration contemplated by Section 2.2(c). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration and any Additional Consideration
contemplated by Section 2.2(c) for each share of Company Common Stock formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consideration and any
Additional Consideration contemplated by Section 2.2(c) is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration and any Additional Consideration contemplated by
0139329.08-01S2a 16
<PAGE> 21
Section 2.2(c) to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable.
(e) Immediately following the Effective Time,
Parent shall deliver, in trust, to the Exchange Agent, for the benefit of the
holders of Shares, (i) certificates representing an aggregate number of shares
of Parent Common Stock as nearly as practicable equal to the product of the
Exchange Ratio and the number of Shares to be converted into Parent Common
Stock as determined by this Article II plus, if applicable, the Cash Adjustment
Amount multiplied by the number of Shares to be converted into Parent Common
Stock as determined by this Article II or (ii) if the Alternative Consideration
contemplated by Section 2.2 hereof is applicable, certificates representing an
aggregate number of shares of Parent Common Stock as nearly as practicable
equal to the product of the Adjusted Exchange Ratio and the number of Shares to
be converted into Parent Common Stock as determined by this Article II, plus an
amount of cash equal to the product of the Adjusted Alternative Cash
Consideration and the number of Shares to be converted into the Adjusted
Alternative Cash Consideration pursuant to this Article II. In addition,
Parent shall deliver to the Exchange Agent the aggregate amount of any
Additional Consideration to be paid to holders of Shares. As soon as
practicable after the Effective Time, each holder of Shares converted into
Parent Common Stock (plus the Cash Adjustment Amount, if applicable or any
Additional Consideration, if applicable) or cash pursuant to this Article II,
upon surrender to the Exchange Agent of one or more Certificates for such
Shares for cancellation, shall be entitled to receive either certificates
representing the number of shares of Parent Common Stock into which such Shares
shall have been converted in the Merger (plus the Cash Adjustment Amount, if
applicable, or any Additional Consideration, if applicable) or, in case the
Alternative Consideration contemplated by Section 2.2 is applicable the cash
(including any Additional Consideration, if applicable) and certificates
representing the number of shares of Parent Common Stock into which such Shares
shall have been converted in the Merger. No dividends or distributions that
have been declared will be paid to persons entitled to receive certificates for
0139329.08-01S2a 17
<PAGE> 22
shares of Parent Common Stock until such persons surrender their Certificates
for Shares, at which time all such dividends shall be paid. In no event shall
the persons entitled to receive such dividends be entitled to receive interest
on such dividends. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of Shares for any Parent
Common Stock, Alternative Consideration or dividends thereon delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) At any time following nine months after the
Effective Time, the Surviving Corporation shall be entitled to require the
Exchange Agent to deliver to it any shares of Parent Common Stock or funds
(including any interest received with respect thereto) which had been made
available to the Exchange Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation and Parent (subject to abandoned property, escheat or
other similar laws) only with respect to the Merger Consideration payable or
issuable upon due surrender of their Certificates, without any interest
thereon.
Section 2.4 TREATMENT OF STOCK OPTIONS. (a) Effective as
of the Effective Time, each option granted by the Company to purchase shares of
Company Common Stock that is outstanding and unexercised immediately prior
thereto (the "Company Stock Options"), shall cease to represent a right to
acquire shares of Company Common Stock and shall be converted automatically
into an option to purchase shares of Parent Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the Company 1992 Long-Term Incentive Compensation Plan, as amended and the
Company 1992 Non-Employee Directors' Stock Option Plan, as amended (together
the "Option Plans"), and the agreements evidencing grants thereunder). The
number of shares of Parent Common Stock subject to, and the option price and
terms and conditions of, the new option shall be determined in a manner that
preserves both (i) the aggregate gain (or loss) on the Company Stock Option
immediately prior to the Effective Time and (ii) the ratio of the exercise
price per share subject to the Company Stock Option to the fair market value
(determined immediately prior to the Effective Time) per share sub-
0139329.08-01S2a 18
<PAGE> 23
ject to such option, provided that any fractional shares of Parent Common Stock
resulting from such determination shall be rounded down to the nearest share.
Effective as of the Effective Time, the Surviving Corporation shall assume each
Company Stock Option agreement, each as amended, as provided herein. The
adjustment provided herein with respect to any Company Stock Options that are
"incentive stock options" (as defined in section 422 of the Code) shall be and
is intended to be effected in a manner that is consistent with section 424(a)
of the Code. The duration, vesting and other terms of the new options shall be
the same as the Company Stock Options that they replace, except that all
references to the Company shall be deemed to be references to Parent. In the
event that a holder of a Company Stock Option is terminated without Cause (as
defined in Section 5.5(a) of this Agreement) within 12 months of the Effective
Time, then such holder's new option shall become 100% exercisable as of such
date of termination.
(b) Notwithstanding Section 2.4(a) above, outstanding
vested options under the Long Term Incentive Plan (LTIP) held by Covered
Executives (as defined in Section 5.5(a) hereof), including options that become
vested in connection with a "Change in Control" under the terms of existing
award agreements under the LTIP, shall, effective as of the Effective Time
become exercisable under a cashless exercise procedure made available by the
Company (subject to applicable law and any administrative procedures and
policies deemed appropriate by the Company). Individuals subject to Section 16
of the Exchange Act shall be provided with a cash compensation arrangement
providing such individuals with the opportunity to receive a cash payment
approximating the benefits that would be deprived by reason of Section 16 of
the Exchange Act.
(c) Effective as of the Effective Time, the Options
Plans shall terminate and the provisions in any other plan, program, agreement
or arrangement, providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any of its Subsidiaries shall be
deleted. Furthermore, the Company shall take all actions necessary to ensure
that following the Effective Time, no holder of Company Stock Options or any
participant in the Option Plans or any other plans, programs, agreements or
arrangements shall have any right
0139329.08-01S2a 19
<PAGE> 24
thereunder to acquire any equity securities of the Company, the Surviving
Corporation or any subsidiary of either of the foregoing.
Section 2.5 STOCK TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of Shares on the records of the Company. If,
after the Effective Time, Certificates representing Shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged for cash or
certificates representing Parent Common Stock pursuant to this Article II.
Section 2.6 DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, in the event the Alternative Consideration or
any Additional Consideration contemplated by Section 2.2 hereof is applicable
or in the event that Parent elects to pay any Cash Adjustment Amount, Shares
which immediately prior to the Effective Time are held by stockholders who have
properly exercised and perfected appraisal rights under Section 262 of the DGCL
(the "Dissenting Shares"), shall not be converted into the right to receive the
Merger Consideration, but the holders of Dissenting Shares shall be entitled to
receive such consideration as shall be determined pursuant to Section 262 of
the DGCL; provided, however, that if any such holder shall have failed to
perfect or shall withdraw or lose his right to appraisal and payment under the
DGCL, such holder's Shares shall thereupon be deemed to have been converted as
of the Effective Time into the right to receive the Merger Consideration,
without any interest thereon, and such Shares shall no longer be Dissenting
Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
Section 3.1 ORGANIZATION. Each of the Company and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has all requisite corporate
0139329.08-01S2a 20
<PAGE> 25
or other power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and governmental approvals would not
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. Each of the Company and its Subsidiaries is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not, in the aggregate,
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. As used in this Agreement, the word "Subsidiary" means, with respect to
any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. As used in this Agreement, any reference to
any event, change or effect having a material adverse effect on or with respect
to any entity (or group of entities taken as a whole) means such event, change
or effect, individually or in the aggregate with such other events, changes, or
effects, which is materially adverse to the financial condition, business,
results of operations, assets, liabilities, properties or prospects of such
entity. If "material adverse effect" is used with respect to more than one
entity, it shall mean such events, changes or effects with respect to all such
entities taken as a whole. Section 3.1 of the Disclosure Schedule delivered by
the Company to Parent on or prior to the date hereof (the "Company Disclosure
Schedule") sets forth a complete list of the Company's Subsidiaries.
0139329.08-01S2a 21
<PAGE> 26
Section 3.2 CAPITALIZATION. (a) The authorized capital
stock of the Company consists of 100,000,000 Shares and 25,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of the
date hereof, (i) 66,587,990 shares of Company Common Stock are issued and
outstanding, 700,000 shares of Company Common Stock are held in the Company's
treasury, 1,096,101 shares of Company Common Stock are reserved for issuance
under the Company's 401(k) Savings Plan, 2,002,220 shares of Company Common
Stock are reserved for issuance under the Company's 1993 Employee Stock
Purchase Plan and 3,561,377 shares of Company Common Stock are reserved for
issuance pursuant to options previously granted pursuant to the Company Stock
Option Plans, (ii) no shares of Preferred Stock are issued and outstanding, and
(iii) no Shares or shares of Preferred Stock are issued and held in the
treasury of the Company. All the outstanding shares of the Company's capital
stock are, and all shares which may be issued pursuant to the Company Stock
Option Plans will be, when issued in accordance with the respective terms
thereof, duly authorized, validly issued, fully paid and non-assessable.
Except as disclosed in Section 3.2(a) of the Company Disclosure Schedule, there
are no bonds, debentures, notes or other indebtedness having voting rights (or
convertible into securities having such rights) ("Voting Debt") of the Company
or any of its Subsidiaries issued and outstanding. Except as set forth above
and except for the transactions contemplated by this Agreement and the Stock
Option Agreement, as of the date hereof, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are no
existing options, warrants, calls, pre-emptive rights, subscriptions or other
rights, convertible securities, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its Subsidiaries, obligating the Company or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares
of capital stock or Voting Debt of, or other equity interest in, the Company or
any of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, convertible security, agreement, arrangement or
commitment. Except as disclosed in
0139329.08-01S2a 22
<PAGE> 27
Section 3.2(a) of the Company Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Shares or the capital stock of the
Company or any subsidiary or affiliate of the Company or to provide funds to
make any investment (in the form of a loan, capital contribution or otherwise)
in any Subsidiary or any other entity. Except as permitted by this Agreement,
following the Merger, neither the Company nor any of its Subsidiaries will have
any obligation to issue, transfer or sell any shares of its capital stock
pursuant to any employee benefit plan or otherwise.
(b) Except as disclosed in Section 3.2(b) of the
Company Disclosure Schedule, all of the outstanding shares of capital stock of
each of the Subsidiaries are beneficially owned by the Company, directly or
indirectly, and all such shares have been validly issued and are fully paid and
nonassessable and are owned by either the Company or one of its Subsidiaries
free and clear of all liens, charges, security interests, options, claims or
encumbrances of any nature whatsoever.
(c) Except for the Zell/Chilmark Stockholder
Agreement, there are no voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries. None of
the Company or its Subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
The Company has delivered to Parent a letter agreement which causes the
termination, as of the consummation of the Offer, of the Stockholder Agreement
by and between Zell/Chilmark and the Company dated as of June 1, 1992 the
Registration Rights Agreement by and between Zell/Chilmark Fund, L.P. and the
Company dated as of June 1, 1992 and the Registration Rights Agreement by and
between Magten Asset Management Corporation ("Magten") and the Company, dated
as of January 20, 1993 (such agreements being referred to herein as the
"Existing Company/Stockholder Agreements").
(d) At the Effective Time, the number of shares of Company Common Stock
outstanding shall not exceed 73,247,688.
0139329.08-01S2a 23
<PAGE> 28
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT;
COMPANY ACTION. (a) The Company has full corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement, and, subject
to obtaining any necessary approval of its stockholders as contemplated by
Section 1.7(a) hereof with respect to the Merger, to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement,
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly and validly authorized by its Board of Directors and, except in
the case of this Agreement for obtaining the approval of its stockholders as
contemplated by Section 1.7(a) hereof with respect to the Merger, no other
corporate action or proceedings on the part of the Company is necessary to
authorize the execution and delivery by the Company of this Agreement and the
Stock Option Agreement, and the consummation by it of the transactions
contemplated hereby and thereby. This Agreement and the Stock Option Agreement
has been duly executed and delivered by the Company and, assuming this
Agreement and the Stock Option Agreement constitutes a valid and binding
obligation of Parent and Sub, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy, insolvency
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly
and validly approved and taken all corporate action required to be taken by the
Board of Directors for the consummation of the transactions contemplated by
this Agreement (including, without limitation, the Offer, the acquisition of
Shares pursuant to the Offer and the Merger, the Stock Option Agreement, the
Zell/Chilmark Stockholder Agreement and the termination of the Existing
Company/Stockholder Agreements), including, but not limited to, all actions
necessary to render the provisions of Section 203 of the DGCL inapplicable to
such transactions.
0139329.08-01S2a 24
<PAGE> 29
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except
as disclosed in Section 3.4 of the Company Disclosure Schedule, and except for
all filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the DGCL, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and for the approval of this Agreement by the Company's stockholders and
the filing and recordation of the Certificate of Merger as required by the
DGCL, neither the execution, delivery or performance of this Agreement and the
Stock Option Agreement, nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any of the
provisions hereof or thereof will (i) conflict with or result in any breach of
any provision of the certificate of incorporation or by-laws or similar
organizational documents of the Company or of any of its Subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of, any
court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency (a "Governmental Entity"),
except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a material adverse effect on
the Company and its Subsidiaries and would not, or would not be reasonably
likely to, materially impair the consummation of the Offer or the Zell/Chilmark
Stockholder Agreement or the Stock Option Agreement or the ability of the
Company to consummate the Merger or the other transactions contemplated hereby
or thereby, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness (collectively, the "Debt
Instruments"), lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound and which
either has a term of more than one year or involves the payment or receipt of
money in excess of $300,000 (a "Company Agreement") or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their properties or assets, except
in the case
0139329.08-01S2a 25
<PAGE> 30
of clause (iii) or (iv) for such violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries, and which would not, or would not be reasonably
likely to, materially impair the consummation of the Offer, the Stock Option
Agreement or the Zell/Chilmark Stockholder Agreement or the ability of the
Company to consummate the Merger or the other transactions contemplated hereby
or thereby.
Section 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. The
Company has filed with the SEC, and has heretofore made available to Parent
true and complete copies of, all forms, reports, schedules, statements and
other documents required to be filed by it and its Subsidiaries since May 30,
1992 under the Exchange Act or the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "Company SEC
Documents"). As of their respective dates or, if amended, as of the date of
the last such amendment, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be,
and the applicable rules and regulations of the SEC thereunder. Each of the
consolidated financial statements included in the Company SEC Documents have
been prepared from, and are in accordance with, the books and records of the
Company and/or its consolidated Subsidiaries, comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position and the consolidated results of operations and cash flows
(and changes in financial position, if any) of the Company and its consolidated
Subsidiaries as at the dates thereof or for the periods presented therein.
0139329.08-01S2a 26
<PAGE> 31
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except to the
extent disclosed in the Company SEC Documents filed prior to the date of this
Agreement or as otherwise disclosed to Parent in Section 3.6 of the Company
Disclosure Schedule, from June 3, 1995 through the date of this Agreement, the
Company and its Subsidiaries have conducted their respective businesses and
operations in the ordinary course of business consistent with past practice.
From June 3, 1995 through the date of this Agreement, there has not occurred
(i) any events, changes, or effects (including the incurrence of any
liabilities of any nature, whether or not accrued, contingent or otherwise)
having or, which would be reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Company and its Subsidiaries; (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
the Company or of any of its Subsidiaries, other than dividends paid by wholly
owned Subsidiaries; or (iii) any material change by the Company or any of its
Subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP. Except as set forth on Schedule 3.6 of the
Company Disclosure Schedule, from June 3, 1995 through the date of this
Agreement, neither the Company nor any of its Subsidiaries has taken any of the
actions prohibited by Section 5.1 hereof.
Section 3.7 NO UNDISCLOSED LIABILITIES. Except (a) to the
extent disclosed in the Company SEC Documents filed prior to the date of this
Agreement and (b) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice, during the period from June
3, 1995 through the date of this Agreement, neither the Company nor any of its
Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that have, or would be
reasonably likely to have, a material adverse effect on the Company and its
Subsidiaries or would be required to be reflected or reserved against on a
consolidated balance sheet of the Company and its Subsidiaries (including the
notes thereto) prepared in accordance with GAAP as applied in preparing the
June 3, 1995 consolidated balance sheet of the Company and its Subsidiaries.
Section 3.7 of the Company Disclosure Schedule sets forth each instrument
evidencing indebtedness of the Company and its Subsidiaries which
0139329.08-01S2a 27
<PAGE> 32
will accelerate or become due or payable, or result in a right of redemption or
repurchase on the part of the holder of such indebtedness, or with respect to
which any other payment or amount will become due or payable, in any such case
with or without due notice or lapse of time, as a result of this Agreement, the
Merger or the other transactions contemplated hereby.
Section 3.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS. The
Proxy Statement/Prospectus (or any amendment thereof or supplement thereto), at
the date mailed to the Company's stockholders, on the date filed with the SEC
and at the time of the Special Meetings, will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, PROVIDED, HOWEVER,
that no representation is made by the Company with respect to statements made
therein based on information supplied by Parent or Sub for inclusion in the
Proxy Statement/Prospectus. None of the information supplied by the Company
for inclusion or incorporation by reference in the Registration Statement will,
at the date it becomes effective and at the time of the Special Meetings
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Subject to the proviso set forth in the second preceding sentence,
the Proxy Statement/Prospectus will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Section 3.9 EMPLOYEE BENEFIT PLANS; ERISA. (a) As of the
date of this Agreement, except as set forth in Section 3.9(a) of the Company
Disclosure Schedule: there are no material employee benefit plans,
arrangements, practices, contracts or agreements (including, without
limitation, employment agreements, change of control employment agreements and
severance agreements, incentive compensation, bonus, stock option, stock
appreciation rights and stock purchase plans) of any type (including but not
limited to plans described in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by the Company,
0139329.08-01S2a 28
<PAGE> 33
any of its Subsidiaries or any trade or business, whether or not incorporated
(an "ERISA Affiliate"), that together with the Company would be deemed a
"controlled group" within the meaning of section 4001(a)(14) of ERISA, or with
respect to which the Company or any of its Subsidiaries has or may have a
liability, other than those listed on Section 3.9(a) of the Company Disclosure
Schedule (the "Benefit Plans"). Except as disclosed in Section 3.9(a) of the
Company Disclosure Schedule (or as otherwise permitted by this Agreement): (1)
neither the Company nor any ERISA Affiliate has any formal plan or commitment,
whether legally binding or not, to create any additional Benefit Plan or modify
or change any existing Benefit Plan that would affect any employee or
terminated employee of the Company or any ERISA Affiliate; and (2) since
September 31, 1995, there has been no change, amendment, modification to, or
adoption of, any Benefit Plan. Section 3.9(a) of the Company Disclosure
Schedule contains a list of each material employment, termination, severance,
incentive and deferred compensation agreement or arrangement that is a Benefit
Plan, and the date of execution of each such agreement or arrangement.
(b) Except as disclosed in Section 3.9(b) of the
Company Disclosure Schedule, under the applicable laws of all jurisdictions
within the United States of America and all foreign jurisdictions, with respect
to any Benefit Plan, there are no material amounts accrued but unpaid as of the
most recent balance sheet date that are not reflected on that balance sheet
prepared in accordance with GAAP.
(c) With respect to each Benefit Plan, except as
disclosed on Schedule 3.9(c) of the Company Disclosure Schedule and as would
not have a material adverse effect on the Company and its Subsidiaries: (i) if
intended to qualify under section 401(a), 401(k) or 403(a) of the Code, such
plan so qualifies, and its trust is exempt from taxation under section 501(a)
of the Code; (ii) such plan has been administered in accordance with its terms
and applicable law; (iii) no breaches of fiduciary duty have occurred; (iv) no
disputes are pending, or, to the knowledge of the Company, threatened; (v) no
prohibited transaction (within the meaning of Section 406 of ERISA) has
occurred; (vi) no lien imposed under the Code or ERISA exists or is likely to
exist; and (vii) all contributions and premiums due (including any extensions
0139329.08-01S2a 29
<PAGE> 34
for such contributions and premiums) have been made in full.
(d) Except as disclosed in Section 3.9(d) of the
Company Disclosure Schedule, none of the Benefit Plans has incurred any
"accumulated funding deficiency," as such term is defined in section 412 of the
Code, whether or not waived.
(e) Except as disclosed on Section 3.9(e) of the
Company Disclosure Schedule: (i) neither the Company nor any ERISA Affiliate
has incurred any liability under Title IV of ERISA since the effective date of
ERISA that has not been satisfied in full except as would not have or would not
reasonably be likely to have a material adverse effect on the Company and its
Subsidiaries (including sections 4063-4064 and 4069 of ERISA) and, to the
knowledge of the Company, no basis for any such liability exists; (ii) neither
the Company nor any ERISA Affiliate maintains (or contributes to), or has
maintained (or has contributed to) within the last six years, any employee
benefit plan that is subject to Title IV of ERISA; and (iii) there is no
pending dispute between the Company or any ERISA Affiliate concerning payment
of contributions or payment of withdrawal liability payments.
(f) With respect to each Benefit Plan that is a
"welfare plan" (as defined in section 3(1) of ERISA), except as specifically
disclosed in Section 3.9(f) of the Company Disclosure Schedule, no such plan
provides medical or death benefits with respect to current or former employees
of the Company or any of its Subsidiaries beyond their termination of
employment, other than on an employee-pay-all basis, and each such welfare plan
may be amended or terminated by the Company or any of its Subsidiaries at any
time with respect to such former or current employees.
(g) With respect to each Benefit Plan that is
intended to provide special tax treatment to participants (including sections
79, 105, 106, 125, 127 and 129 of the Code), to the Company's knowledge, such
Benefit Plan has satisfied all of the material requirements for the receipt of
such special tax treatment since January 1, 1992.
0139329.08-01S2a 30
<PAGE> 35
(h) Except as specifically set forth in Section
3.9(h) of the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any individual to severance
pay or any tax "gross-up" payments with respect to the imposition of any tax
pursuant to Section 4999 of the Code or accelerate the time of payment or
vesting, or increase the amount, of compensation or benefits due to any
individual with respect to any Benefit Plan, or (ii) constitute or result in a
prohibited transaction under section 4975 of the Code or section 406 or 407 of
ERISA with respect to any Benefit Plan.
(i) Except as disclosed on Section 3.9(i) of the
Company Disclosure Schedule, neither the Company, any Benefits Affiliate nor
any "administrator" as that term is defined in section 3(16) of ERISA, has any
liability with respect to or connected with any Benefit Plan for excise taxes
payable under the Code or civil penalties payable under ERISA and, to the
Company's knowledge, no basis for any such liability exists.
(j) Except as disclosed on Schedule 3.9(j) of the
Company Disclosure Schedule, there is no Benefit Plan that is a "multiemployer
plan," as such term is defined in section 3(37) of ERISA, or which is covered
by section 4063 or 4064 of ERISA.
(k) With respect to each Benefit Plan except Plans
in which employees of Parent or its Affiliates do not participate and except
Multiemployer Plans from which the Company has withdrawn, the Company has
delivered or made available to Parent accurate and complete (with de minimis
omissions) copies of all plan texts, summary plan descriptions, summaries of
material modifications, trust agreements and other related agreements including
all amendments to the foregoing; the two most recent annual reports; the most
recent annual and periodic accounting of plan assets; the most recent
determination letter received from the United States Internal Revenue Service
(the "Service"); and the two most recent actuarial reports, to the extent any
of the foregoing may be applicable to a particular Benefit Plan.
0139329.08-01S2a 31
<PAGE> 36
(l) With respect to each Benefit Plan that is a
"group health plan" as such term is defined in section 5000(b) of the Code,
except as specifically set forth in Section 3.9(l) of the Company Disclosure
Schedule, to the Company's knowledge, each such Benefit Plan complies and has
complied with the requirements of Part 6 of Title I of ERISA and Sections 4980B
and 5000 of the Code except where the failure to so comply would not have a
material adverse effect on the Company and its Subsidiaries.
(m) There are no material plans, arrangements,
practices, contracts or agreements (including change of control agreements,
severance agreements, retirement agreements, stock option or purchase
agreements, medical or death benefit agreements) maintained by the Company or
an ERISA Affiliate or with respect to which the Company or any of its
Subsidiaries has a material liability to a director or former director (as a
director) of the Company or an ERISA Affiliate other than those listed on
Section 3.9(m) of the Company Disclosure Schedule or disclosed in the Company's
most recent proxy statement (the "Director Plans"). Neither the Company nor
any ERISA Affiliate has any formal plan or commitment, whether legally binding
or not, to create any Director Plan or modify or change any existing Director
Plan that would affect any director or former director of the Company or any
ERISA Affiliate.
Section 3.10 LITIGATION. Except to the extent disclosed in
the Company SEC Documents filed prior to the date of this Agreement or on
Section 3.10 of the Company Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or, to the best knowledge of the
Company, threatened against or affecting, the Company or any of its
Subsidiaries which, individually or in the aggregate, is reasonably likely to
have a material adverse effect on the Company and its Subsidiaries, or would,
or would be reasonably likely to, materially impair the consummation of the
Offer or the ability of the Company to consummate the Merger or the other
transactions contemplated hereby or thereby.
Section 3.11 NO DEFAULT. The business of the Company and
each of its Subsidiaries is not being conducted in default or violation of any
term, condition or provision of (a) its respective certificate of incorpora-
0139329.08-01S2a 32
<PAGE> 37
tion or by-laws or similar organizational documents, (b) any Company Agreement
or (c) except as disclosed in Section 3.11 of the Company Disclosure Schedule,
any federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to the
Company or any of its Subsidiaries, excluding from the foregoing clauses (b)
and (c), defaults or violations that would not have a material adverse effect
on the Company and its Subsidiaries or would not, or would not be reasonably
likely to, materially impair the consummation of the Offer or the ability of
the Company to consummate the Merger or the other transactions contemplated
hereby. No investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the best knowledge of
the Company, threatened, nor to the best knowledge of the Company, has any
Governmental Entity indicated an intention to conduct the same.
Section 3.12 TAXES. (a) As of the date of this Agreement,
except as set forth in Section 3.12 of the Company Disclosure Schedule:
(i) the Company and its Subsidiaries have (I) duly
filed (or there have been filed on their behalf) with the appropriate
governmental authorities all Tax Returns (as hereinafter defined) required to
be filed by them and such Tax Returns are true, correct and complete in all
material respects, and (II) duly paid in full or made provision in accordance
with GAAP (or there has been paid or provision has been made on their behalf)
for the payment of all Taxes (as hereinafter defined) for all periods ending
through the date hereof;
(ii) the Company and its Subsidiaries have
complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and have, within
the time and the manner prescribed by law, withheld and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under applicable laws;
(iii) no federal, state, local or foreign audits
or other administrative proceedings or
0139329.08-01S2a 33
<PAGE> 38
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Company or its Subsidiaries and neither the Company nor its Subsidiaries
has received a written notice of any pending audits or proceedings;
(iv) neither the Service nor any other taxing
authority (whether domestic or foreign) has asserted, or to the best knowledge
of the Company, is threatening to assert, against the Company or any of its
Subsidiaries any deficiency or claim for Taxes; and
(b) As of the date of this Agreement, except as set forth in
Section 3.12 of the Company Disclosure Schedule:
(i) there are no material liens for Taxes upon any
property or assets of the Company or any Subsidiary thereof, except for liens
for Taxes not yet due and payable and liens for Taxes that are being contested
in good faith by appropriate proceedings;
(ii) neither the Company nor any of its
Subsidiaries has agreed to or is required to make any adjustment under Section
481(a) of the Code;
(iii) the federal income Tax Returns of the
Company and its Subsidiaries have been examined by the Service (or the
applicable statutes of limitation for the assessment of federal income Taxes
for such periods have expired) for all periods as set forth on Section 3.12 of
the Company Disclosure Schedule;
(iv) neither the Company nor any of its
Subsidiaries is a party to any material agreement providing for the allocation
or sharing of Taxes; and
(v) neither the Company nor any of its
Subsidiaries has, with regard to any assets or property held or acquired by any
of them, filed a consent to the application of Section 341(f) of the Code, or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company or any of its Subsidiaries.
0139329.08-01S2a 34
<PAGE> 39
(c) "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, income,
gross receipts, excise, real or personal property, sales, withholding, social
security, retirement, unemployment, occupation, use, service, service use,
license, net worth, payroll, franchise, transfer and recording taxes, fees and
charges, imposed by the Service or any taxing authority (whether domestic or
foreign including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest whether
paid or received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies or
other assessments. "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any
taxing authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any documents with respect
to or accompanying payments of estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return, document, declaration or other information.
Section 3.13 CONTRACTS. Each Company Agreement is valid,
binding and enforceable and in full force and effect, except where failure to
be valid, binding and enforceable and in full force and effect would not have a
material adverse effect on the Company and its Subsidiaries, and there are no
material defaults thereunder by the Company or its Subsidiaries or, to the best
knowledge of the Company, by any other party thereto. Except as disclosed in
Section 3.13 of the Company Disclosure Schedule, neither the Company nor any
Subsidiary is a party to any agreement that expressly limits the ability of the
Company or any Subsidiary or affiliate to compete in or conduct any line of
business or compete with any person or in any geographic area or during any
period of time.
Section 3.14 ASSETS; REAL PROPERTY. The assets,
properties, rights and contracts, including, without limitation (as
applicable), title or leaseholds thereto, of the Company and its Subsidiaries,
taken as a
0139329.08-01S2a 35
<PAGE> 40
whole, are sufficient to permit the Company and its Subsidiaries to conduct
their business as currently being conducted with only such exceptions as are
immaterial to the Company and its Subsidiaries. All material real property
owned by the Company and its Subsidiaries (the "Real Property") is owned free
and clear of all liens, charges, security interests, options, claims,
mortgages, pledges, easements, rights-of-way or other encumbrances and
restrictions of any nature whatsoever, except as described in Section 3.14 of
the Company Disclosure Schedule or those that do not materially adversely
interfere with the use of such Real Property as currently used.
Section 3.15 ENVIRONMENTAL MATTERS. Except as disclosed in
Section 3.15 of the Company Disclosure Schedule, as of the date of this
Agreement, the Company is in material compliance with all applicable
Environmental Laws and there are no Environmental Liabilities and Costs of the
Company and its Subsidiaries that would have or are reasonably likely to have a
material adverse effect on the Company and its Subsidiaries.
For purposes of this Section 3.15, the following definitions
shall apply:
"Environmental Laws" means all applicable foreign, federal,
state and local laws, common law, regulations, rules and ordinances relating to
pollution or protection of health, safety or the environment.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs
and expenses (including, without limitation, all reasonable fees, disbursements
and expenses of counsel, expert and consulting fees and costs of investigations
and feasibility studies and responding to government requests for information
or documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, under any Environmental Law,
or arising from environmental, health or safety conditions, as a result of past
or present
0139329.08-01S2a 36
<PAGE> 41
ownership, leasing or operation of any properties, owned, leased or operated by
the Company or any of its Subsidiaries.
Section 3.16 REIMBURSEMENT. The Company or its
Subsidiaries, as the case may be, are parties to such agreements with third
party payors, including Medicaid, health maintenance organizations, preferred
provider organizations, insurance companies and other payment sources, which
are necessary to conduct their respective businesses as of the date of this
Agreement and a true and accurate list of all such agreements is set forth on
Section 3.16 of the Company Disclosure Schedule.
Section 3.17 LABOR RELATIONS. Except as set forth on
Section 3.17 of the Company Disclosure Schedule, there is no labor strike,
slowdown or work stoppage or lockout against the Company or any of its
Subsidiaries, there is no unfair labor practice charge or complaint against or
pending before the National Labor Relations Board (the "NLRB") which if decided
adversely could have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and there is no representation claim or
petition pending before the NLRB and no question concerning representation
exists with respect to the employees of the Company or its Subsidiaries.
Section 3.18 INSURANCE. As of the date hereof, the Company
and each of its Subsidiaries are insured by insurers, reasonably believed by
the Company to be of recognized financial responsibility and solvency, against
such losses and risks and in such amounts as are customary in the businesses in
which they are engaged. All material policies of insurance and fidelity or
surety bonds are in full force and effect. Descriptions of these plans and
related liability coverage have been previously provided to Parent. Section
3.18 of the Company Disclosure Schedule contains a listing of all open workers
compensation and general liability claims as of a recent date. These claims,
individually or in the aggregate, would not have a material adverse effect on
the Company and its Subsidiaries, taken as a whole. All necessary
notifications of claims have been made to insurance carriers other than those
which will not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
0139329.08-01S2a 37
<PAGE> 42
Section 3.19 TRANSACTIONS WITH AFFILIATES. Except to the
extent disclosed in the Company SEC Documents filed prior to the date of this
Agreement, from May 29, 1993 through the date of this Agreement there have
been no transactions, agreements, arrangements or understandings between the
Company or its Subsidiaries, on the one hand, and the Company's affiliates
(other than wholly-owned Subsidiaries of the Company) or other Persons, on the
other hand, that would be required to be disclosed under Item 404 of Regulation
S-K under the Securities Act.
Section 3.20 COMPLIANCE WITH LAW. The Company and its
Subsidiaries have complied in all material respects with all laws, statutes,
regulations, rules, ordinances, and judgments, decrees, orders, writs and
injunctions, of any court or governmental entity relating to any of the
property owned, leased or used by them, or applicable to their business,
including, but not limited to, equal employment opportunity, discrimination,
occupational safety and health, environmental, interstate commerce, antitrust
laws, ERISA and laws relating to Taxes (as defined in Section 3.12). The
Company, with respect to each store location, has all permits and licenses
(including, without limitation, pharmaceutical and liquor licenses and permits)
necessary to carry on the business being conducted at each store location.
Section 3.21 VOTE REQUIRED. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock are the
only votes of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
Section 4.1 ORGANIZATION. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware and has all requisite corporate or other power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now
0139329.08-01S2a 38
<PAGE> 43
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and governmental approvals would
not have a material adverse effect on Parent and its Subsidiaries. Parent and
each of its Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a material adverse
effect on Parent and its Subsidiaries.
Section 4.2 CAPITALIZATION. (a) The authorized capital
stock of Parent consists of 240,000,000 shares of Parent Common Stock and (b)
20,000,000 preferred shares, par value $1.00 per share (the "Parent Preferred
Stock"). As of the date hereof, (i) 83,758,467 shares of Parent Common Stock
are issued and outstanding, (ii) no shares of Parent Preferred Stock are issued
and outstanding, (iii) 6,532,169 shares of Parent Common Stock are issued and
held in the treasury of Parent, and (iv) 6,417,062 shares of Parent Common
Stock are reserved for issuance under Parent's 1990 Omnibus Stock Incentive
Plan (the "Parent Plan"). All of the outstanding shares of Parent's capital
stock are, and all shares which may be issued pursuant to the exercise of
outstanding options or pursuant to the Parent Plan will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and non-assessable. Except for Parent's 6.75% Zero Coupon
Convertible Subordinated Notes due July 24, 2006, there are no bonds,
debentures, notes or other indebtedness having voting rights (or convertible
into securities having such rights) ("Parent Voting Debt") of Parent or any of
its Subsidiaries issued and outstanding. Except as set forth above, and except
as set forth in Section 4.2 of the Disclosure Schedule delivered to the Company
on or prior to the date hereof (the "Parent Disclosure Schedule") and except
for transactions contemplated by this Agreement, as of the date hereof, (i)
there are no shares of capital stock of Parent authorized, issued or
outstanding and (ii) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
issued or unissued capital stock of Parent or any of its Subsidiaries,
0139329.08-01S2a 39
<PAGE> 44
obligating Parent or any of its Subsidiaries to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or Parent
Voting Debt of, or other equity interest in, Parent or any of its Subsidiaries
or securities convertible into or exchangeable for such shares or equity
interests or obligations of Parent or any of its Subsidiaries to grant, extend
or enter into any such option, warrant, call, subscription or other right,
convertible security, agreement, arrangement or commitment. There are no
outstanding contractual obligations of Parent or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or
the capital stock of Parent or any subsidiary or affiliate of Parent or to
provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity.
(b) There are no voting trusts or other agreements
or understandings to which Parent or any of its Subsidiaries is a party with
respect to the voting of the capital stock of Parent or its Subsidiaries. None
of Parent or its Subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of Parent, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT;
NECESSARY ACTION. Each of Parent and Sub has full corporate power and
authority to execute and deliver this Agreement, the Stock Option Agreement and
the Zell/Chilmark Stockholder Agreement and, subject in the case of this
Agreement to obtaining any necessary approval of Parent's stockholders as
contemplated by Section 1.7(b) hereof with respect to the Merger, to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Parent and Sub of this Agreement and the consummation by Parent
and Sub of the transactions contemplated hereby have been duly and validly
authorized by their respective Boards of Directors and by Sub's sole
stockholder and, except in the case of obtaining any necessary approval of
Parent's stockholders as contemplated by Section 1.7(b) hereof, no other
corporate action or proceedings on the part of Parent and Sub are necessary to
authorize the execution and delivery by Parent and Sub of this Agreement and
the
0139329.08-01S2a 40
<PAGE> 45
consummation by Parent and Sub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Sub, and, assuming
this Agreement constitutes valid and binding obligations of the Company,
constitutes valid and binding obligations of each of Parent and Sub,
enforceable against them in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
The shares of Parent Common Stock issued pursuant to the Merger, if any, will
be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the Securities
Act of 1933 (the "Securities Act"), the DGCL, the HSR Act, state blue sky laws
and any applicable state takeover laws and the approval by Parent's
stockholders of the issuance of Parent Common Stock in the Merger, neither the
execution, delivery or performance of this Agreement by Parent and Sub nor the
consummation by Parent and Sub of the transactions contemplated hereby nor
compliance by Parent and Sub with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of Parent and Sub, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings would not have a material adverse effect on Parent and
its Subsidiaries or would not, or would not be reasonably likely to, materially
impair the ability of Parent and Sub to consummate the Offer, the Merger or the
other transactions contemplated hereby or thereby), (iii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, guarantee, other
0139329.08-01S2a 41
<PAGE> 46
evidence of indebtedness, lease, license, contract, agreement or other
instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets, except in the case of clauses (iii) and (iv) for violations, breaches
or defaults which would not have a material adverse effect on Parent and its
Subsidiaries or would not, or would not be reasonably likely to, materially
impair or the ability of Parent or Sub to consummate the Offer, the Merger or
the other transactions contemplated hereby.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent
has filed with the SEC, and has heretofore made available to the Company, true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it and its Subsidiaries since February 27,
1993 under the Exchange Act or the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "Parent SEC
Documents"). As of their respective dates or, if amended, as of the date of
the last such amendment, the Parent SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be,
and the applicable rules and regulations of the SEC thereunder. Each of the
consolidated financial statements included in the Parent SEC Documents have
been prepared from, and are in accordance with, the books and records of Parent
and/or its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position and the consolidated results of operations and
cash flows (and
0139329.08-01S2a 42
<PAGE> 47
changes in financial position, if any) of Parent and its consolidated
Subsidiaries as at the dates thereof or for the periods presented therein.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Except to the
extent disclosed in the Parent SEC Documents filed prior to the date of this
Agreement, from March 4, 1995 through the date of this Agreement, Parent and
its Subsidiaries have conducted their respective businesses in the ordinary
course of business consistent with past practice. From March 4, 1995 through
the date of this Agreement, there has not occurred (i) any events, changes, or
effects (including the incurrence of any liabilities of any nature, whether or
not accrued, contingent or otherwise) having or, which would be reasonably
likely to have, individually or in the aggregate, a material adverse effect on
Parent and its Subsidiaries; (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to the equity interests of Parent or of any of its Subsidiaries other
than regular quarterly cash dividends or dividends paid by wholly owned
Subsidiaries; or (iii) any change by Parent or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP.
Section 4.7 NO UNDISCLOSED LIABILITIES. Except (a) to the
extent disclosed in the Parent SEC Documents filed prior to the date of this
Agreement and (b) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice, during the period from March
4, 1995 through the date of this Agreement, neither Parent nor any of its
Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that have, or would be
reasonably likely to have, a material adverse effect on Parent and its
Subsidiaries or would be required to be reflected or reserved against on a
consolidated balance sheet of Parent and its Subsidiaries (including the notes
thereto) prepared in accordance with GAAP as applied in preparing the March 4,
1995 consolidated balance sheet of Parent and its Subsidiaries.
Section 4.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS. The
Registration Statement (or any amendment thereof or supplement thereto) will,
at the
0139329.08-01S2a 43
<PAGE> 48
date it is filed with the SEC and as of the date it becomes effective and the
Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) at
the date mailed to Parent's stockholders and at the time of the Special
Meetings, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, provided, however, that no representation is made by
Parent or Sub with respect to statements made therein based on information
supplied by the Company for inclusion in the Registration Statement. None of
the information supplied by Parent or Sub for inclusion or incorporation by
reference in the Proxy Statement/Prospectus will, at the date mailed to
stockholders and at the time of the Special Meetings, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. Subject to the
proviso set forth in the second preceding sentence, the Registration Statement
will comply in all material respects with the provisions of the Securities Act
and Exchange Act, respectively, and the rules and regulations thereunder.
Section 4.9 LITIGATION. Except to the extent disclosed in
the Parent SEC Documents filed prior to the date of this Agreement, as of the
date of this Agreement, there is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of Parent, threatened against
or affecting, Parent or any of its Subsidiaries, which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on Parent and
its Subsidiaries or would, or would be reasonably likely to, materially impair
the ability of Parent or Sub to consummate the Offer, the Merger or the other
transactions contemplated hereby.
Section 4.10 TAXES. (a) As of the date of this Agreement,
except as set forth in Section 4.10 of the Parent Disclosure Schedule:
(i) Parent and its Subsidiaries have (I) duly
filed (or there have been filed on their behalf) with the appropriate
governmental authorities all Tax Returns required to be filed by them and such
Tax Returns
0139329.08-01S2a 44
<PAGE> 49
are true, correct and complete in all material respects, and (II) duly paid in
full or made provision in accordance with GAAP (or there has been paid or
provision has been made on their behalf) for the payment of all Taxes (as
hereinafter defined) for all periods ending through the date hereof;
(ii) Parent and its Subsidiaries have complied in
all material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes and have, within the time and the
manner prescribed by law, withheld and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under
applicable laws;
(iii) no federal, state, local or foreign audits
or other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of Parent or its Subsidiaries and
neither Parent nor its Subsidiaries has received a written notice of any
pending audits or proceedings; and
(iv) neither the Service nor any other taxing
authority (whether domestic or foreign) has asserted, or to the best knowledge
of Parent, is threatening to assert, against Parent or any of its Subsidiaries
any deficiency or claim for Taxes.
(b) As of the date of this Agreement, except as set forth in
Section 4.10 of the Parent Disclosure Schedule:
(i) there are no material liens for Taxes upon any
property or assets of Parent or any Subsidiary thereof, except for liens for
Taxes not yet due and payable and liens for Taxes that are being contested in
good faith by appropriate proceedings;
(ii) neither Parent nor any of its Subsidiaries
has agreed to or is required to make any adjustment under Section 481(a) of the
Code;
(iii) the federal income Tax Returns of Parent and
its Subsidiaries have been examined by the Service (or the applicable statutes
of limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through and including March 2,
0139329.08-01S2a 45
<PAGE> 50
1991 for Parent and October 31, 1987 for Perry Drug Stores, Inc.;
(iv) neither Parent nor any of its Subsidiaries is
a party to any material agreement providing for the allocation or sharing of
Taxes; and
(v) neither Parent nor any of its Subsidiaries
has, with regard to any assets or property held or acquired by any of them,
filed a consent to the application of Section 341(f) of the Code, or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Parent or any of its Subsidiaries.
Section 4.11 COMPLIANCE WITH LAW. Parent and its
Subsidiaries have complied in all material respects with all laws, statutes,
regulations, rules, ordinances, and judgments, decrees, orders, writs and
injunctions, of any court or governmental entity relating to any of the
property owned, leased or used by them, or applicable to their business,
including, but not limited to, equal employment opportunity, discrimination,
occupational safety and health, environmental, interstate commerce, antitrust
laws, ERISA and laws relating to Taxes.
Section 4.12 NO DEFAULT. The business of Parent and each
of its Subsidiaries is not being conducted in default or violation of any term,
condition or provision of (a) its respective certificate of incorporation or
by-laws or similar organizational documents, (b) any lease, license, contract,
agreement or other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound and which either has a term of more than one year or
involves the payment or receipt of money in excess of $300,000 (a "Parent
Agreement") or (c) any federal, state, local or foreign law, statute,
regulation, rule, ordinance, judgment, decree, order, writ, injunction,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to Parent or any of its Subsidiaries,
excluding from the foregoing clauses (b) and (c), defaults or violations that
would not have a material adverse effect on Parent and its Subsidiaries or
would not, or would not be reasonably likely to, materially
0139329.08-01S2a 46
<PAGE> 51
impair the consummation of the Offer or the ability of Parent or Sub to
consummate the Merger or the other transactions contemplated hereby. Except as
set forth on Schedule 4.12 of the Parent Disclosure Schedule, no investigation
or review by any Governmental Entity with respect to Parent or any of its
Subsidiaries is pending or, to the best knowledge of Parent or Sub, threatened,
nor to the best knowledge of Parent or Sub, has any Governmental Entity
indicated an intention to conduct the same.
Section 4.13 FINANCING. Either Parent or Sub has, or will
have prior to the consummation of the Offer, sufficient funds available to
purchase the Shares pursuant to the Offer.
Section 4.14 OPINION OF FINANCIAL ADVISOR. Parent has
received an opinion from Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), dated as of a date which is on or prior to the date of this Agreement
to the effect that, as of such date, the consideration to be paid by Parent in
the Offer and the Merger, taken together, is fair to Parent from a financial
point of view (the "Parent Fairness Opinion"). Parent has delivered to the
Company a copy of the Parent Fairness Opinion, together with DLJ's
authorization to include the Parent Fairness Opinion in the Offer Documents and
the Proxy Statement/Prospectus.
ARTICLE V
COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE COMPANY. The Company
covenants and agrees that, (i) except as expressly provided in this Agreement,
and (ii) during the period prior to the consummation of Offer, except with the
prior written consent of Parent, and (iii) during the period following the
consummation of the Offer and prior to the Effective Time, except with the
authorization of the Board of Directors of the Company, including the
affirmative vote of a majority of the Continuing Directors, and (iv) following
consummation of the Offer and prior to the Effective Time, except for
prepayments by Parent of indebtedness of the Company and the advancement of
funds by Parent to the Company on the terms and condi-
0139329.08-01S2a 47
<PAGE> 52
tions, and at the interest rate, and for the purposes for which borrowing may
be made, under the Company's existing credit facility:
(a) the business of the Company and its
Subsidiaries shall be conducted only in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, each of
the Company and its Subsidiaries shall use its best efforts to preserve its
business organization intact and maintain its existing relations with
customers, suppliers, employees, creditors and business partners;
(b) the Company will not, directly or indirectly,
split, combine or reclassify the outstanding Company Common Stock, or any
outstanding capital stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its
Subsidiaries shall: (i) amend its certificate of incorporation or by-laws or
similar organizational documents; (ii) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with respect to its
capital stock other than dividends paid by the Company's Subsidiaries to the
Company or its Subsidiaries; (iii) issue, sell, transfer, pledge, dispose of or
encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries, other than issuances pursuant to exercise of stock-based awards
or options outstanding on the date hereof as disclosed in Section 3.2 or in
Section 5.1(c) of the Company Disclosure Schedule; (iv) transfer, lease,
license, sell, mortgage, pledge, dispose of, or encumber any material assets
other than (a) in the ordinary course of business consistent with past practice
or (b) pursuant to existing agreements disclosed in Section 5.1(c) of the
Company Disclosure Schedule; or (v) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock;
(d) except as disclosed in Section 5.1(d) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
shall: (i) except as otherwise provided in this Agreement and except for
normal, regularly scheduled increases for non-officer employees
0139329.08-01S2a 48
<PAGE> 53
consistent with past practice or pursuant to the terms of existing collective
bargaining agreements, grant any increase in the compensation payable or to
become payable by the Company or any of its Subsidiaries to any officer or
employee (including through any new award made under, or the exercise of any
discretion under, any Benefit Plan (ii) adopt any new, or amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement; (iii) enter into any, or amend any existing, employment or
severance agreement with or, grant any severance or termination pay to any
officer, director, employee or consultant of the Company or any of its
Subsidiaries; or (iv) make any additional contributions to any grantor trust
created by the Company to provide funding for non-tax-qualified employee
benefits or compensation; or (v) provide any severance program to any
Subsidiary which does not have a severance program as of the date of this
Agreement;
(e) neither the Company nor any of its
Subsidiaries shall modify, amend or terminate any of the Company Agreements or
waive, release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice;
(f) neither the Company nor any of its
Subsidiaries shall permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated without
notice to Parent, except in the ordinary course of business consistent with
past practice;
(g) except as set forth in Section 5.1(g) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
shall: (i) incur or assume any debt except for borrowings under existing
credit facilities in the ordinary course consistent with past practice; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except in the ordinary course of business consistent with past practice; (iii)
make any loans, advances or capital contributions to, or investments in, any
other
0139329.08-01S2a 49
<PAGE> 54
person (other than to wholly owned Subsidiaries of the Company or customary
loans or advances to employees in accordance with past practice); or (iv) enter
into any material commitment (including, but not limited to, any leases,
capital expenditure or purchase of assets) other than purchases of inventory in
the ordinary course of business consistent with past practice;
(h) neither the Company nor any of its
Subsidiaries shall change any of the accounting principles used by it unless
required by GAAP;
(i) neither the Company nor any of its
Subsidiaries shall pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligations, (x) reflected or reserved against in the
consolidated financial statements (or the notes thereto) of the Company and its
consolidated Subsidiaries, (y) incurred in the ordinary course of business
consistent with past practice or (z) which are legally required to be paid,
discharged or satisfied;
(j) neither the Company nor any of its
Subsidiaries will adopt a plan of complete or partial liquidation, disso-
lution, merger, consolidation, restructuring, recapitalization or other
material reorganization of the Company or any of its Subsidiaries or any
agreement relating to a Takeover Proposal (as defined in Section 5.6) (other
than the Merger);
(k) neither the Company nor any of its
Subsidiaries will take, or agree to commit to take, any action that would make
any representation or warranty of the Company contained herein inaccurate in
any respect at, or as of any time prior to, the Effective Time;
(l) neither the Company nor any of its
Subsidiaries will engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Company's affiliates, including, without limitation, any transactions,
agreements, arrangements or understandings with any affiliate or other Person
covered under Item 404 of Regulation S-K under the Securities Act that would be
required to be disclosed under such Item 404, other than
0139329.08-01S2a 50
<PAGE> 55
pursuant to such agreements, arrangements, or understandings existing on the
date of this Agreement (which are set forth on Section 5.1(l) of the Company
Disclosure Schedule);
(m) close, shut down, or otherwise eliminate any
of the Company's stores other than in the ordinary course of business
consistent with past practice;
(n) change the name of or signage at any of the
Company's stores;
(o) close, shut down, or otherwise eliminate any
of the Company's distribution centers;
(p) move the location, close, shut down or
otherwise eliminate the Company's headquarters, or effect a general staff
reduction at such headquarters;
(q) change or modify in any material respect the
Company's existing advertising program and policies;
(r) except as set forth in Section 5.1(r) of the
Company Disclosure Schedule, enter into any new lease (other than renewals of
existing leases after consultation with Parent) or purchase or acquire or enter
into any agreement to purchase or acquire any real estate;
(s) neither the Company nor any of its Subsidiaries
will incur any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that have, or would be reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries; and
(t) neither the Company nor any of its
Subsidiaries will enter into an agreement, contract, commitment or ar-
rangement to do any of the foregoing, or to authorize, recommend, propose or
announce an intention to do any of the foregoing.
Section 5.2 TREATMENT OF CERTAIN INDEBTEDNESS. The Company
will cooperate with Parent, if Parent shall so request, to effect a defeasance
of, and/or a repurchase by means of a debt tender offer (together with a
0139329.08-01S2a 51
<PAGE> 56
solicitation of consents to eliminate the restrictive covenants) of, the 9 1/8%
Senior Notes due 2000 issued by the Company and the 10 1/8% Senior Notes due
June 1, 2002 issued by Hook SupeRx, Inc., provided that any funds and all
related out-of-pocket transaction expenses necessary to effect any such
defeasance or repurchase shall be provided and borne by Parent, without any
right of reimbursement. The Company and Parent will cooperate to effect such
defeasance and/or repurchase in a manner which takes into account all relevant
tax, accounting, corporate, structural, contractual and similar issues.
Section 5.3 ACCESS TO INFORMATION. (a) To the extent
permitted by applicable law, the Company shall (and shall cause each of its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, access, during normal
business hours, during the period prior to the Effective Time, to all of its
and its Subsidiaries' properties, books, contracts, commitments and records
(including any Tax Returns or other Tax related information pertaining to the
Company and its Subsidiaries) and, during such period, the Company shall (and
shall cause each of its Subsidiaries to) furnish promptly to Parent (i) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws and (ii) all other information concerning its business,
properties and personnel as Parent may reasonably request (including any Tax
Returns or other Tax related information pertaining to the Company and its
Subsidiaries). Parent will hold any such information which is nonpublic in
confidence in accordance with the provisions of the existing confidentiality
agreement between the Company and Parent, dated August 17, 1995 (the
"Confidentiality Agreement").
(b) To the extent permitted by applicable law,
Parent shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of the Company, access, during normal business hours, during
the period prior to the Effective Time, to all of its and its Subsidiaries'
properties, books, contracts, commitments and records (including any Tax
Returns or other Tax related information pertaining to Parent and its
Subsidiaries) and, during such period, Parent shall (and shall
0139329.08-01S2a 52
<PAGE> 57
cause each of its Subsidiaries to) furnish promptly to the Company (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of the federal
securities laws and (b) all other information as the Company may reasonably
request (including any Tax Returns or other Tax related information pertaining
to Parent and its Subsidiaries). The Company will hold any such information
which is nonpublic in confidence in accordance with the provisions of the
Confidentiality Agreement.
Section 5.4 CONSENTS AND APPROVALS. (a) The Company and
Parent shall take all reasonable actions necessary to file as soon as
practicable notifications under the HSR Act and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Anti-trust Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental Entity
in connection with antitrust matters.
(b) Parent and the Company shall, and each shall
cause each of its Subsidiaries to, subject to the preceding subsection, (i)
cooperate with one another to prepare, as soon as practicable, all filings and
other presentations in connection with seeking any regulatory approval from a
Governmental Entity, exemption or other authorization necessary to consummate
the transactions contemplated by this Agreement, (ii) prosecute such filings
and other presentations with diligence, (iii) diligently oppose any objections
to, appeals from or petitions to reconsider or reopen any such approval by
persons not party to this Agreement, and (iv) take all such further action as
in Parent's and the Company's judgment reasonably may facilitate obtaining any
final order or orders approving such transactions consistent with this
Agreement.
(c) Each of the Company, Parent and Sub will take
all reasonable actions necessary to comply promptly with all legal requirements
(which actions shall include, without limitation, furnishing all information in
connection with approvals of or filings with any Governmental Entity,
including, without limitation, any
0139329.08-01S2a 53
<PAGE> 58
schedule, or reports required to be filed with the SEC), and will promptly
cooperate with and furnish information to each other in connection with any
such requirements imposed upon any of them or any of their Subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each
of the Company, Parent and Sub will, and will cause its Subsidiaries to, take
all reasonable actions necessary to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Parent, Sub, the
Company or any of their Subsidiaries in connection with the Offer, the Merger
or the taking of any action contemplated thereby or by this Agreement or the
Stockholders Agreements.
Section 5.5 EMPLOYEE BENEFITS. (a) Parent agrees to cause
Surviving Corporation and its Subsidiaries to provide to certain employees of
the Company payments and benefits, which are set forth in this Section 5.5(a)
and which shall be effected, by means of individual agreements, negotiated in
good faith by the parties hereto, reflecting the economic terms set forth in
this Section 5.5.
(i) EVA PLAN BONUS
--------------
As soon as practicable following the earlier of (A) the
Effective Time and (B) the end of the Company's 1996 fiscal year, the Company
shall pay, pursuant to the terms of the Company's Economic Value Added
Incentive Plan (the "EVA Plan") as herein modified, bonuses for fiscal year
1996, calculated based on the Company's financial results as of February 10,
1996, and annualized to equal a bonus for a 12 month period.
(ii) SEVERANCE PAY
-------------
With respect to the executives of the Company listed on
Schedule 5.5(a)(ii) attached hereto ("Covered Executives"), effective as soon
as practicable following the Effective Time (or if later, the date of
termination of employment of the Covered Executive), the Company shall pay to
each Covered Executive severance payments (the "Severance Payments"), on a
bi-weekly basis or at such other intervals as are consistent with Parent's
executive payroll practices, based on one of the two
0139329.08-01S2a 54
<PAGE> 59
formulae set forth below, pursuant to elections made by each Covered Executive
prior to the Effective Time:
(A) Severance Payments equal to, on an annualized
basis, "Base Pay" (as defined below), continuing for a period of three
years with respect to Covered Executives who are listed as Group A
Executives ("Group A Executives") on Schedule 5.5(a)(ii)(A) of the Company
Disclosure Schedule and for a period of 18 months with respect to Covered
Executives listed as Group B Executives ("Group B Executives") on Schedule
5.5(a)(ii)(A) of the Company Disclosure Schedule. For purposes of this
Section 5.5(a), Base Pay shall mean the highest base pay paid to the
Covered Executive during any one of the 1994, 1995 or 1996 fiscal years,
provided that the base pay for the 1996 fiscal year shall be calculated on
an annualized basis; or
(B) Severance Payments equal to, on an annualized
basis, "Base Plus Bonus Pay" (as defined below), continuing for a period of
two years with respect to Group A Executives, and for a period of one year
with respect to Group B Executives. For purposes of this Section 5.5(a),
Base Plus Bonus Pay shall mean Base Pay plus the amount that would have
been paid to the executive under the EVA Plan for fiscal year 1995 as the
targeted bonus (the "1995 Target Bonus").
In lieu of the Severance Payments described in clauses (A)
and (B) above, Messrs. Hoven and Mastrian shall receive Severance Payments,
continuing for three years, equal to, on an annualized basis, Base Plus Bonus
Pay.
The period during which a Covered Executive continues to
receive Severance Payments shall be referred to in this Section 5.5(a) as the
"Severance Period" for such Covered Executive.
During the Severance Period, each Covered Executive shall
continue to receive, at the Company's expense, continuation of benefits
described in Section 6(a)(ii) of the Covered Executive's employment agreement
with the Company on terms at least as favorable to the Covered Executive as is
currently in effect, which bene-
0139329.08-01S2a 55
<PAGE> 60
fits may be provided by covering such Covered Executive under benefit plans and
programs maintained by Parent PROVIDED, FURTHER HOWEVER, that to the extent any
such Covered Executive receives comparable benefits from, and at the expense
of, a subsequent employer, such benefits from the Company shall cease.
Notwithstanding anything in this Agreement to the contrary,
the Severance Payments described in clauses (A) or (B) above shall be paid to a
Covered Executive only if such Covered Executive is actively employed by the
Company immediately prior to the Effective Time.
In the event that a Covered Executive that continues
employment with the Company following the Effective Time is terminated prior to
the expiration of the Severance Period that would have applied had such Covered
Executive been terminated effective as of the Effective Time, then such Covered
Executive shall be entitled to receive the Severance Payments determined
pursuant to this Section 5.5(a).
Each employee, other than any Covered Executives, of the
Company, who is covered by the Company's severance pay plan as in effect on
November 1, 1995 (each, a "Severance-Eligible Employee") and who is employed by
the Company immediately prior to the Effective Time and terminated for other
than "Cause," as defined below, within 12 months following the Effective Time,
shall be entitled to receive bi-weekly severance payments, consistent with
Parent's payroll practices, for a six-month period commencing on such
Severance-Eligible Employee's date of termination of employment, equal to, on
an annualized basis, such Severance-Eligible Employee's Base Pay; PROVIDED,
HOWEVER, that such payments shall be reduced (but not below zero), by the
amount of compensation such Severance-Eligible Employee receives from a
subsequent employer to the extent that such Severance-Eligible Employee is
employed during such six-month period.
For purposes of this Agreement, "Cause" shall mean the
conviction of an employee or executive (as the case may be) for the commission
of a felony, including the entry of a guilty or NOLO CONTENDERE plea, any
willful, grossly negligent or fraudulent action or inaction by an employee or
executive, as the case may be, or the
0139329.08-01S2a 56
<PAGE> 61
employee's or executive's willful and continued failure to substantially
perform an employee's or executive's assigned duties.
(iii) SERP BENEFITS
-------------
Each Company employee who is (A) covered by the Company's
Supplemental Executive Retirement Plan ("SERP") and (B) actively employed by
the Company, in either case, immediately prior to the Effective Time (each, a
"SERP Executive") shall be eligible to receive benefits under the SERP based on
the terms of the SERP, as modified herein. For each SERP Executive (i) the
amount of service taken into account for purposes of calculating benefits and
vesting under the SERP shall be equal to the SERP Executive's service with the
Company prior to the Effective Time plus the Covered Executive's Severance
Period, if any, and (ii) compensation for each SERP Executive for purposes of
the SERP shall include one-half of the 1995 Target Bonus for such SERP
Executive.
(iv) GROSS-UP; CAP
-------------
With respect to the eight Executives listed on Section
5.5(a)(iv) of the Company Disclosure Schedule, the Company shall provide such
executives with a cash gross-up payment to make such executives whole for the
excise taxes imposed on all benefits and other amounts paid or payable to such
executive on account of the transactions contemplated by this Agreement as a
result of the application of sections 280G and 4999 of the Code. With respect
to all other employees of the Company who are entitled to benefits and other
amounts paid or payable to such executive on account of the transactions
contemplated by this Agreement as a result of the application of sections 280G
and 4999 of the Code, the Company shall not be obligated to pay or provide to
any such employee any payments or benefits to the extent that such payments or
benefits would constitute a "parachute payment" within the meaning of section
280G(b)(2)(A) of the Code.
(v) ESPP
----
The Company shall amend the Company's Employee Stock
Purchase Plan to provide that the option period
0139329.08-01S2a 57
<PAGE> 62
that is in effect as of the date hereof shall cease as soon as practicable
following the date hereof.
(vi) OUTPLACEMENT
------------
The Company shall provide outplacement services from a
recognized outplacement provider selected by Parent to all employees of the
Company as of the Effective Time who were based in Twinsburg, Ohio as of the
Effective Time, and are terminated without Cause within one year of the
Effective Time.
(b) Parent agrees to cause Surviving Corporation and its
Subsidiaries to provide to all active employees of the Company who continue to
be employed by the Company as of the Effective Time ("Continuing Employees")
employee benefits comparable to those benefits provided to similarly situated
employees of Parent (which benefits may be provided by covering Company
employees under benefit plans maintained by Parent for employees of Parent who
perform similar duties). In addition, with respect to medical benefits
provided to Continuing Employees as of the Effective Time, Parent agrees to
cause Surviving Corporation and its Subsidiaries to waive waiting periods and
pre-existing condition requirements under such plans, and to give Continuing
Employees credit for any copayments and deductibles actually paid by such
employees under the Company's medical plans during the calendar year in which
the Closing occurs. In addition, service with the Company shall be recognized
for purposes of eligibility under Parent welfare plans as well as for purposes
of Parent's programs or policies for vacation pay and sick pay.
Section 5.6 NO SOLICITATION. (a) The Company (and its
Subsidiaries, and affiliates over which it exercises control) will not, and the
Company (and its Subsidiaries, and affiliates over which it exercises control)
will use their best efforts to ensure that their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents do not, directly or indirectly: (i) initiate, solicit or encourage, or
take any action to facilitate the making of, any offer or proposal which
constitutes or is reasonably likely to lead to any Takeover Proposal (as
defined below) of the Company or any Subsidiary or an inquiry with respect
thereto, or, (ii) in the event of an unsolicited Takeover
0139329.08-01S2a 58
<PAGE> 63
Proposal for the Company or any Subsidiary or affiliate of the Company, engage
in negotiations or discussions with, or provide any information or data to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) (each, a "Person") relating to any
Takeover Proposal, except in the case of clause (ii) above to the extent that
(x) the Takeover Proposal is a bona fide written proposal submitted to the
Company's Board of Directors and (y) the Company's Board of Directors
determines, after having received the oral or written opinion of outside legal
counsel to the Company, that the failure to engage in such negotiations or
discussions or provide such information would result in a breach of the Board
of Directors' fiduciary duties under applicable law. The Company shall notify
Parent and Sub orally and in writing of any such offers, proposals, inquiries
or Takeover Proposals (including, without limitation, the material terms and
conditions thereof and the identity of the Person making it), within 24 hours
of the receipt thereof, and shall thereafter inform Parent on a reasonable
basis of the status and content of any discussions or negotiations with such a
third party, including any material changes to the terms and conditions
thereof. The Company shall, and shall cause its Subsidiaries and affiliates
over which it exercises control, and will use best efforts to ensure their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be terminated
all discussions and negotiations that have taken place prior to the date
hereof, if any, with any parties conducted heretofore with respect to any
Takeover Proposal relating to the Company. Nothing contained in this Section
5.6 shall prohibit the Company or its Board of Directors from taking and
disclosing to its stockholders a position with respect to a tender offer by a
third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange
Act or making such disclosure as may be required by applicable law.
(b) As used in this Agreement, "Takeover Proposal"
when used in connection with any Person shall mean any tender or exchange offer
involving the capital stock of such Person, any proposal for a merger,
consolidation or other business combination involving such Person or any
Subsidiary of such Person, any proposal or offer to acquire in any manner a
substantial equity
0139329.08-01S2a 59
<PAGE> 64
interest in, or a substantial portion of the business or assets of, such Person
or any Subsidiary of such Person, any proposal or offer with respect to any
recapitalization or restructuring with respect to such Person or any Subsidiary
of such Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any Subsidiary
of such Person other than pursuant to the transactions to be effected pursuant
to this Agreement.
Section 5.7 ADDITIONAL AGREEMENTS. Subject to the terms
and conditions herein provided (including, but not limited to, Section 5.4)
each of the parties hereto agrees to use its reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable, whether under applicable laws and regulations
or otherwise, or to remove any injunctions or other impediments or delays,
legal or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of the Company
and Parent shall use their reasonable efforts to take, or cause to be taken,
all such necessary actions.
Section 5.8 PUBLICITY. So long as this Agreement is in
effect, neither the Company nor Parent nor affiliates which either of them
control shall issue or cause the publication of any press release or other
public statement or announcement with respect to this Agreement, the Stock
Option Agreement or the Zell/Chilmark Stockholder Agreement or the transactions
contemplated hereby or thereby without the prior consultation of the other
party, except as may be required by law or by obligations pursuant to any
listing agreement with a national securities exchange, provided that each party
will use its best efforts to consult with the other party prior to any such
issuance.
Section 5.9 NOTIFICATION OF CERTAIN MATTERS. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (a) the occurrence, or non-occurrence of any event the occurrence
or non-occurrence of which would cause any representation or warranty contained
in this Agreement to be
0139329.08-01S2a 60
<PAGE> 65
untrue or inaccurate in any material respect at or prior to the Effective Time
and (b) any material failure of the Company or Parent, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any
notice pursuant to this Section 5.9 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.10 DIRECTORS' AND OFFICERS' INSURANCE AND
INDEMNIFICATION. Parent agrees that at all times after the Effective Time, it
shall cause the Surviving Corporation and its Subsidiaries to indemnify, each
person who is now, or has been at any time prior to the date hereof, an
employee, agent, director or officer of the Company or of any of the Company's
Subsidiaries, successors and assigns (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the fullest extent permitted by
law, with respect to any claim, liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense, including
reasonable fees and expenses of legal counsel, (whenever asserted or claimed)
("Indemnified Liability") based in whole or in part on, or arising in whole or
in part out of, any matter existing or occurring at or prior to the Effective
Time whether commenced, asserted or claimed before or after the Effective Time,
including liability arising under the Securities Act, the Exchange Act or state
law. Parent shall, and shall cause the Surviving Corporation to, maintain in
effect for not less than four years after the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company and its Subsidiaries on the date hereof (provided that Parent may
substitute therefor policies having at least the same coverage and containing
terms and conditions which are no less advantageous to the persons currently
covered by such policies as insured) with respect to matters existing or
occurring at or prior to the Effective Time; PROVIDED, HOWEVER, that if the
aggregate annual premiums for such insurance during such period shall exceed
200% of the per annum rate of the aggregate premium currently paid by the
Company and its Subsidiaries for such insurance on the date of this Agreement,
then Parent shall cause the Surviving Corporation to, and the Surviving
Corporation shall, provide the maximum coverage that shall then be
0139329.08-01S2a 61
<PAGE> 66
available at an annual premium equal to 200% of such rate. Parent agrees to
pay all expenses (including fees and expenses of counsel) that may be incurred
by any Indemnified Party in successfully enforcing the indemnity or other
obligations under this Section 5.10. The rights under this Section 5.10 are in
addition to rights that an Indemnified Party may have under the Certificate of
Incorporation, By-laws, other similar organizational documents of the Company
or any of its Subsidiaries or the DGCL. The rights under this Section 5.10
shall survive consummation of the Merger and are expressly intended to benefit
each Indemnified Party. Parent agrees to cause Surviving Corporation and any
of its Subsidiaries (or their successors) to keep in effect the provisions of
its Certificate of Incorporation or By-laws or similar organizational documents
providing for indemnification to the fullest extent provided by law.
Section 5.11 RULE 145 AFFILIATES. At least 40 days prior
to the Closing Date, the Company shall deliver to Parent a letter identifying,
to the best of the Company's knowledge, all persons who are, at the time of the
Company Special Meeting, deemed to be "affiliates" of the Company for purposes
of Rule 145 under the Securities Act ("Company Affiliates"). The Company shall
use its best efforts to cause each Person who is identified as a Company
Affiliate to deliver to Parent at least 30 days prior to the Closing Date an
agreement substantially in the form of Exhibit C to this Agreement.
Section 5.12 COOPERATION. Parent and the Company shall
together, or pursuant to an allocation of responsibility to be agreed upon
between them, coordinate and cooperate (a) with respect to the timing of the
Special Meetings, (b) in determining whether any action by or in respect of, or
filing with, any Governmental Entity is required, or any actions, consents
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement, (c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and timely seeking to obtain any such actions, consents
approvals or waivers. As soon as possible following the commencement of the
Offer, the Company shall cooperate with Parent in the preparation and filing of
the Proxy Statement/Prospectus
0139329.08-01S2a 62
<PAGE> 67
with the Commission, including, but not limited to providing legal, financial,
and accounting information concerning the Company and assisting in the
preparation of all financial and pro forma financial information required to be
included in such Proxy Statement/Prospectus. Subject to the terms and
conditions of this Agreement, Parent and the Company will each use its best
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after the Registration Statement is
filed, and Parent and the Company shall, subject to applicable law, confer on a
regular and frequent basis with one or more representatives of one another to
report operational matters of significance to the Merger and the general status
of ongoing operations insofar as relevant to the Merger, provided that the
parties will not confer on any matter to the extent inconsistent with law.
Section 5.13. PROXY STATEMENT/PROSPECTUS. As soon as
practicable following the consummation of the Offer, Parent and the Company
shall prepare and file with the SEC the Proxy Statement/Prospectus and each
shall use its best efforts to have the Proxy Statement/Prospectus cleared by
the SEC as promptly as practicable. As soon as practicable following such
clearance Parent shall prepare and file with the SEC the Registration
Statement, of which the Proxy Statement/Prospectus will form a part, and shall
use its best efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable thereafter. Parent and the Company shall
cooperate with each other in the preparation of the Proxy Statement/Prospectus,
and each will provide to the other promptly copies of all correspondence
between it or any of its representatives and the SEC. Each of the Company and
Parent shall furnish all information concerning it required to be included in
the Registration Statement and the Proxy Statement/Prospectus, and as promptly
as practicable after the effectiveness of the Registration Statement, the Proxy
Statement/Prospectus will be mailed to the stockholders of the Company and
Parent. No amendment or supplement to the Registration Statement or the Proxy
Statement/Prospectus will be made without the approval of each of the Company
and Parent, which approval will not be unreasonably withheld or delayed. Each
of the Company and Parent will advise the other promptly after it receives
notice thereof, of the time when the Registration Statement has become
effective or any amend-
0139329.08-01S2a 63
<PAGE> 68
ment thereto or any supplement or amendment to the Proxy Statement/Prospectus
has been filed, or the issuance of any stop order, or the suspension of the
qualification of the Parent Common Stock to be issued in the Merger for
offering or sale in any jurisdiction, or of any request by the SEC or the NYSE
for amendment of the Registration Statement or the Proxy Statement/Prospectus.
Section 5.14 NEW YORK STATE REAL PROPERTY TRANSFER AND
GAINS TAXES. Sub or the Surviving Corporation shall pay or cause to be paid
any New York State and New York City Real Property Transfer or Gains Taxes
incurred in connection with the Offer and the Merger.
Section 5.15 CONFIDENTIALITY/STANDSTILL AGREEMENT. The
parties hereto agree that the Confidentiality Agreement shall be hereby amended
to provide that any provision therein which in any manner limits, restricts or
prohibits the voting or acquisition of Shares by Parent or any of its
affiliates or the representation of Parent's designees on the Company's Board
of Directors or which in any manner would be inconsistent with this Agreement
or the Zell/Chilmark Stockholder Agreement or the Stock Option Agreement or the
transactions contemplated hereby and thereby shall terminate as of the date
hereof. The Company agrees not to take any action that would impede, bar,
restrict or otherwise interfere in any manner with Parent's rights under the
Zell/Chilmark Stockholder Agreement or the Stock Option Agreement, including,
without limitation, Parent's right to exercise the option granted to Parent
pursuant to the Stock Option Agreement. The provisions of this Section 5.15
shall survive any termination of this Agreement.
Section 5.16 STOCK EXCHANGE LISTING. The Parent shall use
its best efforts to list prior to the Effective Time on the New York Stock
Exchange, Inc. ("NYSE") and the Pacific Stock Exchange, subject to official
notice of issuance, the shares of Parent Common Stock to be issued in the
Merger.
0139329.08-01S2a 64
<PAGE> 69
ARTICLE VI
CONDITIONS
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The obligations of the Company, on the one hand, and Parent and Sub, on the
other hand, to consummate the Merger are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of
the following conditions:
(a) this Agreement shall have been adopted by the
stockholders of the Company in accordance with the DGCL;
(b) no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling which remains in
force and there shall not be any statute, rule or regulation, restraining,
enjoining or prohibiting the consummation of the Merger;
(c) the Registration Statement shall have become effective
under the Securities Act and no stop order suspending effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the SEC; and
(d) Parent, Sub or their affiliates shall have purchased
Shares pursuant to the Offer.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval hereof:
(a) By the mutual consent of the Board of Directors of
Parent and the Board of Directors of the Company.
0139329.08-01S2a 65
<PAGE> 70
(b) By either of the Board of Directors of the
Company or the Board of Directors of Parent:
(i) if Parent or Sub has not purchased Shares
in accordance with the terms of the Offer on or prior to April 29, 1996;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available to any party whose failure to
fulfill any obligations under this Agreement has been the cause of, or
resulted in, the failure to satisfy the conditions to the Offer; PROVIDED
FURTHER, HOWEVER, that Parent shall not have the right to terminate this
Agreement under this Section 7.1(b)(i) if Parent or Sub purchases any
Shares in connection with the Offer after April 29, 1996; or
(ii) if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable.
(c) By the Board of Directors of the Company:
(i) if, prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company shall have (A)
withdrawn, or modified or changed in a manner adverse to Parent or Sub its
approval or recommendation of the Offer, this Agreement or the Merger in
order to approve and permit the Company to execute a definitive agreement
relating to a Takeover Proposal, and (B) determined, after having received
the oral or written opinion of outside independent legal counsel to the
Company, that the failure to take such action as set forth in the preceding
clause (A) would result in a breach of the Board of Directors' fiduciary
duties under applicable law; PROVIDED, HOWEVER, that the Company shall have
given Parent and Sub at least thirty-six hours advance actual notice of any
termination pursuant to this Section 7.1(c)(i) and shall have
0139329.08-01S2a 66
<PAGE> 71
made the payment referred to in Section 7.3 hereof; or
(ii) if prior to the purchase of Shares pursuant
to the Offer, Parent or Sub (x) breaches or fails in any material respect
to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect and such breach would have or would be reasonably likely
to have a material adverse effect on Parent and its Subsidiaries; PROVIDED,
HOWEVER, that if any such breach is cured, the Company may not terminate
this Agreement pursuant to this Section 7.1(c)(ii); or
(iii) if Parent or Sub shall have terminated the
Offer, or the Offer shall have expired, without Parent or Sub, as the case
may be, purchasing any shares of Company Common Stock pursuant thereto;
PROVIDED that the Company may not terminate this Agreement pursuant to this
Section 7.1(c)(iii) if the Company is in material breach of this Agreement;
or
(iv) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure to satisfy
any of the conditions set forth in Annex A hereto, Parent, Sub or any of
their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement of
the Offer; PROVIDED, that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iv) if the Company is in material breach of
this Agreement.
(d) By the Board of Directors of Parent:
(i) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure to satisfy
any of the conditions set forth in Annex A hereto, Parent, Sub or any of
their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement of
the Offer; PROVIDED that Parent may not terminate this
0139329.08-01S2a 67
<PAGE> 72
Agreement pursuant to this Section 7.1(d)(i) if Parent or Sub is in material
breach of this Agreement; or
(ii) if (A) prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company shall have
withdrawn, or modified or changed in a manner adverse to Parent or Sub its
approval or recommendation of the Offer, this Agreement or Merger or shall
have recommended a Takeover Proposal or other business combination, or the
Company shall have entered into an agreement in principle (or similar
agreement) or definitive agreement providing for a Takeover Proposal or
other business combination with a person or entity other than Parent, Sub
or their Subsidiaries (or the Board of Directors of the Company resolves to
do any of the foregoing), or (B) prior to the consummation of the Offer, it
shall have been publicly disclosed or Parent or Sub shall have learned that
any person, entity or "group" (as that term is defined in Section 13(d)(3)
of the Exchange Act) (an "Acquiring Person"), other than Parent, Sub or
Zell/Chilmark Fund, L.P. or Magten or FMR Corp. (including any of FMR
Corp.'s affiliates) shall have acquired beneficial ownership (determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than
14.9% of any class or series of capital stock of the Company (including the
Shares), through the acquisition of stock, the formation of a group or
otherwise, or shall have been granted any option, right or warrant,
conditional or otherwise, to acquire beneficial ownership of more than
14.9% of any class or series of capital stock of the Company (including the
Shares); or
(iii) if Parent or Sub, as the case may be, shall
have terminated the Offer, or the Offer shall have expired without Parent
or Sub, as the case may be, purchasing any Shares thereunder, PROVIDED that
Parent may not terminate this Agreement pursuant to this Section
7.1(d)(iii) if Parent or Sub is in material breach of this Agreement.
Section 7.2 EFFECT OF TERMINATION. In the event of the
termination of this Agreement as provided in Section 7.1, written notice
thereof shall forthwith be
0139329.08-01S2a 68
<PAGE> 73
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of Parent, Sub or the
Company except (A) for fraud or for material breach of this Agreement and (B)
as set forth in Sections 5.15, 7.3, 8.1 and 8.2 hereof.
Section 7.3 TERMINATION FEE. If (w) the Board of Directors
of the Company shall terminate this Agreement pursuant to Section 7.1(c)(i)
hereof, (x) the Board of Directors of Parent shall terminate this Agreement
pursuant to Section 7.1(d)(ii)(A) hereof, (y) the Board of Directors of Parent
shall terminate this Agreement pursuant to Section 7.1(d)(ii)(B) and within
nine months of such termination, an Acquiring Person shall acquire or
beneficially own a majority of the then outstanding Shares or shall have
obtained representation on the Company's Board of Directors or shall enter into
a definitive agreement with the Company with respect to a Takeover Proposal or
similar business combination, or (z) the Board of Directors of Parent shall
terminate this Agreement pursuant to Section 7.1(d)(i) or Section 7.1(d)(iii)
hereof, in each case due to (I) a material breach of the representations and
warranties of the Company set forth in this Agreement or (II) a material breach
of, or failure to perform or comply with, by the Company any material
obligation, covenant or agreement contained in this Agreement, then in any such
case as described in clause (w), (x), (y) or (z) (each such case of termination
being referred to as a "Trigger Event"), the Company shall pay to Parent (not
later than the date of termination of this Agreement in the case of clauses
(w), (x) and (z) above) an amount equal to $45 million.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 FEES AND EXPENSES. Except as otherwise
provided in Section 7.3 hereof and except for expenses incurred in connection
with printing the Offer Documents, Schedule 14D-9, Proxy Statement/Prospectus
and the Registration Statement, as well as the filing fees relating thereto and
relating to the filing under the HSR Act, which costs shall be shared equally
by Parent and
0139329.08-01S2a 69
<PAGE> 74
the Company, all costs (other than the filing fee for registration of the
Parent Common Stock which will be paid by Parent) and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses.
Section 8.2 FINDERS' FEES. (a) Except for Morgan Stanley
& Co. Incorporated, a copy of whose engagement agreement has been provided to
Parent and whose fees will be paid by the Company, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or any of its Subsidiaries who might
be entitled to any fee or commission from the Company or any of its
Subsidiaries upon consummation of the transactions contemplated by this
Agreement.
(b) Except for Donaldson, Lufkin & Jenrette
Securities Corporation, a copy of whose engagement agreement has been provided
to the Company and whose fees will be paid by Parent, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Parent or any of its Subsidiaries who might be
entitled to any fee or commission from Parent or any of its Subsidiaries upon
consummation of the transactions contemplated by this Agreement.
Section 8.3 AMENDMENT AND MODIFICATION. Subject to
applicable law, this Agreement may be amended, modified and supplemented in any
and all respects, whether before or after any vote of the stockholders of the
Company contemplated hereby, by written agreement of the parties hereto,
pursuant to action taken by their respective Boards of Directors (which, in the
case of the Company, shall include the affirmative vote of a majority of the
Continuing Directors), at any time prior to the Closing Date with respect to
any of the terms contained herein; PROVIDED, HOWEVER, that after the approval
of this Agreement by the stockholders of the Company, no such amendment,
modification or supplement shall reduce or change the consideration to be
received by the Company's stockholders in the Merger.
Section 8.4 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties
0139329.08-01S2a 70
<PAGE> 75
in this Agreement or in any schedule, instrument or other document delivered
pursuant to this Agreement shall survive the Effective Time.
Section 8.5 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by an overnight courier
service, such as FedEx, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Rite Aid Corporation
30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Chief Executive Officer
Telephone No.: (717) 761-2633
Telecopy No.: (717) 975-5905
with a copy to:
Nancy A. Lieberman, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
and
(b) if to the Company, to:
Revco D.S., Inc.
1925 Enterprise Parkway
Twinsburg, Ohio 44087
Attention: Chief Executive Officer
Telephone No.: (216) 425-9811
Telecopy No.: (216) 487-1679
0139329.08-01S2a 71
<PAGE> 76
with a copy to:
Michael K.L. Wager, Esq.
Benesch, Friedlander,
Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Telephone No.: 216-363-4500
Telecopy No.: 216-363-4588
Section 8.6 INTERPRETATION. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include", "includes"
or "including" are used in this Agreement they shall be deemed to be followed
by the words "without limitation". The phrases "the date of this Agreement",
"the date hereof", and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to November __, 1995. As used in this
Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule
l2b-2 of the Exchange Act.
Section 8.7 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
Section 8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES;
RIGHTS OF OWNERSHIP. This Agreement, the Zell/Chilmark Stockholder Agreement,
the Stock Option Agreement and the Confidentiality Agreement, as modified
hereby (including the exhibits hereto and the documents and the instruments
referred to herein and therein): (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Sections 5.5 and 5.10 with respect to the obligations of the
Company or the Surviving Corporation thereunder, are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
0139329.08-01S2a 72
<PAGE> 77
Section 8.9 SEVERABILITY. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.10 SPECIFIC PERFORMANCE. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to the remedy of specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 8.11 GOVERNING LAW. This Agreement shall be
governed and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
Section 8.12 ASSIGNMENT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent;
PROVIDED, HOWEVER, that no such assignment shall relieve Parent from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 8.13 JOINT AND SEVERAL LIABILITY. Parent and Sub
hereby agree that they will be jointly and severally liable for all covenants,
agreements, obligations and representations and warranties made by either of
them in this Agreement.
0139329.08-01S2a 73
<PAGE> 78
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
RITE AID CORPORATION
By: /s/ Martin L. Grass
---------------------------------------
Name: Martin L. Grass
Title: Chairman of the Board and
Chief Executive
Officer
OCEAN ACQUISITION CORPORATION
By: /s/ Martin L. Grass
---------------------------------------
Name: Martin L. Grass
Title: President
REVCO D.S., INC.
By: /s/ D. Dwayne Hoven
---------------------------------------
Name: D. Dwayne Hoven
Title: President and Chief
Executive Officer
0139329.08-01S2a
<PAGE> 79
ANNEX A
-------
CONDITIONS TO THE TENDER OFFER
------------------------------
Notwithstanding any other provisions of the Offer, and in
addition to (and not in limitation of) Sub's rights to extend and amend the
Offer at any time in its sole discretion (subject to the provisions of the
Merger Agreement), Sub shall not be required to accept for payment or, subject
to any applicable rules and regulations of the SEC, including Rule 14e-1(c)
under the Exchange Act (relating to Sub's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay
for, and may delay the acceptance for payment of or, subject to the restriction
referred to above, the payment for, any tendered Shares, and may terminate the
Offer as to any Shares not then paid for, if (i) any applicable waiting period
under the HSR Act has not expired or terminated prior to the expiration of the
Offer, (ii) the Minimum Condition has not been satisfied, or (iii) at any time
on or after November 17, 1995 and prior to the acceptance for payment of any
Shares, any of the following events shall occur or shall be determined by Sub
to have occurred:
(a) there shall be instituted, pending or threatened any
action or proceeding by any government or governmental authority or agency,
domestic or foreign, (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
making of the Offer, the acceptance for payment of or payment for some of or
all the Shares by Parent or Sub or the consummation by Parent or Sub of the
Merger, seeking to obtain material damages relating to the Merger Agreement,
the Zell/Chilmark Stockholder Agreement, the Stock Option Agreement or any of
the transactions contemplated thereby or otherwise seeking to prohibit directly
or indirectly the transactions contemplated by the Offer or the Merger, or
challenging or seeking to make illegal the transactions contemplated by the
Zell/Chilmark Stockholder Agreement, the Stock Option Agreement or otherwise
directly or indirectly to restrain, prohibit or delay the transactions
contemplated by the Zell/Chilmark Stockholder Agreement or the Stock Option
Agreement, (ii) seeking to restrain,
0139329.08-01S2a A-1
<PAGE> 80
prohibit or delay Parent's, Sub's or any of their subsidiaries' ownership or
operation of all or any portion (other than an immaterial portion) of the
business or assets of the Company or its subsidiaries, or to compel Parent or
any of its subsidiaries to dispose of or hold separate all or any portion
(other than an immaterial portion) of the business or assets of the Company or
Parent or their respective subsidiaries, (iii) seeking to impose or confirm
material limitations on the ability of Parent, Sub or any of their subsidiaries
or affiliates effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or owned
by Parent, Sub or any of their subsidiaries or affiliates on all matters
properly presented to the Company's stockholders, or (iv) seeking to require
divestiture by Parent, or Sub or any of their subsidiaries of any Shares; or
(b) there shall be any action taken, or any statute, rule,
regulation, injunction, judgment, order or decree enacted, enforced, entered,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency, domestic or foreign,
that, directly or indirectly, results in any of the consequences referred to in
clauses (i) through (iv) of paragraph (a) above; or
(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on the New York Stock
Exchange for a period in excess of three hours, (ii) the declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) the commencement of a war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation (whether or not
mandatory) by any foreign or United States governmental authority or agency on
the extension of credit by banks or other financial institutions, (v) any
decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 500 Industrial Companies by an amount in excess of 20% measured from
the close of business on November 29, 1995, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof; or
0139329.08-01S2a A-2
<PAGE> 81
(d) the representations and warranties of the Company set
forth in the Merger Agreement shall not be true and correct in any material
respect as of the date of consummation of the Offer as though made on or as of
such date, except (i) for changes specifically permitted by the Merger
Agreement and (ii) those representations and warranties that address matters
only as of a particular date which are true and correct as of such date, or the
Company shall have breached or failed in any material respect to perform or
comply with any material obligation, agreement or covenant required by the
Merger Agreement to be performed or complied with by it; or
(e) the Merger Agreement shall have been terminated in
accordance with its terms; or
(f) any party to the Zell/Chilmark Stockholder Agreement or
the Stock Option Agreement other than Sub and Parent shall have breached or
failed to perform any of its agreements under such agreements or breached any
of its representations and warranties in such agreements or any such agreement
shall not be valid, binding and enforceable, except for such breaches or
failures or failures to be valid, binding and enforceable that do not
materially and adversely affect the benefits expected to be received by Parent
and Sub under the Merger Agreement, the Zell/Chilmark Stockholder Agreement or
the Stock Option Agreement; or
(g) (i) it shall have been publicly disclosed or Parent or
Sub shall have otherwise learned that any person, entity or "group" (as defined
in Section 13(d)(3) of the Exchange Act), other than Zell/Chilmark Fund, L.P.
or Magten Asset Management Corporation, or FMR Corp. (including any of FMR
Corp.'s affiliates) Parent or its affiliates or any group of which any of them
is a member, shall have acquired beneficial ownership (determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of more than 14.9% of any class
or series of capital stock of the Company (including the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall have been
granted an option, right or warrant, conditional or otherwise, to acquire
beneficial ownership of more than 14.9% of any class or series of capital stock
of the Company (including the Shares); or (ii) any person, entity or group
shall have entered into a definitive agreement or agreement in principle with
the
0139329.08-01S2a A-3
<PAGE> 82
Company with respect to a merger, consolidation or other business combination
with the Company; or
(h) a tender or exchange offer for some or all of the Shares
or proposal for a Takeover Proposal shall have been publicly proposed to be
made or shall have been made by another person or entity;
(i) the Board of Directors of the Company shall have
withdrawn, or modified or changed in a manner adverse to Parent or Sub
(including by amendment of the Schedule 14D-9), its approval or recommendation
of the Offer, the Merger Agreement, or the Merger, or recommended another
proposal or offer, or shall have resolved to do any of the foregoing; or
(j) there shall have occurred any event, change or effect
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) which has, individually or in the aggregate,
a material adverse effect (as defined in the Merger Agreement) on the Company
and its Subsidiaries;
which in the sole judgment of Parent or Sub, in any such case, and regardless
of the circumstances (including any action or inaction by Parent or Sub giving
rise to such condition) makes it inadvisable to proceed with the Offer or with
such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Parent
and Sub and may be asserted by Parent or Sub regardless of the circumstances
giving rise to any such condition or may be waived by Parent or Sub in whole or
in part at any time and from time to time in their sole discretion. The
failure by Parent or Sub at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right; the waiver of any such right
with respect to particular facts and other circumstances shall not be deemed a
waiver with respect to other facts and circumstances; and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
0139329.08-01S2a A-4
<PAGE> 83
Exhibit A
See Exhibit 4 to this Schedule 14D-9.
<PAGE> 84
Exhibit B
See Exhibit 5 to this Schedule 14D-9.
<PAGE> 85
EXHIBIT C
---------
Form of Affiliate Agreement
---------------------------
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $.O1
per share (the "Company Common Stock"), of Revco D.S., Inc., a Delaware
corporation (the "Company"). The undersigned may receive shares of Common
Stock, par value $1.00 per share (the "Parent Common Stock"), of Rite Aid
Corporation, a Delaware corporation ("Parent"), in connection with the merger
of Ocean Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), with and into the Company, with the Company
continuing as the surviving corporation (the "Merger").
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of the Company as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 ("Rule 145") of the rules and regulations
under the Securities Act of 1933, as amended (the "Act"). Execution of this
Agreement by the undersigned should not be construed as an admission of
"affiliate" status or as a waiver of any rights the undersigned may have to
object to any claim that the undersigned is such an affiliate on or after the
date of this Agreement.
If in fact the undersigned were an affiliate of the Company under the
Act, the undersigned's ability to sell, transfer or otherwise dispose of any
Parent Common Stock received by the undersigned in exchange for any shares of
Company Common Stock pursuant to the Merger may be restricted unless such
transaction is registered under the Act or an exemption from such registration
is available. The undersigned understands that such exemptions are limited and
the undersigned has obtained advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and 145(d)
promulgated under the Act.
<PAGE> 86
A. The undersigned hereby represents to and covenants with Parent
that the undersigned will not sell, transfer or otherwise dispose of any Parent
Common Stock received by the undersigned in exchange for shares of Company
Common Stock pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) by a sale made in conformity with
the provisions of Rule 145 (and otherwise in accordance with Rule 144 under
the Act if the undersigned is an affiliate of Parent and if so required at the
time) or (iii) in a transaction which, in the opinion of independent counsel
reasonably satisfactory to Parent or as described in a "no-action" or
interpretive letter from the Staff of the Securities and Exchange Commission
(the "Commission"), is not required to be registered under the Act.
B. The undersigned understands that Parent is under no obligation to
register the sale, transfer or other disposition of Parent Common Stock by the
undersigned or on behalf of the undersigned under the Act or, except as
provided in paragraph F.1 below, to take any other action necessary in order to
make compliance with an exemption from such registration available.
C. The undersigned also understands that stop transfer instructions
will be given to Parent's transfer agents with respect to the Parent Common
Stock issued to the undersigned and that there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
NOVEMBER 29, 1995 BETWEEN THE REGISTERED HOLDER HEREOF AND RITE AID
CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF RITE AID CORPORATION."
D. The undersigned also understands that unless a sale or transfer is
made in conformity with the provisions of Rule 145, or pursuant to a
registration statement, Parent reserves the right to put the following legend
on the certificates issued to the undersigned's transferee:
2
<PAGE> 87
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
E. In the event of a sale of Parent Common Stock pursuant to Rule 145,
the undersigned will supply Parent with evidence of compliance with such Rule,
in the form of customary seller's and broker's Rule 145 representation
letters or as Parent may otherwise reasonably request. The undersigned
understands that Parent may instruct its transfer agent to withhold the
transfer of any Parent Common Stock disposed of by the undersigned in a manner
inconsistent with this letter.
F. By Parent's acceptance of this Agreement, Parent hereby agrees with
the undersigned as follows:
1. For so long as to the extent necessary to permit the undersigned to
sell the Parent Common Stock pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Parent shall (a) use its reasonable best
efforts to (i) file, on a timely basis, all reports and data required to be
filed with the Commission by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and (ii) furnish to the
undersigned upon request a written statement as to whether Parent has
complied with such reporting requirements during the 12 months preceding any
proposed sale of Parent Common Stock by the undersigned under Rule 145 and Rule
144. Parent has filed all reports required to be filed with the Commission
under Section 13 of the 1934 Act during the preceding 12 months.
2. It is understood and agreed that the legends set forth in
paragraph C and D above shall be removed by delivery of substitute
certificates without such legend if such legend is not required for purposes of
the Act or this Agreement. It is understood and agreed that such legends and
the stop orders referred to above will be removed if (i) two years shall have
elapsed from the date the undersigned acquired Parent Common Stock re-
3
<PAGE> 88
ceived in the Merger and the provisions of Rule 145(d)(2) are then available
to the undersigned, (ii) three years shall have elapsed from the date
the undersigned acquired the Parent Common Stock received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, (iii) the
Parent has received either an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to Parent, or a "no action" letter obtained
from the staff of the Commission, to the effect that the Parent Common Stock
subject thereto may be transferred free of the restrictions imposed by Rule 144
or 145 under the Act, or (iv) in the event of a sale of Parent Common Stock
received by the undersigned in the Merger which has been registered under the
Act or made in conformity with the provisions of Rule 145; and, in the case of
(i) and (ii) above, Parent has received either an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to Parent, or a "no
action" letter obtained from the staff of the Commission, to the effect that
the restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned.
The undersigned acknowledges that it has carefully reviewed this letter
and understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Parent Common Stock
received by the undersigned in the Merger.
Very truly yours,
-----------------------------
Name
Accepted this ____ day of
_____________ 199___, by
RITE AID CORPORATION
By:_____________________________
Name:
Title:
4
<PAGE> 1
Exhibit 4
STOCKHOLDER AGREEMENT
AGREEMENT, dated as of November 29, 1995, by and among Rite Aid Corporation,
a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and Zell/Chilmark
Fund, L.P., a Delaware limited partnership (referred to herein as the
"Stockholder").
W I T N E S S E T H:
WHEREAS, immediately prior to the execution of this Agreement, Parent, Sub
and Revco D.S., Inc., a Delaware corporation (the "Company"), have entered into
an Agreement and Plan of Merger (as such agreement may hereafter be amended
from time to time, the "Merger Agreement"), pursuant to which Sub will be
merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company desire that as
soon as practicable but in no event later than five business days) after the
execution of the Merger Agreement, Sub shall commence an offer (the "Offer") to
purchase for cash not less than 35,144,833 shares and up to all of the issued
and outstanding Company Common Stock (as defined in Section 1 hereof) at a
price of $27.50 per share of Company Common Stock; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholder agree, and the Stockholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
<PAGE> 2
1. CERTAIN DEFINITIONS. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement. For purposes
of this Agreement:
(a) "BENEFICIALLY OWN" OR "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" within the meaning of Section 13(d)
of the Exchange Act.
(b) "COMPANY COMMON STOCK" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "PERSON" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
2. TENDER OF SHARES.
(a) The Stockholder hereby agrees to validly tender (or cause the record
owner of such shares to tender), and not to withdraw, pursuant to and in
accordance with the terms of the Offer, not later than prior to the expiration
of the Offer pursuant to Section 1.1 of the Merger Agreement and Rule 14d-2
under the Exchange Act, 13,102,288 shares of Company Common Stock (the
"Existing Shares" and together with any shares of Company Common Stock acquired
by the Stockholder in any capacity after the date hereof and prior to the
termination of this Agreement whether upon the exercise of options, warrants or
rights, the conversion or exchange of convertible or exchangeable securities,
or by means of purchase, dividend, distribution, gift, bequest, inheritance or
as a successor in interest in any capacity or otherwise, the "Shares")
Beneficially Owned by the Stockholder. The Stockholder hereby acknowledges and
agrees that Parent's and Sub's obligation to accept for payment and pay for the
Shares in the Offer, is subject to the
2
<PAGE> 3
terms and conditions of the Offer. The parties agree that the Stockholder
will, for all Shares tendered by the Stockholder in the Offer and accepted for
payment and paid for by Sub, receive the same per share consideration paid to
other shareholders who have tendered into the Offer.
(b) The transfer by the Stockholder of the Shares to Sub in the Offer shall
pass to and unconditionally vest in Sub good and valid title to the Shares,
free and clear of all claims, liens, restrictions, security interests, pledges,
limitations and encumbrances whatsoever.
(c) The Stockholder hereby agrees to permit Parent and Sub to publish and
disclose in the Offer Documents and, if approval of the Company's shareholders
is required under applicable law, the Registration Statement and the Proxy
Statement/Prospectus (including all documents and schedules filed with the SEC)
its identity and ownership of Company Common Stock and the nature of its
commitments, arrangements and understandings under this Agreement.
3. VOTING OF COMPANY COMMON STOCK. The Stockholder hereby agrees that
during the period commencing on the date hereof and continuing until the first
to occur of (i) the Effective Time or (ii) termination of this Agreement in
accordance with its terms, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders of Company
Common Stock, however called, or in connection with any written consent of the
holders of Company Common Stock, the Stockholder shall vote (or cause to be
voted) the Shares held of record or Beneficially Owned by the Stockholder (i)
in favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval and adoption of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Parent, against the following actions (other
than the Merger and the
3
<PAGE> 4
transactions contemplated by this Agreement and the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its Subsidiaries; (B) any sale,
lease or transfer of a material amount of assets of the Company or its
Subsidiaries, or a reorganization, restructuring, recapitalization, special
dividend, dissolution or liquidation of the Company or its Subsidiaries; or
(C)(1) any change in a majority of the persons who constitute the board of
directors of the Company; (2) any change in the present capitalization of the
Company including any proposal to sell a substantial equity interest in the
Company and its Subsidiaries; (3) any amendment of the Company's Certificate of
Incorporation or By-laws; (4) any other change in the Company's corporate
structure or business; or (5) any other action which, in the case of each of
the matters referred to in clauses (C)(1), (2), (3) or (4), is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Offer, the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. The Stockholder shall
not enter into any agreement or understanding with any person or entity the
effect of which would be inconsistent or violative of the provisions and
agreements contained in this Section 3.
4. STOCKHOLDER COVENANT. Except as contemplated by this Agreement, the
Stockholder shall not for a period of six months following the termination of
this Agreement (other than as a result of a breach by Parent or Sub) enter
into, execute, or be a party to any agreement or understanding, written or
otherwise, with any Person whereby the Stockholder (i) grants or otherwise
gives to such Person an option or right to purchase or acquire any or all of
the Shares other than sales made in open market transactions; (ii) agrees or
covenants to vote or to grant a proxy to vote any or all of the Shares held of
record or Beneficially Owned by the Stockholder, at any meeting (whether annual
or special and whether or not an adjourned or postponed meeting) of the holders
of Company Common Stock, however called, or in connection with any written
consent of the holders of Company Common Stock; or (iii) agrees or covenants to
tender any or all of the Shares held of record or Beneficially Owned by the
Stockholder into any tender offer or exchange offer relating to the Company
Common Stock.
4
<PAGE> 5
5. COVENANTS, REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. The
Stockholder hereby represents and warrants to, and agrees with, Parent and Sub
as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record and Beneficial
Owner of the Existing Shares. On the date hereof, the Existing Shares
constitute all of the Shares owned of record or Beneficially Owned by the
Stockholder. The Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 2 and 3 hereof,
sole power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Existing Shares with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) CORPORATE AUTHORIZATION. This Agreement has been duly and validly
executed and delivered by the Stockholder and constitutes a valid and binding
agreement enforceable against the Stockholder in accordance with its terms
except to the extent (i) such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) NO CONFLICTS. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (ii) none of the
execution and delivery of this Agreement by the Stockholder, the consummation
by the Stockholder of the transactions contemplated hereby or compliance by
the Stockholder with any of the provisions hereof shall (A) conflict with or
result in any breach of the organizational documents of the Stockholder, (B)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise
5
<PAGE> 6
to any third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which Stockholder is a party or by which the Stockholder or any of its
properties or assets may be bound, or (C) violate any order, writ, injunction,
decree, judgment, statute, rule or regulation applicable to the Stockholder or
any of its properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated by Sections 2, 3 and 4 hereof, the Shares and the
certificates representing such Shares are now, and at all times during the term
hereof, will be, held by the Stockholder, or by a nominee or custodian for the
benefit of such Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
(e) NO FINDER'S FEES. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Stockholder.
(f) NO SOLICITATION. Stockholder shall not, and shall cause its affiliates
and officers, directors, employees, partners, investment bankers, attorneys,
accountants and other agents and representatives of Stockholder and such
affiliates (such affiliates, officers, directors, employees, partners
investment bankers, attorneys, accountants, agents and representatives of any
Person are hereinafter collectively referred to as the "Representatives" of
such Person) not to, directly or indirectly (i) initiate, solicit or encourage,
or take any action to facilitate the making of, any offer or proposal which
constitutes or is reasonably likely to lead to any Takeover Proposal (as
defined in the Merger Agreement) of the Company or any affiliate or any inquiry
with respect thereto, or (ii) in the event of an unsolicited Takeover Proposal
for the Company or any affiliate of the Company, engage in negotiations or
discussions
6
<PAGE> 7
with, or provide any information or data to, any Person (other than Parent, any
of its affiliates or representatives) relating to any Takeover Proposal.
Stockholder shall notify Parent and Sub orally and in writing of any such
offers, proposals, or inquiries relating to the purchase or acquisition by any
Person of the Shares (including, without limitation, the terms and conditions
thereof and the identity of the Person making it), within 24 hours of the
receipt thereof. Stockholder shall, and shall cause its Representatives to,
immediately cease and cause to be terminated any and all existing activities,
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any Takeover Proposal relating to the Company, other than
discussions or negotiations with Parent and its affiliates. Notwithstanding
the restrictions set forth in this Section 5(f), any Person who is an officer
or director of the Company may exercise his fiduciary duties in his capacity as
a director or officer of the Company consistent with the terms of the Merger
Agreement.
(g) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Except as
applicable in connection with the transactions contemplated by Sections 2 and 3
hereof, the Stockholder shall not, directly or indirectly: (i) offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Shares or
any interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit the Shares into a voting trust or enter
into a voting agreement with respect to the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or would result in a breach by the Stockholder of
their obligations under this Agreement or a breach by the Company of its
obligations under the Merger Agreement.
(h) RELIANCE BY PARENT. The Stockholder understands and acknowledges that
Parent is entering into, and causing Sub to enter into, the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
7
<PAGE> 8
(i) FURTHER ASSURANCES. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
(j) DISTRIBUTION OF SHARES OF PARENT COMMON STOCK. Upon the consummation
of the Merger, the Stockholder shall within 90 days thereafter either
distribute the shares of Parent Common Stock (as defined in the Merger
Agreement) to each of the limited partners of Zell/Chilmark Fund, L.P. or sell
or otherwise dispose of such shares of Parent Common Stock, in each case in
accordance with the governing documents thereto and applicable law; provided
that no such sale or other disposition shall be made if immediately following
such sale or other disposition the acquiror of such Parent Common Stock,
together with the acquiror's affiliates and any members of a group of which the
acquiror is a party, would Beneficially Own in the aggregate 4.9% or more of
the Parent Common Stock then outstanding.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub hereby
represent and warrant to Stockholder as follows:
(a) ORGANIZATION. Each of Parent and Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power or other power and authority to execute and
deliver this Agreement and perform their respective obligations hereunder. The
execution and delivery by Parent and Sub of this Agreement and the performance
by Parent and Sub of their respective obligations hereunder have been duly and
validly authorized by the Board of Directors of each of Parent and Sub and no
other corporate proceedings on the part of Parent or Sub are necessary to
authorize the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(b) CORPORATE AUTHORIZATION. This Agreement has been duly and validly
executed and delivered by Parent and Sub and constitutes a valid and binding
agreement of each of Parent and Sub enforceable against each
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<PAGE> 9
of Parent and Sub in accordance with its terms except to the extent (i) such
enforcement may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) NO CONFLICTS. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by Parent or Sub and the consummation by Parent or
Sub of the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Parent of Sub, the consummation by Parent or Sub
of the transactions contemplated hereby or compliance by Parent or Sub with any
of the provisions hereof shall (A) conflict with or result in any breach of the
certificate of incorporation or by-laws of Parent or Sub, (B) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which Parent or Sub is a party
or by which Parent or Sub or any of their respective properties or assets may
be bound, or (C) violate any order, writ, injunction, decree, judgment,
statute, rule or regulation applicable to Parent or Sub or any of their
respective properties or assets.
(d) NO FINDER'S FEE. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, no broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Parent or Sub.
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<PAGE> 10
7. STOP TRANSFER; LEGEND.
(a) The Stockholder agrees with, and covenants to, Parent that the
Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Shares, unless such transfer is made in compliance with
this Agreement (including the provisions of Section 2 hereof). In the event of
a stock dividend or distribution, or any change in the Company Common Stock by
reason of any stock dividend, split-up, recapitalization, combination, exchange
of shares or the like, the term "Shares" shall be deemed to refer to and
include the Shares as well as all such stock dividends and distributions and
any shares into which or for which any or all of the Shares may be changed or
exchanged and appropriate adjustments shall be made to the terms and provisions
of this Agreement.
(b) The Stockholder shall promptly after the date hereof surrender to the
Company all certificates representing the Shares, and the Company shall place
the following legend on such certificates:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER
AGREEMENT, DATED AS OF NOVEMBER 29, 1995 BY AND AMONG RITE AID CORPORATION,
OCEAN ACQUISITION CORPORATION AND ZELL/CHILMARK FUND, L.P. WHICH AMONG OTHER
THINGS RESTRICTS THE TRANSFER AND VOTING THEREOF."
8. TERMINATION. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (i) the consummation of the Merger and (ii) the termination of the
Merger Agreement in accordance with its terms except, that the covenant and
agreement set forth in Section 4 hereof shall survive for six months after such
termination (other than a termination as a result of a breach by Parent or
Sub).
9. CONFIDENTIALITY. The Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be
dependent upon confidentiality with respect to the matters referred to herein.
In this connection, pending public disclosure thereof, the Stockholder hereby
agrees not to disclose or
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<PAGE> 11
discuss such matters with anyone not a party to this Agreement (other than its
counsel and advisors, if any) without the prior written consent of Parent,
except for filings required pursuant to the Exchange Act and the rules and
regulations thereunder or disclosures its counsel advises are necessary in
order to fulfill its obligations imposed by law, in which event such
Stockholder shall give notice of such disclosure to Parent as promptly as
practicable so as to enable Parent to seek a protective order from a court of
competent jurisdiction with respect thereto.
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) BINDING AGREEMENT. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or Beneficial Ownership of such Shares shall
pass, whether by operation of law or otherwise, including, without limitation,
the Stockholder's heirs, distributees, guardians, administrators, executors,
legal representatives, or successors or other transferees (for value or
otherwise) and any other successors in interest. Notwithstanding any transfer
of Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) ASSIGNMENT. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
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execution and delivery of a written agreement executed by the parties hereto.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with
a confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Stockholder: Zell/Chilmark Fund, L.P.
Two North Riverside Plaza
Suite 1500
Chicago, Illinois 60606
Attention.: Sheli Z. Rosenberg
Telephone No.: (312) 984-9711
Telecopy No.: (312) 984-0317
copy to: Michael K.L. Wager, Esq.
Benesch, Friedlander,
Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Telephone No.: (216) 363-4500
Telecopy No.: (216) 363-4588
If to Parent Rite Aid Corporation
or Sub: 30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention.: Chief Executive Officer
Telephone No.: (717) 761-2633
Telecopy No.: (717) 975-5905
copy to: Nancy A. Lieberman, Esq.
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
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<PAGE> 13
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) SEVERABILITY. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
(g) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or
in equity.
(h) REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(i) NO WAIVER. The failure of any party hereto to exercise
any right, power or remedy provided under this Agreement or otherwise available
in respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, shall not constitute a waiver
by such party of its right to exercise any such or other right, power or remedy
or to demand such compliance.
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<PAGE> 14
(j) NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
(k) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(l) JURISDICTION. Each party hereby irrevocably submits to
the exclusive jurisdiction of the Court of Chancery in the State of Delaware in
any action, suit or proceeding arising in connection with this Agreement, and
agrees that any such action, suit or proceeding shall be brought only in such
court (and waives any objection based on forum non conveniens or any other
objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this paragraph (l) and
shall not be deemed to be a general submission to the jurisdiction of said
Court or in the State of Delaware other than for such purposes. Each party
hereto hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
(m) DESCRIPTIVE HEADINGS. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
(n) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same Agreement.
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<PAGE> 15
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
RITE AID CORPORATION
By: /s/ Martin L. Grass
-------------------------------
Name: Martin L. Grass
Title: Chairman of the Board
and Chief Executive
Officer
OCEAN ACQUISITION CORPORATION
By: /s/ Martin L. Grass
-------------------------------
Name: Martin L. Grass
Title: President
ZELL/CHILMARK FUND, L.P.
By: ZC Limited Partnership,
general partner
By: ZC Partnership,
general partner
By: CZ Inc., a partner
By: /s/ Sheli Z. Rosenberg
-------------------------------
Name: Sheli Z. Rosenberg
Title: Vice President
0044464.06-01S7a 15
<PAGE> 1
Exhibit 5
STOCK OPTION AGREEMENT
AGREEMENT, dated as of November 29, 1995, by and among Rite Aid Corporation,
a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and Revco D.S.,
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, immediately prior to the execution of this Agreement, Parent, Sub
and the Company, have entered into an Agreement and Plan of Merger (as such
agreement may hereafter be amended from time to time, the "Merger Agreement"),
pursuant to which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company desire that as
soon as practicable (but in no event later than five business days) after the
execution of the Merger Agreement, Sub shall commence an offer (the "Offer") to
purchase for cash not less than 35,144,833 shares and up to all of the issued
and outstanding Company Common Stock (as defined in Section 1 hereof), or such
greater number of shares as equals 50.1% of the shares outstanding on a fully
diluted basis as of the expiration of the Offer, at a price of $27.50 per share
of Company Common Stock; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Sub have required that the Company agree, and the Company
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
<PAGE> 2
1. CERTAIN DEFINITIONS. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement. For purposes
of this Agreement:
a. "BENEFICIALLY OWN" OR "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" within the meaning of Section 13(d)
of the Exchange Act.
b. "COMPANY COMMON STOCK" shall mean at any time the common stock, $.01 par
value, of the Company.
c. "PERSON" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
2. GRANT OF STOCK OPTION. In order to induce Parent and Sub to enter
into the Merger Agreement, the Company hereby grants to Parent an
unconditional, irrevocable option (a "Stock Option") to purchase up to
13,251,010 fully paid and nonassessable shares of Company Common Stock at a
purchase price of $27.50 per share (the "Purchase Price"), or such other number
of shares of Company Common Stock as equals 19.9% of the Company's issued and
outstanding shares of Company Common Stock at the time of exercise of the Stock
Option; provided that in no event shall the number of shares of Company Common
Stock for which the Stock Option is exercisable exceed 19.9% of the shares of
Company Common Stock issued and outstanding at the time of exercise of the
Stock Option (the "Option Shares"). The number of shares of Company Common
Stock that may be received upon the exercise of the Stock Option is subject to
adjustments as herein set forth.
3. EXERCISE OF STOCK OPTION. (a) Upon (x) the occurrence of a Trigger
Event (as defined in Section
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<PAGE> 3
7.3 of the Merger Agreement), or (y) the occurrence of the condition set forth
in clause (h) of Annex A to the Merger Agreement, the Stock Option shall become
immediately exercisable, in whole or in part, and remain exercisable in whole
or in part until the later of (i) the date which is six months after the date
the Stock Option first became exercisable and (ii) the fifth business day
following expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") (the "Option Period").
(b) In the event that Parent is entitled to and wishes to exercise the
Stock Option, Parent shall, during the Option Period, send a written notice
(the "Notice") to the Company identifying the place and date for the closing of
such purchase and the number of Option Shares to be purchased. Upon the giving
by Parent to the Company of the Notice and the tender of the aggregate Purchase
Price at the closing so specified, Parent shall be deemed to be the holder of
record of the shares of Company Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Company Common Stock
shall not then be actually delivered to Parent. The Company shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 3 in the name of Parent or
its assignee, transferee or designee.
4. SALE OF OPTION SHARES. If, at any time following the exercise of the
Option, Parent shall either (i) transfer, sell or otherwise dispose of any or
all of the Option Shares, including, without limitation, by means of tender or
exchange of any or all of the Option Shares pursuant to a tender or exchange
offer involving the capital stock of the Company, or (ii) convert such Option
Shares into cash, capital stock, other securities or any other consideration of
any third party in a merger any recapitalization or restructuring or similar
business combination transaction (a "Business Combination Transaction"), Parent
shall pay to the Company within five days the amount equal to the Profit (as
defined below) Parent shall receive, if any, pursuant to such Disposition or
Business Combination Transaction. "Profit", for purposes
3
<PAGE> 4
of this Agreement, shall equal (i) the product of (a) the number of Option
Shares Parent transfers, sells, tenders, exchanges or otherwise disposes of
pursuant to a Disposition or a Business Combination Transaction by (b) the
excess of the per Share consideration received by Parent pursuant to such
Disposition or Business Combination Transaction valuing any non-cash
consideration at its fair market value on the date of such consummation (not
including any increase in such aggregate per Share consideration after the date
thereof) over the Purchase Price. For purposes hereof, the fair market value
of any non-cash consideration shall be the closing price or the last sale
price, or, in case no such sale takes place on the day of consummation of such
Business Combination Transaction, the average of the closing bid and asked
prices, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the principal national securities exchange on which such consideration is
listed or admitted to trading or, if such consideration is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if not so determinable, the fair value of such consideration on such date shall
be determined in good faith by the Board of Directors of Parent.
5. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, Parent and Sub as follows:
a. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has all
requisite corporate power or other power and authority to execute and deliver
this Agreement and perform its obligations hereunder. The execution and
delivery by the Company of this Agreement and the performance by the Company of
its obligations hereunder have been duly and validly authorized by the Board of
Directors of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
4
<PAGE> 5
b. CORPORATE AUTHORIZATION. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
agreement enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy, insolvency
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
c. AUTHORIZED STOCK. The Company has taken all necessary corporate and
other action to authorize, reserve and permit it to issue, and, at all times
from the date hereof until the obligation to deliver the Option Shares upon the
exercise of the Stock Option terminates, will have reserved for issuance, upon
exercise of the Stock Option, shares of Company Common Stock necessary for
Parent to exercise the Stock Option, and the Company will take all necessary
corporate action to (x) authorize and reserve for issuance all additional
shares of Company Common Stock or other securities which may be issued pursuant
to Section 7 upon exercise of the Stock Option and (y) protect the rights of
Parent against dilution. The shares of Company Common Stock to be issued upon
due exercise of the Stock Option, including all additional shares of Company
Common Stock or other securities which may be issuable pursuant to Section 7,
upon issuance pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of the Company.
d. NO CONFLICTS. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act of 1933, as amended (the "Securities Act"), (i) no filing with,
and no permit, authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this Agreement by
the Company and the consummation by the Company of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the transactions
con-
5
<PAGE> 6
templated hereby or compliance by the Company with any of the provisions hereof
shall (A) conflict with or result in any breach of any applicable
organizational documents applicable to the Company or any of its subsidiaries,
(B) result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, loan agreement, pledge, bond,
mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the Company or
any subsidiary is a party or by which the Company or any subsidiary or any of
their respective properties or assets may be bound, or (C) violate any order,
writ, injunction, decree, judgment, statute, rule or regulation applicable to
the Company or any of its subsidiaries or any of its properties or assets.
e. RELIANCE BY PARENT. The Company understands and acknowledges that
Parent is entering into, and causing Sub to enter into, the Merger Agreement in
reliance upon the Company's execution and delivery of this Agreement.
f. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
g. LISTING ON NEW YORK STOCK EXCHANGE. Upon the exercise of the Stock
Option, the Company shall use its best efforts to promptly list on the New York
Stock Exchange, Inc. (the "NYSE"), subject to official notice of issuance, the
shares of Company Common Stock to be issued pursuant to this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub hereby
represent and warrant to the Company as follows:
a. ORGANIZATION. Each of Parent and Sub is a corporation duly organized,
validly existing and in good
6
<PAGE> 7
standing under the laws of the State of Delaware, has all requisite corporate
power or other power and authority to execute and deliver this Agreement and
perform their respective obligations hereunder. The execution and delivery by
Parent and Sub of this Agreement and the performance by Parent and Sub of their
respective obligations hereunder have been duly and validly authorized by the
Board of Directors of each of Parent and Sub and no other corporate proceedings
on the part of Parent or Sub are necessary to authorize the execution, delivery
or performance of this Agreement or the consummation of the transactions
contemplated hereby.
b. CORPORATE AUTHORIZATION. This Agreement has been duly and validly
executed and delivered by Parent and Sub and constitutes a valid and binding
agreement of each of Parent and Sub enforceable against each of Parent and Sub
in accordance with its terms, except that (i) such enforcement may be subject
to applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
c. NO CONFLICTS. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by Parent or Sub and the consummation by Parent or
Sub of the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Parent of Sub, the consummation by Parent or Sub
of the transactions contemplated hereby or compliance by Parent or Sub with any
of the provisions hereof shall (A) conflict with or result in any breach of any
applicable organizational documents applicable to Parent or Sub, (B) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, license,
7
<PAGE> 8
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which Parent or Sub is a party or by which Parent
or Sub or any of their respective properties or assets may be bound, or (C)
violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to Parent or Sub or any of their respective properties or
assets.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in Company Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the type and
number of shares of Company Common Stock subject to the Stock Option and the
Purchase Price shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Company Common Stock
are issued or otherwise become outstanding as a result of any such change after
the date of this Agreement (other than pursuant to this Agreement), the number
of shares of Company Common Stock subject to the Stock Option shall be adjusted
so that, after such issuance and together with shares of Company Common Stock
previously issued pursuant to the exercise of the Stock Option (as adjusted on
account of any of the foregoing change in Company Common Stock), it equals
19.9% of the number of shares of Company Common Stock then issued and
outstanding. Nothing contained in this Section 7 shall be deemed to authorize
the Company to breach any provision of the Merger Agreement.
8. REGISTRATION RIGHTS. The Company shall, if requested by Parent at any
time and from time to time within three years of the first exercise of the
Stock Option, promptly prepare, file and keep current a registration statement
under the Securities Act in order to permit the sale or other disposition of
the shares of Company Common Stock that have been acquired by or are issuable
to Parent upon exercise of the Stock Option in accordance with the intended
method of sale or other disposition stated by Parent, including a "shelf"
registration statement under Rule 415 of the Securities Act or any successor
provision, and the Company shall use its best efforts to qualify such shares or
other securities under any applicable state securities laws. Parent shall
provide all information reasonably requested by the Company for inclusion in
any registration statement to be
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<PAGE> 9
filed hereunder. The Company will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Parent shall have the
right to demand one such registration. The Company shall bear the costs of
such registration (including, but not limited to, the Company's attorneys'
fees, printing costs and filing fees, except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Parent's counsel
related thereto). If requested by Parent, in connection with such
registration, the Company will become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities, and other
agreements customarily included in such underwriting agreements. Upon
receiving any request from the Company or assignee thereof under this Section
8, the Company agrees to send a copy thereof to Parent and to any assignee
thereof known to the Company, in each case by promptly mailing the same,
postage prepaid, to the address of record of the person entitled to receive
such copies.
9. TERMINATION. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Option Shares shall terminate
upon the earlier of (i) the consummation of the Merger and (ii) the expiration
of the Option Period.
10. MISCELLANEOUS.
a. ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations or liabilities
9
<PAGE> 10
under or by reason of this Agreement, except as expressly provided herein.
b. ASSIGNMENT. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the other party, provided that
Parent may assign, in its sole discretion, its rights and obligations hereunder
to any direct or indirect wholly owned subsidiary of Parent, but no such
assignment shall relieve Parent of its obligations hereunder if such assignee
does not perform such obligations.
c. AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
d. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with
a confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Company: Revco D.S., Inc.
1925 Enterprise Parkway
Twinsburg, Ohio 44087
Attention: Chief Executive Officer
Telephone No: (216) 425-9811
Telecopy No: (216) 487-1679
copy to: Michael K.L. Wager, Esq.
Benesch, Friedlander,
Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Telephone No: 216-363-4500
Telecopy No: 216-363-4588
10
<PAGE> 11
If to Parent Rite Aid Corporation
or Sub: 30 Hunter Lane
Camp Hill, Pennsylvania 17011
Attention: Chief Executive Officer
Telephone No: (717) 761-2633
Telecopy No: (717) 975-5905
copy to: Nancy A. Lieberman, Esq.
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone No: (212) 735-3000
Telecopy No: (212) 735-2000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
e. SEVERABILITY. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
f. SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or
in equity.
11
<PAGE> 12
g. REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
h. NO WAIVER. The failure of any party hereto to exercise
any right, power or remedy provided under this Agreement or otherwise available
in respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, shall not constitute a waiver
by such party of its right to exercise any such or other right, power or remedy
or to demand such compliance.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
j. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
k. JURISDICTION. Each party hereby irrevocably submits to
the exclusive jurisdiction of the Court of Chancery in the State of Delaware in
any action, suit or proceeding arising in connection with this Agreement, and
agrees that any such action, suit or proceeding shall be brought only in such
court (and waives any objection based on forum non conveniens or any other
objection to venue therein); provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this paragraph (l) and
shall not be deemed to be a general submission to the jurisdiction of said
Court or in the State of Delaware other than for such purposes. Each party
hereto hereby waives any right to a trial by jury in connection with any such
action, suit or proceeding.
l. DESCRIPTIVE HEADINGS. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
12
<PAGE> 13
m. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same Agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be duly executed as of the day and year first above written.
RITE AID CORPORATION
By: /s/ Martin L. Grass
----------------------------
Name: Martin L. Grass
Title: Chairman of the Board
and Chief Executive
Officer
OCEAN ACQUISITION CORPORATION
By: /s/ Martin L. Grass
----------------------------
Name: Martin L. Grass
Title: President
REVCO D.S., INC.
By: /s/ D. Dwayne Hoven
----------------------------
Name: D. Dwayne Hoven
Title: President and Chief
Executive Officer
14
<PAGE> 1
Exhibit 6
REVCO D.S., INC.
1925 ENTERPRISE PARKWAY
TWINSBURG, OHIO 44087
August 17, 1995
Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Gentlemen:
In order to allow you to evaluate a business combination (the "Proposed
Transaction") with Revco D.S., Inc. (the "Company"), the Company will deliver
to you, as promptly as practicable after your execution and delivery to the
Company of this letter agreement, certain information about its operations and
financial condition. All information about the Company or the Proposed
Transaction furnished by the Company or any of its Representatives (as
hereinafter defined) to you or any of your Representatives after the date
hereof is referred to herein as "Proprietary Information." Proprietary
Information does not include, however, information which (a) is or becomes
generally available to the public other than as a result of a disclosure by you
or any of your Representatives, (b) was available to you or any of your
Representatives on a non-confidential basis prior to its disclosure to you or
any of your Representatives by the Company or any of its Representatives or (c)
becomes available to you or any of your Representatives on a non-confidential
basis from a person (other than the Company) who is not known by you to be
bound by a confidentiality agreement with the Company or to be otherwise
prohibited from transmitting the information to you.
As used in this letter agreement, the term "Representative" means, as to
any person, such person's affiliates and its and their respective directors,
officers, employees, agents, advisors (including, without limitation, financial
advisors, counsel and accountants) and controlling persons. As used in this
letter agreement, the term "person" shall be broadly interpreted to include,
without limitation, any individual, corporation partnership, joint venture or
other entity.
Unless otherwise agreed to in writing by the Company, you agree (a) to
keep all Proprietary Information confidential, and not to disclose or reveal
any Proprietary Information to any person other than those of your
Representatives who are actively and directly participating in the evaluation
of the Company and the Proposed Transaction on your behalf and to insure that
such persons observe the terms of this letter agreement as if they were a party
hereto in your place, (b) not to disclose to any person (other than those of
your Representatives who are actively and directly participating in your
evaluation of the Company or the Proposed Transaction) any information about
the Proposed Transaction, or the terms and conditions of any other facts
relating thereto,
<PAGE> 2
Rite Aid Corporation
August 17, 1995
Page 2
including, without limitation, the fact that discussions are taking place with
respect thereto or the status thereof, or the fact that the Proprietary
Information has been made available to you or your Representatives and (c) to
return all Proprietary Information at the end of discussions concerning the
Proposed Transaction.
Notwithstanding anything to the contrary contained in this letter
agreement, in the event that you or any of your Representatives are requested
pursuant to, or required by, applicable law, regulation, legal process or
regulatory authority to disclose any Proprietary Information concerning the
Company or the Proposed Transaction, you agree that you will provide the
Company with prompt notice of such request or requirement in order to enable
the Company (i) to seek an appropriate protective order or other remedy, (ii)
to consult with you with respect to the Company's taking steps to resist or
narrow the scope of such request or legal process or (iii) to waive
compliance, in whole or in part, with the terms of this letter agreement. If,
in such event, the Company has not provided you with a protective order or
other remedy or waiver of the terms of this letter agreement in sufficient
time for you or your Representative to avoid unlawful non-disclosure of such
Proprietary Information or such other information, you or such Representative
may disclose such Proprietary Information or such other information pursuant
to such law, regulation, or in such legal process, or to such regulatory
authority, as the case may be, without liability to the Company or any of its
Representatives.
You agree that for a period of eighteen months commencing on the date
hereof, except with respect to the Proposed Transaction or as otherwise
specifically authorized in writing by the Company, neither you, nor any of
your Representatives as a principal, will propose or publicly announce or
otherwise disclose an intent to propose, or enter into or agree to enter into,
singly or with any other person or directly or indirectly, (i) any form of
business combination, acquisition or other transaction relating to the Company
or any affiliate thereof, or (ii) any form of restructuring, recapitalization
or similar transaction with respect to the Company or any such affiliate, nor
except as aforesaid during such period will you or any such Representative as
a principal (1) acquire, or offer, propose or agree to acquire, by purchase or
otherwise, any securities of the Company, any direct or indirect options or
other rights to acquire any such securities ("Company Securities"), (2) make,
or in any way participate in, any solicitation of proxies with respect to any
Company Securities (including by the execution of action by written consent),
become a participant in any election contest with respect to the Company, seek
to influence any person with respect to any Company Securities or demand a
copy of the Company's list of its stockholders or other books and records
relating to holders of Company Securities, (3) participate in or encourage the
formation of any partnership, syndicate or other group which owns or seeks or
offers to acquire beneficial ownership of any Company Securities or which
seeks to affect control of the Company or for the purpose of circumventing any
provision of this letter or (4) otherwise act, alone or in concert with others
(including by providing financing for another person), to seek or to offer to
<PAGE> 3
Rite Aid Corporation
August 17, 1995
Page 3
control or influence, in any manner, the management, Board of Directors or
policies or operations of the Company.
It is understood and agreed that, except as may be specifically set
forth hereafter in a definitive written agreement providing for the Proposed
Transaction, the Company will not be deemed to make or have made any
representation or warranty, express or implied, as to the accuracy or the
completeness of any Proprietary Information. The Company will have no
liability to you or your Representatives as a result of the use, whether or not
authorized, of any Proprietary Information by you or your Representatives.
No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver hereof, nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege hereunder. In the event that a breach of this Agreement by
you or any of your Representatives, you agree to indemnify the Company from any
costs and expenses, including reasonable expenses, it may incur in connection
with the enforcement of this letter agreement.
Further, you understand and agree that, without prejudice to any rights
or remedies otherwise available to the Company, the Company will be entitled to
equitable relief, including injunctive relief and/or specific performance, if
you or any of your Representatives breach any provision of this letter
agreement.
Your obligations under this Agreement shall terminate eighteen months
from the date of this letter agreement.
The interpretation and enforcement of this letter agreement shall be
governed by the laws of the State of Ohio, without reference to the conflict of
law principles thereof.
Any assignment of this letter agreement by either party without the
prior written consent of the other party shall be void.
This letter agreement contains the entire agreement between the Company
and you concerning the confidentiality of the Proprietary Information and the
other matters addressed herein, and no modification of this letter agreement or
waiver of the terms and conditions hereof shall be binding upon the Company or
you, unless approved in writing by each of the Company and you. This letter
agreement shall be binding upon and shall inure to the benefit of each party
hereto.
<PAGE> 4
Rite Aid Corporation
August 17, 1995
Page 4
Please confirm your agreement with the foregoing by executing and
returning to the undersigned the duplicate copy of this letter agreement
enclosed herewith.
Very truly yours,
REVCO D.S., INC.
By: /s/ D. Dwayne Hoven
----------------------------
D. Dwayne Hoven
President and Chief Executive Officer
ACCEPTED, ACKNOWLEDGED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN
RITE AID CORPORATION
By: /s/ Franklin C Brown
------------------------------
Franklin C. Brown
Executive Vice President
<PAGE> 1
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
November 29, 1995
Board of Directors
Revco D.S., Inc.
1925 Enterprise Parkway
Twinsburg, OH 44087
Gentlemen and Madame:
We understand that Revco D.S., Inc., a Delaware Corporation, (the "Company"),
Rite Aid Corporation, a Delaware Corporation, (the "Buyer") and Ocean
Acquisition Corp., a Delaware Corporation and a wholly owned subsidiary of Buyer
("Acquisition Sub"), have entered into an Agreement and Plan of Merger, dated as
of November 29, 1995 (the "Merger Agreement"), which provides, among other
things, for (I) the commencement by Acquisition Sub of a cash tender offer (the
"Offer") for not less than 50.1% (the "Minimum Condition") of the issued and
outstanding shares of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") for $27.50 per share net to the seller in cash (in
the aggregate, the "Offer Consideration"), and (II) upon satisfaction of the
Minimum Condition pursuant to the Offer, the subsequent merger (the "Merger") of
Acquisition Sub with and into the Company. Pursuant to the Merger, the Company
will become a wholly owned subsidiary of the Buyer and each share of Company
Common Stock issued and outstanding immediately prior to the closing of the
Merger, other than shares held in treasury or held by Buyer or any subsidiary of
Buyer or as to which dissenters' rights have been perfected, shall be converted
into either (i) a number of shares of common stock, par value $1.00 per share,
of the Buyer (the "Buyer Common Stock") to be determined based upon a formula
set forth in the Merger Agreement, subject to a collar which provides that the
exchange ratio shall not be greater than 1.12500 nor less than 0.91666 shares of
Buyer Common Stock per share of Company Common Stock (the "Exchange Ratio"), or
(ii) in the event that the stockholders of Buyer do not approve the issuance of
Buyer Common Stock, a combination of Buyer Common Stock and cash based upon a
formula set forth in the Merger Agreement, whereby the number of shares of Buyer
Common Stock to be issued in the Merger will not exceed 19.9% of the Buyer
Common Stock outstanding immediately prior to the Merger (the shares of Buyer
Common Stock and/or cash to be received in the Merger being, in the aggregate,
the "Merger Consideration" and together with the Offer Consideration, the
"Consideration"). We also understand that Parent and a holder of Company Common
Stock have entered into a Stockholder Agreement, dated as of November 29, 1995
(the "Stockholder Agreement"), pursuant to which, among other things, such
holder has agreed to vote its shares in favor of the Merger. We further
understand that the Company and the Buyer have entered into a Stock Option
Agreement pursuant to which the Company has granted Buyer the right to purchase,
in certain circumstances, a number of shares of Company Common Stock equal to
19.9% of the shares of Company Common Stock outstanding at the time of exercise
of such purchase right. The terms and conditions of the Offer and the Merger are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received by
the holders of shares of Company Common Stock pursuant to the Offer and the
Merger, taken together, is fair from a financial point of view to such holders.
<PAGE> 2
MORGAN STANLEY
For purposes of the opinion set forth herein, we have:
<TABLE>
<S> <C>
(i) analyzed certain publicly available financial statements and other information
of the Company and the Buyer, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company and the Buyer prepared by the managements
of the Company and the Buyer, respectively;
(iii) reviewed certain financial projections for the Company and the Buyer, including
estimates of certain potential benefits of the proposed business combination,
prepared by the managements of the Company and the Buyer, respectively;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company and the Buyer with senior executives of the Company
and the Buyer, respectively;
(v) reviewed the reported prices and trading activity for the Company Common Stock
and the Buyer Common Stock;
(vi) compared the financial performance of the Company and the Buyer and the prices
and trading activity of the Company Common Stock and the Buyer Common Stock
with that of certain other comparable publicly-traded companies and their
securities;
(vii) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
(viii) participated in discussions among representatives of the Company and Parent and
their legal advisors;
(ix) reviewed the Merger Agreement, Stock Option Agreement and the Stockholder
Agreement; and
(x) performed such other analyses as we have deemed appropriate.
</TABLE>
We have assumed and relied without independent verification upon the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including the estimates of
the Buyer and the Company of certain potential benefits of the proposed business
combination, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company and the Buyer, respectively. We have not
made any independent valuation or appraisal of the assets or liabilities of the
Company or the Buyer, nor have we been furnished with any such appraisals. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. In
addition, for purposes of this opinion we have assumed that following completion
of the Offer the Merger will be consummated in accordance with the terms of the
Merger Agreement.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We express no opinion and make no recommendations as to whether the holders of
Company Common Stock should elect to tender their shares to the Acquisition Sub
pursuant to the Offer, nor do we express any recommendation as to how such
holders should vote at the stockholders' meeting held in connection with the
Merger.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services to the Company and have received fees
for the rendering of these services.
<PAGE> 3
MORGAN STANLEY
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company or the Buyer with the Securities and Exchange
Commission with respect to the Offer and the Merger.
Based on, and subject to, the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of shares of Company
Common Stock pursuant to the Offer and the Merger, taken together, is fair from
a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ STEPHEN R. MUNGER
Stephen R. Munger
Managing Director
<PAGE> 1
Exhibit 8
EXPLANATORY NOTE
Attached are forms of Revco's employment agreements covering all of its
executive officers. The definitive agreements are substantially identical in
form with the following exceptions:
1) Name of employee;
2) Reporting relationship and position description;
3) Base compensation; and
4) Severance compensation (which is two years for members of the
management executive committee and one year for all other
current officers).
<PAGE> 2
(Executive Committee Version)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the _____ day of
___________, 1992, by and between REVCO D.S., INC., a Delaware corporation (the
"Company"), and _____________________ ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee desires
to enter into the employ of the Company upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT; CONTRACT PERIOD.
(a) During the period specified in subparagraph 1(b), the
Company shall employ Employee, and Employee shall serve the Company,
as [insert title] , based on the terms and subject to the
conditions set forth herein.
(b) The term of Employee's employment hereunder shall
commence on ___________, 1992 (the "Effective Date") and shall
continue until terminated as provided herein (such period is hereafter
referred to as the "Term").
2. POSITION; DUTIES; RESPONSIBILITIES.
At all times during the Term, Employee shall:
(a) Hold the position and have the duties and
responsibilities of _______________________, as those duties and
responsibilities may be defined and delimited, from time to time, by
the President and Chief
1
<PAGE> 3
Executive Officer (the "President"). Employee's responsibilities will
include the following: [insert brief job description] .
(b) Adhere to the policies and directives promulgated,
from time to time, by the Board of Directors of the Company (the
"Board").
(c) Observe all Company policies applicable to executive
officers of the Company.
(d) Devote his entire business time, energy, and talent to
the business, and to the furtherance of the purposes and objectives,
of the Company, and neither directly nor indirectly act as an employee
of or render any business, commercial, or professional services to any
other person, firm or organization for compensation, without the prior
written approval of the President.
Nothing in this Agreement shall preclude Employee from devoting
reasonable periods of time to charitable and community activities or the
management of his investment assets, provided such activities do not interfere
with the performance by Employee of his duties hereunder and, provided further
that Employee shall not invest in any business (other than the Company) engaged
to a material extent in the retail drug business. Any investment in the
Company shall be made in accordance with the Company's Insider Trading Policy.
3. SALARY AND BONUS; OTHER BENEFITS. For services actually
rendered by Employee on behalf of the Company during the Term:
(a) The Company shall pay to Employee, in equal
installments, according to the Company's current practice, a base
salary at the initial rate of $____________. This salary shall be
subject to annual review by the President and the Human Resources
Committee of the Board and may be increased to the extent, if any, the
President and the Human Resources Committee of the Board may
determine.
(b) Employee shall be eligible for participation in the
Company's Executive Incentive Compensation Program in accordance with
the provisions of that program.
2
<PAGE> 4
(c) Employee shall not be entitled to receive any base
salary during any period in which he receives disability benefits
under the Company's Long-Term Disability Income Protection Plan.
(d) Employee shall be eligible for participation in such
other benefit plans, including but not limited to the Company's
Retirement Income Plan and Trust, Pre-Retirement and Supplemental
Retirement Plans, Short-Term and Long-Term Disability Income
Protection Plans, the Profit Sharing and Savings Plan (unless
participation therein would adversely affect the tax deferred status
of account balances in such plan) and the 1992 Long-Term Incentive
Plan, as the Company's Board of Directors may adopt from time to time
for all executive officers. Such participation shall be subject to
the terms and conditions set forth in the applicable plan documents,
except that preconditions shall be waived for the Pre-Retirement Plan.
Employee shall further be entitled to take, during each one-year
period commencing with the anniversary date of his employment with the
Company, vacation time equal to the greater of (i) four weeks, or (ii)
the amount of vacation time to which Employee is entitled under the
Company's vacation policy.
(e) Employee shall be entitled to have a Company car and a
Company-paid annual physical examination for such time as those
benefits are provided to all senior officers.
4. MEDICAL AND LIFE INSURANCE BENEFITS. Employee shall be
entitled to participate in the Company's Group Term Life Insurance Plan and
Comprehensive Medical/Dental Plan for as long as each of these plans is
maintained by the Company for its executive officers generally. The Group Term
Life Insurance Plan will provide group term life insurance for Employee in an
amount equal to 1.5 times the Employee's base compensation.
5. TERMINATION.
(a) Employee's employment hereunder will terminate without
further notice upon the death of Employee.
(b) The Company may terminate Employee's employment
hereunder effective immediately upon giving notice of such termination
if Employee commits an act of gross misconduct. For these purposes,
"gross misconduct" shall include, but is not limited to, any of the
following:
3
<PAGE> 5
(i) Commission of an act of fraud, embezzlement,
theft, or other criminal act constituting a felony, or
(ii) breach or default by Employee of any of his
agreements or obligations under any provision of this
Agreement, including, without limitation, his agreements and
obligations under Subparagraphs 2(a) through 2(d) of this
Agreement, which is not cured in all substantial respects
within ten (10) days after the Company gives notice thereof to
Employee.
(c) Upon disability, if Employee is prevented from
performing his duties hereunder by reason of physical or mental
incapacity for a period of one hundred eighty (180) days.
(d) The Company may terminate Employee's employment
hereunder without cause at any time upon thirty (30) days written
notice.
(e) Employee may terminate his employment hereunder
effective immediately upon giving notice of such termination for "good
reason", as defined in subsection 5(g) below.
(f) Employee may terminate his employment hereunder
without cause or good reason at any time upon thirty (30) days written
notice.
(g) For purposes of this Agreement, "good reason" means
the occurrence of a material reduction in the aggregate direct
remuneration or any reduction in the position of Employee, any
material reduction in responsibilities or duties provided for in
accordance with Employee's employment arrangement with the Company,
any material adverse change or reduction in the aggregate employee
benefits, perquisites or fringe benefits contemplated under such
arrangement (provided that any material reduction in such aggregate
employee benefits, perquisites or fringe benefits that is required by
law or applies generally to all employees of the Company shall not
constitute "good reason" as defined hereunder), a change in Employee's
reporting relationship, or any relocation of the Employee's principal
place of work with the Company to a place more than fifty (50) miles
from the geographical center of Cleveland, Ohio. As used in this
Section 5(g), a "material reduction" in the aggregate direct
remuneration or in the aggregate employee benefits, perquisites or
fringe
4
<PAGE> 6
benefits shall be deemed to result from any reduction or any
series of reductions which, in the aggregate, exceeds five
percent (5%) of such aggregate direct remuneration or such aggregate
employee benefits, perquisites or fringe benefits, as the case may be.
Employee shall give written notice to the Company on or before the
date of termination of employment for good reason specifying in detail
the reasons for such termination. If the Company does not object to
such notice by notifying Employee in writing within thirty (30) days,
it shall be deemed accepted.
6. SEVERANCE COMPENSATION.
(a) If, at any time during the Term, Employee's employment
is terminated by the Company other than for gross misconduct or by
Employee for good reason, then, through the expiration of two years
after the effective date of termination, the Company:
(i) shall continue to pay Employee's base salary in
the amounts and at the times provided in Subparagraph 3(a)
hereof; and
(ii) shall continue in effect the medical/dental
coverage, long and short-term disability protection, and any
life insurance protection, including the Pre-Retirement Death
benefits, being provided to Employee immediately prior to his
termination.
(b) If Employee's employment hereunder is terminated other
than as specified in subparagraph 6(a), then, except as otherwise
specifically provided in this Agreement or in a Company plan, no
further compensation or benefits will be provided to Employee by the
Company under this Agreement following the date of such termination.
(c) The Company shall reimburse Employee's reasonable
attorneys fees incurred by Employee to enforce the provisions of this
Employment Agreement.
7. CONFIDENTIAL INFORMATION. Employee agrees that he will not,
during the Term or at any time thereafter, either directly or indirectly,
disclose or make known to any other person, firm, or corporation any
confidential information, trade secret or proprietary information of the
Company that Employee may acquire in the performance of Employee's duties
hereunder. Upon the termination of Employee's employment with the Company,
Employee agrees to deliver forthwith
5
<PAGE> 7
to the Company any and all literature, documents, correspondence, and other
materials and records furnished to or acquired by Employee during the course of
such employment.
8. NON-COMPETITION. During any period in which Employee is
receiving a base salary under this Agreement, whether during the Term or
following termination pursuant to subsection 6(a), Employee shall not act as a
proprietor, investor, director, officer, employee, substantial stockholder,
consultant, or partner in any business engaged to a material extent in the
retail drug business in direct competition with the Company in any market.
Following any termination under subsection 6(a), Employee may obtain a release
from the non-competition covenant contained in this Paragraph 8 by delivering
to the Company a written waiver of Employee's right to receive any further
compensation or benefits pursuant to subsection 6(a). If Employee violates the
non-competition covenant contained in this Paragraph 8, the Company shall be
relieved of any obligation to make payments or to provide benefits to Employee
pursuant to subsection 6(a) and Employee shall return to the Company an amount
equal to the value of any such payments or benefits provided to Employee while
he was in the violation of this non-competition covenant.
9. NOTICES. For purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company, Attention:
D. Dwayne Hoven, President and Chief Executive Officer, and Jack A. Staph,
Senior Vice President, Secretary and General Counsel, at its principal
executive office and to Employee at his principal residence, or to such other
address as either party may have furnished to the other in writing and in
accordance herewith; except that notices of change of address shall be
effective only upon receipt.
10. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of Employee, the Company, and the Company's
successors and assigns. No right, benefit or interest of Employee hereunder
shall be subject to assignment, anticipation, alienation, sale, encumbrance,
charge, pledge, hypothecation, or to execution, attachment, levy, or similar
process; except that Employee may assign any right, benefit, or interest
hereunder if such assignment is permitted under the terms of any plan or policy
of insurance or annuity contract governing such right, benefit, or interest.
6
<PAGE> 8
11. INVALID PROVISIONS. Any provisions of this Agreement that is
prohibited or unenforceable shall be ineffective to the extent, but only to the
extent, of such prohibition or unenforceability without invalidating the
remaining portions hereof and such remaining portions of this Agreement shall
continue to be in full force and effect. In the event that any provision of
this Agreement shall be determined to be invalid or unenforceable, the parties
will negotiate in good faith to replace such provision with another provision
that will be valid or enforceable and that is as close as practicable to the
provisions held invalid or unenforceable.
12. ENTIRE AGREEMENT, MODIFICATION. This Agreement contains the
entire agreement between the parties with respect to the employment of Employee
by the Company and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No modification,
amendment, or waiver of any of the provisions of this Agreement shall be
effective unless in writing, specifically referring hereto, and signed by both
parties.
13. WAIVER OF BREACH. The failure at any time to enforce any of
the provisions of this Agreement or to require performance by the other party
of any of the provisions of this Agreement shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part of this Agreement or the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with the terms of this
Agreement.
14. GOVERNING LAW. This Agreement has been made in, and shall be
governed and construed in accordance with the laws of, the State of Ohio.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement on the day and year first above written.
REVCO D.S., INC.
By: ____________________________
D. Dwayne Hoven
President and
Chief Executive Officer
7
<PAGE> 9
EMPLOYEE
___________________________________
8
<PAGE> 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the _____ day of
___________, 1995, by and between REVCO D.S., INC., a Delaware corporation (the
"Company"), and _____________________ ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee desires
to enter into the employ of the Company upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT; CONTRACT PERIOD.
(a) During the period specified in subparagraph 1(b),
the Company shall employ Employee, and Employee shall serve the
Company, as [insert title] , based on the terms and subject to
the conditions set forth herein.
(b) The term of Employee's employment hereunder shall
commence on ___________, 1995 (the "Effective Date") and shall
continue until terminated as provided herein (such period is hereafter
referred to as the "Term").
2. POSITION; DUTIES; RESPONSIBILITIES.
At all times during the Term, Employee shall:
(a) Hold the position and have the duties and
responsibilities of _______________________, as those duties and
responsibilities may be
1
<PAGE> 11
defined and delimited, from time to time, by the [direct
report]. Employee's responsibilities will include the following:
[insert brief job description] .
(b) Adhere to the policies and directives
promulgated, from time to time, by the Board of Directors of the
Company (the "Board").
(c) Observe all Company policies applicable to
officers of the Company.
(d) Devote his entire business time, energy, and
talent to the business, and to the furtherance of the purposes and
objectives, of the Company, and neither directly nor indirectly act as
an employee of or render any business, commercial, or professional
services to any other person, firm or organization for compensation,
without the prior written approval of the [direct report].
Nothing in this Agreement shall preclude Employee from devoting
reasonable periods of time to charitable and community activities or the
management of his investment assets, provided such activities do not interfere
with the performance by Employee of his duties hereunder and, provided further
that Employee shall not invest in any business (other than the Company) engaged
to a material extent in the retail drug business. Any investment in the
Company shall be made in accordance with the Company's Insider Trading Policy.
3. SALARY AND BONUS; OTHER BENEFITS. For services actually
rendered by Employee on behalf of the Company during the Term:
(a) The Company shall pay to Employee, in equal
installments, according to the Company's current practice, a base
salary at the initial rate of $____________. This salary shall be
subject to annual review by the [direct report] and may be increased
to the extent, if any, the [direct report] may determine, in the
[direct report's] discretion.
(b) Employee shall be eligible for participation in
the Company's Executive Incentive Compensation Program in accordance
with the provisions of that program.
(c) Employee shall not be entitled to receive any
base salary during any period in which he receives disability benefits
under the Company's Long-Term Disability Income Protection Plan.
(d) Employee shall be eligible for participation in
such other benefit plans, including but not limited to the Company's
Retirement Income Plan and
2
<PAGE> 12
Trust, Pre-Retirement and Supplemental Retirement Plans,
Short-Term and Long-Term Disability Income Protection Plans, the
Profit Sharing and Savings Plan (unless participation therein would
adversely affect the tax deferred status of account balances in such
plan) and the 1992 Long-Term Incentive Plan, as the Company's Board
of Directors may adopt from time to time for all officers. Such
participation shall be subject to the terms and conditions set forth
in the applicable plan documents, except that preconditions shall be
waived for the Pre-Retirement Plan. Employee shall further be
entitled to take, during each one-year period commencing with the
anniversary date of his employment with the Company, vacation time
equal to the greater of (i) four weeks, or (ii) the amount of vacation
time to which Employee is entitled under the Company's vacation
policy.
(e) Employee shall be entitled to have a Company car
and a Company-paid annual physical examination for such time as those
benefits are provided to all officers.
4. MEDICAL AND LIFE INSURANCE BENEFITS. Employee shall be
entitled to participate in the Company's Group Term Life Insurance Plan and
Comprehensive Medical/Dental Plan for as long as each of these plans is
maintained by the Company for its officers generally. The Group Term Life
Insurance Plan will provide group term life insurance for Employee in an amount
equal to 1.5 times the Employee's base compensation.
5. TERMINATION.
(a) Employee's employment hereunder will terminate
without further notice upon the death of Employee.
(b) The Company may terminate Employee's employment
hereunder effective immediately upon giving notice of such termination
if Employee commits an act of gross misconduct. For these purposes,
"gross misconduct" shall include, but is not limited to, any of the
following:
(i) Commission of an act of fraud, embezzlement,
theft, or other criminal act constituting a felony, or
(ii) breach or default by Employee of any of his
agreements or obligations under any provision of this
Agreement, including, without limitation, his agreements
and obligations under Subparagraphs 2(a) through 2(d) of
this Agreement, which is not cured in all substantial
respects within ten (10) days after the Company gives
notice thereof to Employee.
3
<PAGE> 13
(c) Upon disability, if Employee is prevented from
performing his duties hereunder by reason of physical or mental
incapacity for a period of one hundred eighty (180) days.
(d) The Company may terminate Employee's employment
hereunder without cause at any time upon thirty (30) days written
notice.
(e) Employee may terminate his employment hereunder
effective immediately upon giving notice of such termination for "good
reason", as defined in subsection 5(g) below.
(f) Employee may terminate his employment hereunder
without cause or good reason at any time upon thirty (30) days written
notice.
(g) For purposes of this Agreement, "good reason"
means the occurrence of a material reduction in the aggregate direct
remuneration or any reduction in the position of Employee, any
material reduction in responsibilities or duties provided for in
accordance with Employee's employment arrangement with the Company,
any material adverse change or reduction in the aggregate employee
benefits, perquisites or fringe benefits contemplated under such
arrangement (provided that any material reduction in such aggregate
employee benefits, perquisites or fringe benefits that is required by
law or applies generally to all employees of the Company shall not
constitute "good reason" as defined hereunder), or any relocation of
the Employee's principal place of work with the Company to a place
more than fifty (50) miles from the geographical center of Cleveland,
Ohio. As used in this Section 5(g), a "material reduction" in the
aggregate direct remuneration or in the aggregate employee benefits,
perquisites or fringe benefits shall be deemed to result from any
reduction or any series of reductions which, in the aggregate, exceeds
five percent (5%) of such aggregate direct remuneration or such
aggregate employee benefits, perquisites or fringe benefits, as the
case may be. Employee shall give written notice to the Company on or
before the date of termination of employment for good reason
specifying in detail the reasons for such termination. If the Company
does not object to such notice by notifying Employee in writing within
thirty (30) days, it shall be deemed accepted.
6. SEVERANCE COMPENSATION.
(a) If, at any time during the Term, Employee's
employment is terminated by the Company other than for gross
misconduct or by Employee for
4
<PAGE> 14
good reason, then, through the expiration of one year after the
effective date of termination, the Company:
(i) shall continue to pay Employee's base
salary in the amounts and at the times provided in
Subparagraph 3(a) hereof; and
(ii) shall continue in effect the medical/dental
coverage, long and short-term disability protection, and
any life insurance protection, including the Pre-Retirement
Death benefits, being provided to Employee immediately
prior to his termination.
(b) If Employee's employment hereunder is terminated
other than as specified in subparagraph 6(a), then, except as
otherwise specifically provided in this Agreement or in a Company
plan, no further compensation or benefits will be provided to Employee
by the Company under this Agreement following the date of such
termination.
(c) The Company shall reimburse Employee's reasonable
attorneys fees incurred by Employee to enforce the provisions of this
Employment Agreement.
7. CONFIDENTIAL INFORMATION. Employee agrees that he will
not, during the Term or at any time thereafter, either directly or indirectly,
disclose or make known to any other person, firm, or corporation any
confidential information, trade secret or proprietary information of the
Company that Employee may acquire in the performance of Employee's duties
hereunder. Upon the termination of Employee's employment with the Company,
Employee agrees to deliver forthwith to the Company any and all literature,
documents, correspondence, and other materials and records furnished to or
acquired by Employee during the course of such employment.
8. NON-COMPETITION. During any period in which Employee is
receiving a base salary under this Agreement, whether during the Term or
following termination pursuant to subsection 6(a), Employee shall not act as a
proprietor, investor, director, officer, employee, substantial stockholder,
consultant, or partner in any business engaged to a material extent in the
retail drug business in direct competition with the Company in any market.
Following any termination under subsection 6(a), Employee may obtain a release
from the non-competition covenant contained in this Paragraph 8 by delivering
to the Company a written waiver of Employee's right to receive any further
compensation or benefits pursuant to subsection 6(a). If Employee violates the
non-competition covenant contained in this Paragraph 8, the Company shall be
relieved of any obligation to make payments or to provide benefits to Employee
pursuant to
5
<PAGE> 15
subsection 6(a) and Employee shall return to the Company an amount equal to
the value of any such payments or benefits provided to Employee while he was in
the violation of this non-competition covenant.
9. NOTICES. For purposes of this Agreement, all
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company, Attention: D. Dwayne Hoven, President and Chief Executive Officer,
and Jack A. Staph, Senior Vice President, Secretary and General Counsel, at its
principal executive office and to Employee at his principal residence, or to
such other address as either party may have furnished to the other in writing
and in accordance herewith; except that notices of change of address shall be
effective only upon receipt.
10. ASSIGNMENT; BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of Employee, the Company, and the
Company's successors and assigns. No right, benefit or interest of Employee
hereunder shall be subject to assignment, anticipation, alienation, sale,
encumbrance, charge, pledge, hypothecation, or to execution, attachment, levy,
or similar process; except that Employee may assign any right, benefit, or
interest hereunder if such assignment is permitted under the terms of any plan
or policy of insurance or annuity contract governing such right, benefit, or
interest.
11. INVALID PROVISIONS. Any provisions of this Agreement that
is prohibited or unenforceable shall be ineffective to the extent, but only to
the extent, of such prohibition or unenforceability without invalidating the
remaining portions hereof and such remaining portions of this Agreement shall
continue to be in full force and effect. In the event that any provision of
this Agreement shall be determined to be invalid or unenforceable, the parties
will negotiate in good faith to replace such provision with another provision
that will be valid or enforceable and that is as close as practicable to the
provisions held invalid or unenforceable.
12. ENTIRE AGREEMENT, MODIFICATION. This Agreement contains
the entire agreement between the parties with respect to the employment of
Employee by the Company and supersedes all prior and contemporaneous
agreements, representations, and understandings of the parties. No
modification, amendment, or waiver of any of the provisions of this Agreement
shall be effective unless in writing, specifically referring hereto, and signed
by both parties.
13. WAIVER OF BREACH. The failure at any time to enforce any
of the provisions of this Agreement or to require performance by the other
party of any of the provisions of this Agreement shall in no way be construed
to be a waiver of such
6
<PAGE> 16
provisions or to affect either the validity of this Agreement or any part of
this Agreement or the right of either party thereafter to enforce each and
every provision of this Agreement in accordance with the terms of this
Agreement.
14. GOVERNING LAW. This Agreement has been made in, and shall
be governed and construed in accordance with the laws of, the State of Ohio.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement on the day and year first above written.
REVCO D.S., INC.
By: ____________________________
[Direct Report]
EMPLOYEE
________________________________
7
<PAGE> 1
Exhibit 9
ECONOMIC VALUE ADDED (EVA)
INCENTIVE PLAN
BONUS UNITS BONUS BANK
-------------------------------------------------------
| |
| CAPITAL |
| |
| COST OF CAPITAL |
| |
| NOPAT $ |
| |
| INDIVIDUAL OBJECTIVES |
| |
| PERFORMANCE |
| |
-------------------------------------------------------
IMPROVEMENT EVA INTERVAL
[REVCO LOGO]
<PAGE> 2
INTRODUCTION
This narrative describes the overall purpose, philosophy, content and mechanics
of the Economic Value Added (EVA) Incentive Plan. Specifics about how the plan
applies to an individual participant can be addressed by the Supervisor or the
Managing Director, Compensation and Benefits.
PURPOSE
The objectives underlying the EVA Incentive Compensation Program are to more
closely link incentive awards to value-added for shareholders and to promote a
culture of performance and ownership among the Company's managers and
professionals. This involves sharing some of the Company's business risk with
shareholders, but also provides access to the upside potential associated with
value creation. Accordingly, the program rewards long-term, enduring
improvements in shareholder value.
FOCUS AND FINANCIAL MEASUREMENT
As a financial measure, EVA applies the cost of capital against Revco's
operating profits to measure the true earnings to investors after covering both
operating and financing costs (debt and equity). Performance will be measured
and rewarded based upon the following formula:
EVA = NOPAT - (Cost of Capital x Capital Employed)
|----Capital Charge----|
NOPAT = Operating profit after taxes but net of
non-economic, non-cash charges
CAPITAL = Net assets invested in the business
COST OF
CAPITAL = The minimum return required to compensate investors
for the risk in the Company's operations (e.g.,
Fiscal 1994 = 9.3%)
Each fiscal year an EVA target will be established for the corporation and
each of the regions.
Individual objectives are the second primary component of the EVA Incentive
Plan. The objectives (no more than 7) are established at the beginning of each
fiscal year between the participant and supervisor. The objectives (financial
and/or non-financial) require above-average performance and results should be
both a challenge to achieve and significant in terms of importance to the
Company.
Page 1
<PAGE> 3
WEIGHTING
The two primary components (EVA & Individual Objectives) are blended via
weightings to deliver an appropriate potential incentive award based upon
impact on EVA, as well as Revco's organizational hierarchy. The weightings
(expressed as a percentage of each participant's target bonus opportunity)
are as follows:
<TABLE>
<CAPTION>
EVA/INDIVIDUAL
--------------
<S> <C>
President & CEO 100% / -0-
Executive Committee 75% / 25%
Officers 60% / 40%
Directors/Managers/Professionals 50% / 50%
District Managers 25% / 75%
Pharmacy Supervisors 25% / 75%
</TABLE>
BONUS UNITS
Each participant in the plan is credited with a number of bonus units equal to
their target bonus, for example:
<TABLE>
<S> <C>
Fiscal Year Base Salary Earnings = $50,000
x Target Bonus % x 20%
-------
= Bonus Units 10,000
</TABLE>
At the end of the fiscal year, THE UNITS WILL HAVE A VALUE determined by
Revco's (or region's) EVA performance.
- If the EVA target is exactly achieved, the units will have a $1.00
value.
- Particularly strong performance generates a value greater than a
$1.00.
- Underperformance results in a value less than $1.00.
Page 2
<PAGE> 4
ANNUAL EVA TARGETS AND PRIMARY COMPONENTS IN THE FORMULA
As mentioned, the basic EVA formula is:
EVA = NOPAT - (Cost of Capital x Capital Employed)
As we go forward from year to year, a simple formula has been developed to
generate the EVA target based upon the concluded year's performance. Therefore,
each year's target EVA is the sum of:
The AVERAGE of the concluded year's ACTUAL EVA and TARGET EVA
- PLUS -
An EXPECTED IMPROVEMENT amount
Based upon a retail study of 3 year EVA improvement as a percent of capital,
the following improvement amounts have been developed:
Corporate: $5.0 Million
Region 1: $3.9 Million
Region 2: $5.4 Million
The following presents illustrative targets based upon performance of a
recently concluded fiscal year:
<TABLE>
<CAPTION>
---000's Omitted---
CORPORATE REGION 1 REGION 2
--------- -------- --------
<S> <C> <C> <C>
EVA Target $10.800 $46.200 $57.000
EVA Actual 19.958 50.645 66.754
------- ------- -------
Average EVA $15.379 $48.423 $61.877
+ EVA Improvement 5.000 3.900 5.400
------- ------- -------
Target EVA $20.379 $52.323 $67.277
</TABLE>
The Corporate figures will not total from the sum of the Regions since
significant amounts of capital and expense are charged to Corporate that are
not allocated to the Regions.
Page 3
<PAGE> 5
EVA INTERVAL
Along with the EVA expected improvement amount, the EVA interval is a primary
component in the EVA formula since it is used to calculate awards.
Since the bonus units are worth $1.00 if the EVA target is achieved exactly and
the worth of the bonus units are uncapped, we need to know how much greater
than target the EVA must be to double the target bonus. Additionally, we need
to know how much less than the target EVA must be to cancel the bonus entirely.
Based upon market research, the following EVA intervals have been established:
Corporate: $14 Million
Region 1: $19 Million
Region 2: $19 Million
Therefore, using our examples shown on page 3, the potential worth of bonus
units and the associated EVA performance to generate that worth would be as
follows:
<TABLE>
<CAPTION>
For Bonus For Bonus For Bonus
Unit to be Unit to be Unit to be
Worth $0.00: Worth $1.00: Worth $2.00:
------------ ------------ ------------
EVA PERFORMANCE MUST BE:
(000'S OMITTED)
<S> <C> <C> <C>
Corporate $ 6.379 $20.379 $34.379
Region 1 $33.323 $52.323 $71.323
Region 2 $48.277 $67.277 $86.277
</TABLE>
Since the plan is uncapped, depending upon performance, the bonus unit could be
worth more than $2.00; it could also generate negative value as well (e.g.,
- -.10 cts, - $1.00, etc.).
BONUS BANK
One objective of the EVA Incentive Plan is to offer the potential of unlimited
bonuses and to ensure that "windfalls" are not rewarded. That is, only sustained
EVA growth is full compensated.
Therefore, all EVA awards flow through a "Bonus Bank" assigned to each
participant. At the end of the fiscal year (i.e., after adding the current
year's earned award to the bonus bank balance), if the ending bank balance is
less than the target award, the full balance is disbursed. As a matter of fact,
the bonus bank balance is paid in full up to 125% of the target award. If the
bank balance contains more than 125% of target, 1/3 of the EXCESS is paid and
2/3 of the excess remains in the bank to be paid in subsequent years-provided
that EVA is sustained.
Page 4
<PAGE> 6
Negative charges, for deteriorating performance, reduce the bank balance.
The bonus bank balance will never grow to more than one times your target bonus
amount., If it does, the entire balance will be paid in cash.
Finally, interest is not paid on units in the bonus bank.
The following presents three examples of the bonus bank:
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3
------ ------ ------
<S> <C> <C> <C>
Beginning Balance 0.00 0.03 0.32
Bonus Award 1.30 1.70 (0.10)
- ----------- ---- ---- ----
Ending Balance 1.30 1.73 0.22
Payout Calculation:
- -------------------
Pay balance up to 125% of target 1.25 1.25 0.22
+ 1/3 of Excess 0.02 0.16 0.00
- --------------- ---- ---- ----
Total Payout 1.27 1.41 0.22
Ending Bank Balance 0.03 0.32 0.00
</TABLE>
Page 5
<PAGE> 7
ILLUSTRATIVE AWARD
The following presents an illustrative award and assumes an overall rating of
90% based upon performance against the (no more than) 7 individual objectives
as well as the PERFORMANCE METHODS section of the performance appraisal.
<TABLE>
Specifics:
<S> <C> <C> <C>
Target Bonus %: 20% Total Award: $23,513
Target Bonus Award: $15,000 Cash Award: $20,338
Goal Weighting: 50/50 Bonus Bank: $3,175
EVA Bonus Unit Value: $1.65 Individual Rating: 90%
</TABLE>
CALCULATION:
AWARD:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
Goal Target EVA EVA -- FY Indiv. Award --
Weighting Award Bonus Unit Accomp. % $
--------- ------ ---------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
EVA 50% $7500 x $1.65 = $12,375 N/A $12,375
Individual 50% $7500 x 1.65 = $12,375 x.90 = 11,138
---- ------- ------- -------
100% $15,000 $24,750 $23,513
</TABLE>
CASH/BONUS BANK:
<TABLE>
<CAPTION>
(7) (8) (9) (10) (11)
Target Amount 1/3 of
Award @ Over $1.25 Balance in Banked 2/3
$1.25 Value of Target Cash of Excess Due Now
(2) x 1.25 (6 - 7) (8 x .3333) (8 - 9) (7 + 9)
----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
$18,750 $4,763 $1,588 $3,175 $20,338
</TABLE>
Page 6
<PAGE> 8
VESTING IN THE BONUS BANK
DEATH OR DISABILITY
- Payment of the balance in the bonus bank will be made after the
fiscal year is concluded
- Pro rata payout of current year's bonus award when Revco
distributes awards to all participating employees
RETIREMENT
- A retiring employee may elect to receive his/her bonus bank
balance 100% in cash, or in equal installments over a 3 year period
- Revco's Executive Committee must agree to the election
- Pro rata payout of the current year's bonus award when Revco
distributes awards to all participating employees
WORKFORCE REDUCTION/SALE OF A BUSINESS
- Employees will receive their bonus bank balances after the fiscal
year is concluded
- Pro-rata payout of the current year's bonus award when Revco
distributes awards to all participating employees
TERMINATION
- All balances are forfeited in the Bonus Bank
- Current year's bonus bank is forfeited
VOLUNTARY RESIGNATION
- If the employee quits during a fiscal year, all balances are
forfeited in the bonus bank
- If the employee completes the fiscal year prior to resignation,
he/she will receive the full bonus award earned during that year
- The remaining bank balance is forfeited
Page 7
<PAGE> 9
SUMMARY
- Each year's EVA PERFORMANCE is determined by:
NOPAT - (Cost of Capital x Capital Employed)
- Each year's EVA TARGET is the sum of the:
Average of the prior year's ACTUAL and TARGET EVA
- Plus -
An expected IMPROVEMENT amount
- COST OF CAPITAL is the minimum return required to compensate
investors for the risk in investing in the Company's operations
- The EVA INTERVAL indicates:
- How much greater than target the EVA must be to double the
target bonus
- How much less than target the EVA must be to cancel the
bonus entirely
- The value of the BONUS UNITS depends upon EVA achievement
- INDIVIDUAL OBJECTIVES are an important component of the plan and
weighted with EVA performance
- All awards flow through the BONUS BANK
- The bank is paid in full up to 125% of the target award
- 1/3 of the excess is paid in cash/ 2/3 deferred
- NO CAP
- NEGATIVE bonuses can be generated
Page 8
<PAGE> 1
Exhibit 10
REVCO D.S., INC.
SUPPLEMENTAL RETIREMENT
AND SURVIVOR BENEFIT PLAN
Revco D.S., Inc. hereby establishes, effective as of December 1,
1986, this supplemental retirement and survivor benefit plan for the purpose of
supplementing the retirement income and survivor benefits of certain key
employees who enter into agreements with Revco D.S., Inc. in accordance with
the terms hereof.
ARTICLE I
---------
DEFINITIONS
-----------
For the purposes hereof, the following words and phrases shall have the
meanings indicated:
1. "Accrued Benefit Percentage" shall have the meaning given to that
term in Section 4 of Article V.
2. An "Agreement" shall mean an agreement entered into between the
Company and a Participant under the terms of the Plan.
3. A Participant's "Basic Pension Plan Benefit" shall mean the
monthly benefit that would be payable to a Participant under the Pension Plan
if the form of payment of such benefit were a straight Life Annuity under the
Pension Plan commencing as of the earlier of (a) the date on which the first
benefit payment is made to the Participant under the Pension Plan and (b) the
Participant's Qualifying Date. A Participant's Basic Pension Plan Benefit
will be as determined in the immediately preceding sentence whether or not
the Participant's benefits under the Pension Plan are actually paid as a
straight Life Annuity and whether or not the benefit is actually paid to the
Participant.
4. "Basic Retirement Benefit" shall have the meaning given to that
term in Section 3 of Article II.
5. "Basic Survivor Benefit" shall have the meaning given to that term
in Section 2 of Article III.
6. A "Child" of a Participant shall mean a natural or adopted child
of the Participant, and the "Children" of a Participant shall mean the natural
or
<PAGE> 2
adopted children of the Participant, except that a Par-
ticipant may, by written notice delivered to the Company,
specify that any one or more of his natural or adopted
children shall not be eligible to receive benefits here-
under solely by virtue of their status as his children and
any child so specified by the Participant shall not be
treated as a "Child" of the Participant for purposes of the
Plan.
7. The "Committee" shall mean the Compen-
sation Committee of the Board of Directors of the Company.
8. The "Company" shall mean Revco D.S.,
Inc., a Michigan corporation, its corporate successors and
the surviving corporation resulting from any merger of Revco
D.S., Inc. with any other corporation or corporations.
9. "Competition" shall mean any action by a
Participant, directly or indirectly, pursuant to which a
Participant:
(a) takes a management position with a business
that, during the one-year period immediately
preceding the date of termination of the
Participant's employment with the Company,
engaged to a material extent in the retail
drug business in direct competition with the
Company in any market; or
(b) becomes a principal of, acquires an interest
of 10% or more in, or assumes control of, a
retail drug business that engages in direct
competition with the Company in any market.
10. A "DCP Agreement" shall mean an agree-
ment entered into between the Company and an employee of
the Company under the terms of the Restated Deferred Com-
pensation Plan.
11. A "DCP Participant" shall mean an indi-
vidual who, as of December 1, 1986, was a party to a DCP
Agreement with the Company and who is designated by the Com-
mittee, in its December 1, 1986 resolution approving the
form of the Plan, as an individual to whom participation in
the Plan will be offered.
12. "Employee Benefits" shall mean all
benefit plans of the Company in which Participants gen-
erally participate and with respect to which a particular
Participant is participating, including, without limitation,
-2-
<PAGE> 3
the Pension Plan and any profit-sharing, stock option, stock
purchase, stock appreciation, executive restricted stock,
performance unit, group insurance, disability, disability
insurance, deferred compensation, and other employee benefit
plan, program, or arrangement, and any successor or other
benefit plans, programs, or arrangements that may hereafter
be adopted by the Company.
13. A Participant's "Final Salary" shall
mean one-twelfth of the highest aggregate salary received
by the Participant from the Company (adjusted to add back
any amounts that would have been received as salary but for
any voluntary deferral by the Participant in connection with
any voluntary salary reduction arrangements) during any one
of the five complete calendar years immediately preceding
the Participant's termination of employment.
14. "Good Reason" in connection with a Par-
ticipant's voluntary termination of his employment with the
Company shall mean the occurrence of any of the following:
(a) any reduction in aggregate direct remunera-
tion, position, responsibilities, or duties
provided for in accordance with the Partici-
pant's employment arrangement, or any mate-
rial reduction in the aggregate of Employee
Benefits, perquisites, or fringe benefits
provided to the Participant pursuant to his
employment arrangement if such reduction or
material reduction occurs within the six
month period immediately preceding the date
of the voluntary termination;
(b) any good faith determination by the Partici-
pant that as the result of any change in con-
trol of the Company, he is unable to carry
out the responsibilities, duties, authori-
ties, powers, or functions attached to his
position;
(c) imposition by the Company of any requirement
that the Participant's principal place of
work be relocated, following a change in con-
trol of the Company, to a place more than 25
miles from his principal place of work im-
mediately before the change in control, or
that the Participant travel in connection
with his employment to a substantially great-
er degree than was customary for him prior
to the change in control; or
-3-
<PAGE> 4
(d) any liquidation, dissolution, consolidation,
or merger of the Company, or transfer of all
or a significant portion of its assets, un-
less a successor or successors (by merger,
consolidation, or otherwise) to which all,
or a significant portion, of the Company's
assets have been transferred shall have
assumed all of the duties and obligations
of the Company pursuant to the Plan.
15. "Maximum Annual Benefit Limitations"
shall mean those benefit limitations provided for in the
Pension Plan at the date of a Participant's retirement that
conform the Pension Plan to the maximum benefit limitations
of Section 415 of the Internal Revenue Code of 1986, as it
may from time to time be amended.
16. "Misconduct" shall mean any of the fol-
lowing:
(a) commission of a crime involving moral turpi-
tude;
(b) commission of an act of fraud, embezzlement,
or theft constituting a felony and resulting
in substantial personal gain to the Partici-
pant at the expense of, and resulting in
material harm to, the Company; or
(c) wrongful disclosure of any secret process or
trade secret or other confidential informa-
tion belonging to the Company.
17. "Other Benefits" shall have the meaning
given to that term in Section 3 of Article II.
18. "Other Survivor Benefits" shall have the
meaning given to that term in Section 2 of Article III.
19. A "Participant" shall mean an officer
or other person employed by the Company who enters into an
Agreement with the Company under the Plan.
20. The "Pension Plan" shall mean the Revco
D.S., Inc. Retirement Income Plan and Trust as in effect on
the date of a Participant's retirement, death, or other ter-
mination of employment.
21. "Percentage of Vesting" shall have the
meaning given to that term in Section 1 and Section 2 of
Article V.
-4-
<PAGE> 5
22. "Permanent Disability" shall mean phys-
ical or mental disability of a Participant to the extent
that, in the opinion of the Committee, he is permanently
unable to discharge his normal work responsibility with the
Company, or to engage in an occupation or position at a
substantially equivalent management level with another or-
ganization or company. In arriving at its determination
the Committee may rely upon advice of competent medical
authority satisfactory to it and may look to the definition
of "permanent" or "long term" disability in any disability
plan or disability insurance provided by the Company.
23. The "Plan" shall mean the supplemental
retirement and survivor benefit plan set forth herein, to-
gether with all amendments hereto, which Plan shall be
called the "Revco D.S., Inc. Supplemental Retirement and
Survivor Benefit Plan. "
24. The "Pre-Retirement Death Benefit Plan"
shall mean the Revco D.S., Inc. Pre-Retirement Death Bene-
fit Plan established by the Company concurrently with the
establishment of the Plan.
25. "Present Value of Plan Benefits" shall
have the meaning given to that term in Article VI.
26. "Present Value of the DCP Payments"
shall have the meaning given to that term in Article VI.
27. A Participant's "Qualifying Date" shall
be the date defined in Section 2 of Article II.
28. "Reduced Early Retirement Benefit"
shall have the meaning given to that term in Section 4 of
Article II.
29. "Reduced Early Retirement Survivor Bene-
fit" shall have the meaning given to that term in Section 3
of Article III.
30. The "Restated Deferred Compensation
Plan" shall mean the Revco D.S., Inc. Restated Deferred
Compensation Plan initially adopted March 29, 1976, as
amended.
31. A Participant's "Social Security Bene-
fit" shall be the amount of the monthly benefit designated
as such as of his Eligibility Date for purposes of the Pen-
sion Plan pursuant to Section 2 thereof.
-5-
<PAGE> 6
32. "Voluntary Resignation" shall mean a
Participant's voluntary termination of his employment with
the Company without Good Reason.
Masculine pronouns shall include the feminine
and feminine pronouns shall include the masculine as appro-
priate.
ARTICLE II
SUPPLEMENTAL RETIREMENT BENEFIT
1. ELIGIBILITY. A Participant shall be eli-
gible for a supplemental retirement benefit, either cur-
rently or prospectively, from the time he signs an Agreement
through the date of his death until and unless he forfeits
his eligibility as provided in Section 5 of Article V by his
Voluntary Resignation before attaining age 60 or by engaging
in Competition or Misconduct.
2. QUALIFICATION. An eligible Participant
shall qualify for current payment of a supplemental retire-
ment benefit on the first date (his "Qualifying Date"):
(a) on which he retires from the service of the
Company after attaining age 60;
(b) on which (in the case of a Participant whose
employment with the Company was terminated
due to Permanent Disability) (i) he has at-
tained age 60; (ii) he has become eligible
for current payments of a normal or early
retirement benefit under the Pension Plan;
and (iii) his disability benefits under the
Revco Short-Term or Long-Term Disability In-
come Protection Plan, as the case may be,
have ceased; or
(c) on which (in the case of a Participant whose
employment with the Company was terminated
other than by his Voluntary Resignation) he
(i) has attained age 60 and is not employed
on a full-time basis, or (ii) has attained
age 65.
3. BASIC RETIREMENT BENEFIT. The basic
monthly supplemental retirement benefit (the "Basic Retire-
ment Benefit") shall be an amount each month that, when
added to the "Other Benefits" specified in this Section 3
-6-
<PAGE> 7
for such month, equals 70% of the Participant's Final Sal-
ary. The Other Benefits are:
(a) the Participant's Basic Pension Plan Bene-
fit;
(b) the Participant's Social Security Benefit;
(c) any monthly retirement benefit payable to
the Participant under Article IV of the
Plan; and
(d) any monthly retirement benefits actually
paid to the Participant from any other plan
maintained by any employer other than the
Company but only to the extent allocable to
employer contributions.
If the sum of the Other Benefits for any month equals or ex-
ceeds 70% of the Participant's Final Salary, the Basic Re-
tirement Benefit for that month will be zero. The Company
shall pay the Basic Retirement Benefit each month, during
the period specified in Section 6 of this Article II, to
each eligible Participant:
(x) whose Qualifying Date occurs on or after he
attains age 65;
(y) whose Percentage of Vesting is 100%; and
(z) whose Accrued Benefit Percentage is 100%.
4. REDUCED EARLY RETIREMENT BENEFIT. The
monthly supplemental retirement benefit in the case of an
eligible Participant who first qualifies for such a benefit
on or after attaining age 60 but before attaining age 65
(the "Reduced Early Retirement Benefit") will be an amount
that, when added to the Other Benefits specified in Sec-
tion 3 of this Article II, equals "X%" of the Participant's
Final Salary. For these purposes, "X%" shall be 56.0% plus
0.2-1/3% times the number of full months in the period be-
ginning on the date the Participant attains age 60 and end-
ing on the Participant's Qualifying Date. If the sum of
the Other Benefits for any month equals or exceeds "X%" of
the Participant's Final Salary, the Reduced Early Retire-
ment Benefit for that month will be zero. The Company shall
pay the Reduced Early Retirement Benefit each month, during
the period specified in section 6 of this Article II, to
each eligible Participant:
-7-
<PAGE> 8
(x) whose Qualifying Date occurs on or after he
attains age 60 and before he attains age 65;
(y) whose Percentage of Vesting is 100%; and
(z) whose Accrued Benefit Percentage is 100%.
5. BENEFIT AMOUNTS WHERE PERCENTAGE OF
VESTING OR ACCRUED BENEFIT PERCENTAGE OR BOTH ARE LESS THAN
100%. If, when a Participant otherwise first qualifies for
a supplemental retirement benefit payment, his Percentage
of Vesting or his Accrued Benefit Percentage or both are
less than 100%, then the Company shall pay a monthly sup-
plemental retirement benefit to him each month as otherwise
provided in Section 3 or Section 4 of this Article II but
in a reduced amount. The reduced amount shall be deter-
mined by calculating the dollar amount of the monthly re-
tirement benefit to which the Participant would have been
entitled under Section 3 or Section 4 of this Article II
had his Percentage of Vesting and his Accrued Benefit Per-
centage both been 100% and multiplying that dollar amount
first by his Percentage of Vesting and second by his Accrued
Benefit Percentage.
6. PAYMENT OF SUPPLEMENTAL RETIREMENT BENE-
FITS. The Company shall pay the first monthly supplemental
retirement benefit payment to an eligible Participant on a
date selected by the Company that is not more than 30 days
after the Participant's Qualifying Date and shall make sub-
sequent payments on the same day of each succeeding month
thereafter throughout the life of the Participant provided
he remains eligible.
ARTICLE III
-----------
SURVIVOR BENEFIT
----------------
1. CONDITIONS TO PAYMENT. The Company shall
make survivor benefit payments to a Participant's surviving
spouse or Children as provided in this Article III upon the
death of the Participant if:
(a) he is survived by his spouse or one or more
Children under the age of 22; and
(b) on the date of his death he was eligible for
and had qualified for current payment of a
supplemental retirement benefit under Arti-
cle II.
-8-
<PAGE> 9
For these purposes, a Participant who on the date of his
death would have qualified for current payment of a supple-
mental retirement benefit but for the fact that he was em-
ployed on a full-time basis by another employer will be
treated as if he had not been so employed but instead quali-
fied for a supplemental retirement benefit with the first
payment thereof payable to him on the date of his death.
The Company shall pay the first monthly survivor benefit on
the day, selected by the Company, not more than 30 days
after the date on which the last supplemental retirement
benefit was or would have been payable to the Participant
and shall continue to pay survivor benefits each month dur-
ing the period specified in Section 5 or 6 of this Arti-
cle III, as the case may be.
2. BASIC SURVIVOR BENEFIT. The basic
monthly survivor benefit (the "Basic Survivor Benefit")
shall be an amount each month that, when added to the
"Other Survivor Benefits" specified in this Section 2,
equals 35% of the Participant's Final Salary. The Other
Survivor Benefits are:
(a) any monthly survivor benefit payable to the
Participant's spouse or Children under Ar-
ticle IV of the Plan; and
(b) any monthly survivor benefits actually paid
to the Participant's surviving spouse or
Children from any other plan maintained by
any employer other than the Company but only
to the extent allocable to employer contri-
butions.
If the sum of the Other Survivor Benefits for any month
equals or exceeds 35% of the Participant's Final Salary,
the Basic Survivor Benefit for that month will be zero.
The Company shall pay the Basic Survivor Benefit in the
case of a Participant who at his death is eligible and
qualifies for a Basic Retirement Benefit and who is sur-
vived by his spouse and/or at least one Child under the age
of 22.
3. REDUCED EARLY RETIREMENT SURVIVOR BENE-
FIT. The monthly survivor benefit in the case of a Partici-
pant whose Qualifying Date occurs on or after he attains age
60 but before he attains age 65 (the "Reduced Early Retire-
ment Survivor Benefit") shall be an amount each month that,
when added to the Other Survivor Benefits specified in Sec-
tion 2 of this Article III, equals "Y%" of the Participant's
Final Salary. For these purposes, "Y%" shall be 28.0% plus
-9-
<PAGE> 10
0.11-2/3% times the number of full months in the period be-
ginning on the date the Participant attains age 60 and end-
ing on the Participant's Qualifying Date. If the sum of
the Other Survivor Benefits for any month equals or exceeds
"Y%" of the Participant's Final Salary, the Reduced Early
Retirement Survivor Benefit for that month will be zero.
The Company shall pay the Reduced Early Retirement Survivor
Benefit in the case of a Participant who at his death is
eligible and qualifies for a Reduced Early Retirement Bene-
fit and who is survived by his spouse and/or at least one
Child under the age of 22.
4. BENEFIT AMOUNTS WHERE PERCENTAGE OF
VESTING OR ACCRUED BENEFIT PERCENTAGE OR BOTH ARE LESS THAN
100%. If survivor benefit payments would otherwise become
payable pursuant to Article III with respect to a Partici-
pant whose Percentage of Vesting or Accrued Benefit Percent-
age or both were less than 100%, then the Company shall pay
monthly survivor benefit payments in a reduced amount. The
reduced amount shall be determined by calculating the dollar
amount of the survivor benefit that would have otherwise
been payable under Article III had the Participant's Per-
centage of Vesting and his Accrued Benefit Percentage both
been 100% and multiplying that dollar amount first by his
Percentage of Vesting and second by his Accrued Benefit Per-
centage.
5. PARTICIPANT SURVIVED BY SPOUSE. If a
Participant is survived by his spouse, the Company shall
pay any monthly survivor benefit payable pursuant to Sec-
tion 1 of this Article III to her each month for her life
and, if at her death there survives at least one Child of
the Participant who has not attained age 22, to the estate
of the Participant's spouse until such time as there is no
surviving Child of the Participant under age 22.
6. PARTICIPANT SURVIVED BY CHILD UNDER AGE
22 BUT NOT SPOUSE. If a Participant is not survived by a
spouse but is survived by at least one Child of the Par-
ticipant under age 22, the Company shall pay any monthly
survivor benefit payable pursuant to Section 1 of this
Article III in equal shares each month to all of the Par-
ticipant's Children surviving at the time of each payment
until such time as there is no surviving Child of the Par-
ticipant under age 22.
7. PARTICIPANT NOT SURVIVED BY SPOUSE OR BY
CHILD UNDER AGE 22. If a Participant is not survived by a
spouse or a Child of the Participant under age 22, then,
-10-
<PAGE> 11
except as provided in Article VI with respect to DCP Par-
ticipants, the Company shall not pay any survivor benefits
under this Article III.
8. LIMIT ON BENEFIT LEVELS IN CASES OF
DISPARATE AGES. If a Participant leaves a surviving spouse
and the surviving spouse's date of birth is more than 15
years after the Participant's date of birth, then the Com-
pany may, in its sole option, reduce the amount of each
monthly survivor benefit payment (not below zero) so that,
using the mortality, interest rate, and other assumptions
then in use under the Pension Plan (or, if current actuar-
ial assumptions under the Pension Plan are unavailable,
then using such reasonably comparable current actuarial
assumptions as an independent actuary, selected by the
Company, may determine), the actuarially determined present
value of all such payments to be made under this Article III
is equal to the actuarially determined present value of all
payments that would have been payable if the spouse's date
of birth had been exactly 15 years after the Participant's
date of birth.
ARTICLE IV
----------
RETIREMENT BENEFITS IN EXCESS OF INTERNAL
REVENUE CODE QUALIFIED PENSION PLAN LIMITATIONS
-----------------------------------------------
If a Participant retires, dies, or otherwise
terminates his employment with the Company under conditions
that make such Participant, his spouse or other beneficiary
under the Pension Plan eligible for a benefit under the Pen-
sion Plan and the amount of that benefit is limited by the
Maximum Annual Benefit Limitations, the Company shall pay
to the Participant, his spouse, or other beneficiary under
the Pension Plan, as the case may be, a monthly benefit in
an amount equal to the amount by which:
(a) the amount of the benefit that the Partici-
pant, his spouse, or beneficiary under the
Pension Plan, as the case may be, would have
been entitled to receive during such month
under the Pension Plan as in effect on the
Participant's date of retirement or death
but for the Maximum Annual Benefit Limi-
tations thereunder; exceeds
(b) the amount of the benefit that the Partici-
pant, his spouse, or beneficiary under the
Pension Plan, as the case may be, is entitled
-11-
<PAGE> 12
to receive during such month under the Pen-
sion Plan as in effect on the Participant's
date of retirement or death as limited by
the Maximum Annual Benefit Limitations there-
under.
The Company shall commence payments of the excess amount,
if any, determined by the above calculation for the month
in which the participant or his surviving spouse or Child
under age 22 is first entitled to payment of a benefit under
Article II or III of the Plan (which cannot be earlier than
the date on which the participant attains age 60) or under
the pre-Retirement Death Benefit Plan. The Company shall
pay such excess amounts, if any, in the same manner and form
and continuing thereafter for the duration of the benefit
that the Participant, his spouse, or his beneficiary under
the Pension Plan, as the case may be, is entitled to re-
ceive under the Pension Plan; except that the Company may
convert the benefits payable under this provision into any
actuarially equivalent form of payment as the Company may
determine with the advice of the actuary for the Pension
Plan.
ARTICLE V
---------
PARTICIPATION; VESTING; ACCRUAL; DIVESTITURE
--------------------------------------------
1. CURRENT DCP PARTICIPANTS. Each DCP Par-
ticipant will be entitled to become a Participant in the
plan by terminating his DCP Agreement and entering into an
Agreement under the Plan. Any such termination of a DCP
Agreement will be irrevocable. A DCP Participant who does
not terminate his DCP Agreement and enter into an Agreement
under the Plan on or before May 30, 1987, will not there-
after be eligible to become a participant in the Plan. If
a DCP Participant becomes a Participant in the Plan, his
Percentage of Vesting under the Plan as of any date will be
the same as his "Percentage of Vesting" under his DCP Agree-
ment would have been on that date had the DCP Agreement con-
tinued in effect through that date.
2. NEW PARTICIPANTS. Any individual who is
not a DCP Participant shall become eligible to participate
in the Plan if (a) he performs services for the Company as
a Corporate Officer, as a Regional Vice President - Drug
Store Division, or in any other job classification desig-
nated as eligible by the Board of Directors, (b) he has at
least five years of service with the Company, and (c) he
has been specifically selected by the Board of Directors
-12-
<PAGE> 13
to become a Participant. Upon selection by the Board
of Directors and execution of an Agreement, a Partici-
pant's Percentage of Vesting will be 50%. On each of the
first five anniversaries of the date of execution of his
Agreement, if the Participant is then employed by the Com-
pany, his Percentage of Vesting will be increased by 10%.
Accordingly, if a Participant remains in the employ of the
Company for at least five years after executing an Agree-
ment his Percentage of Vesting will be 100%.
3. CONTINUED VESTING DURING DISABILITY. If
a Participant terminates his employment with the Company by
reason of Permanent Disability, he will be treated as con-
tinuing in the Company's employ, for purposes of increases
in his Percentage of Vesting, through his 65th birthday.
4. ACCRUED BENEFIT PERCENTAGE. Each Partic-
ipant (whether or not he was previously a DCP participant)
will accrue his rights to supplemental retirement and sur-
vivor benefits ratably in annual increments during the pe-
riod of his employment with the Company beginning with an
Accrued Benefit Percentage of 0% on his date of hire and
ending with an Accrued Benefit Percentage of 100% on the
earlier of (a) the 20th anniversary of his date of hire and
(b) his 60th birthday (treating the short period, if any be-
tween the anniversary of his date of hire next preceding his
60th birthday and his 60th birthday as one year for purposes
of the calculation of ratable accrual). For example, a Par-
ticipant hired at the age of 35 years and 3 months would ac-
crue benefits at the rate of 5% per year for 20 years until
his Accrued Benefit Percentage reached 100% at the age of 55
years and 3 months, while an individual hired at the age of
45 years and 9 months would accrue these benefits at the
rate of 6 2/3% per year over the 14 years and 3 months (the
last 3 months treated as a year) between his date of hire
and age 60 until his Accrued Benefit Percentage reached 100%
at age 60. If a Participant terminates his employment with
the Company by reason of Permanent Disability, he will be
treated as continuing in the employ of the Company, for pur-
poses of ratable annual increases in his Accrued Benefit
Percentage, through his 60th birthday. Except as provided
in the immediately preceding sentence, if a Participant's
employment by the Company is terminated for any reason or
for no reason before his Accrued Benefit Percentage equals
100%, then his Accrued Benefit Percentage shall not there-
after increase and any supplemental retirement benefit
payment or survivor benefit payment that would have been
payable to or with respect to the Participant had his Ac-
crued Benefit Percentage been 100% shall be paid in a re-
duced amount as provided in Section 5 of Article II or
Section 4 of Article III, as the case may be.
-13-
<PAGE> 14
5. DIVESTITURE FOR COMPETITION, MISCONDUCT,
OR VOLUNTARY TERMINATION WITHOUT GOOD REASON. The rights
of a Participant with respect to benefits under Article IV
of the Plan shall not be subject to divestiture for any
reason after the payment of such benefits has commenced.
The rights of a Participant with respect to supplemental
retirement benefits and survivor benefits under Article II
and Article III of the Plan will be forfeited, the Partici-
pant will become ineligible for such benefits, and no such
benefits will be paid to the Participant or to his spouse
or Children if the Participant:
(a) engages in Competition;
(b) is guilty of Misconduct; or
(c) terminates his employment with the Company
by his Voluntary Resignation before attain-
ing age 60.
Except as provided above in this Section 5 or in Section 1
of Article VII, the rights of a Participant with respect to
supplemental retirement benefits and survivor benefits under
the Plan shall not be subject to divestiture for any other
reason including, but not limited to, unilateral amendment,
modification of, or termination of the Plan. In the event
of divestiture pursuant to the provisions of the Plan, a
Participant shall not be required to return to the Company
any payments or benefits theretofore received by him. The
Committee shall advise the Participant in writing as to any
determination made by it pursuant to this Section 5. The
Participant shall be entitled to a full and fair hearing
before the Committee in any matters covered by this Sec-
tion 5, including the right to make an oral or written
statement to the Committee. It shall not be a condition
of divestiture pursuant to this Section 5 that the Partici-
pant's employment be terminated as an incident to a finding
of Competition or a determination of Misconduct.
ARTICLE VI
----------
MINIMUM TERM AND
MINIMUM VALUE OF BENEFITS
WITH RESPECT TO DCP PARTICIPANTS
--------------------------------
1. APPLICATION OF ARTICLE. This Article VI
shall apply only in cases where an eligible Participant who
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<PAGE> 15
was a DCP Participant qualifies under Section 2 of Article
II for a supplemental retirement benefit. In those cases,
the provisions of this Article VI shall override any con-
trary provisions in Article II or in Article III but any
benefits payable pursuant to this Article VI shall be sub-
ject to divestiture as provided in Section 5 of Article V.
Nothing in this Article VI shall be construed to decrease
either the number of monthly benefit payments or the amount
of any monthly benefit payment that would be payable by the
Company if this Article VI were not included in the Plan.
2. MINIMUM TERM OF BENEFITS. In any case
referred to in Section 1 of this Article VI, if the Partic-
ipant dies before receiving 60 monthly supplemental retire-
ment benefit payments and has not had his rights to such
benefits divested under Section 5 of Article V, then the
Company shall make monthly survivor benefit payments with
respect to the Participant at least until the Company has
made a total of 60 monthly benefit payments to or with
respect to the Participant (including both (x) the monthly
supplemental retirement benefit payments made to the Par-
ticipant and (y) the monthly survivor benefit payments made
with respect to the Participant). Each such monthly sur-
vivor benefit payment shall be paid:
(a) if the Participant's spouse survives the
Participant, then to her (or, following her
death, to her estate);
(b) if one or more of the Participant's Children
become entitled to receive at least one
monthly survivor benefit payment under Arti-
cle III (without regard to this Article VI),
then to the Participant's Children, in equal
shares among all of his Children living at
the time of the payment (or, following the
death of the last to die of his Children,
to the estate of the last to die of his
Children); or
(c) if neither clause (a) nor clause (b) above
applies, then to the estate of the Partici-
pant.
3. MINIMUM VALUE OF BENEFITS. In any case
referred to in Section 1 of this Article VI, the Present
Value of Plan Benefits and the Present Value of the DCP
Payments shall be determined actuarially as of the Partici-
pant's Qualifying Date using the mortality, interest rate,
-15-
<PAGE> 16
and other actuarial assumptions then being used for pur-
poses of the Pension Plan (or, if current actuarial as-
sumptions under the Pension Plan are unavailable, then
using such reasonably comparable current actuarial as-
sumptions as an independent actuary, selected by the Com-
pany, may determine). For these purposes, (a) the "Present
Value of Plan Benefits" will be the sum of the present
value, if any, of the monthly supplemental retirement
benefit payable to the Participant under Article II and
the present value of the monthly survivor benefit payable
to the Participant's spouse (or to her estate) under Art-
icle III and (b) the "Present Value of the DCP Payments"
will be the present value of the payments that would have
been payable under the DCP Agreement (excluding payments
made under Paragraph 9 of the Restated Deferred Compensa-
tion Plan) if the Participant had not terminated his DCP
Agreement. If the Present Value of Plan Benefits is less
than the Present Value of the DCP Payments, then the amount
of each monthly supplemental retirement benefit payment
under Article II and of each monthly survivor benefit pay-
ment to be made to the Participant's spouse (or to her
estate) under Article III (or, to the extent applicable,
under Section 2 of this Article VI) shall be increased
by a factor sufficient so that the Present Value of Plan
Benefits, adjusted by that factor, equals the Present Value
of the DCP Payments.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
1. AMENDMENT. The Board of Directors of
the Company may, in its sole discretion, terminate, sus-
pend, or amend this Plan at any time or from time to time,
in whole or in part. However, no such termination, sus-
pension, or amendment shall adversely affect (a) any rights
to benefits with respect to any Participant who has there-
tofore terminated his employment with the Company or (b) the
right of any then current Participant to receive upon ter-
mination of employment or thereafter, or of his surviving
spouse or Children or his beneficiary under the Pension Plan
to receive following his death, any amount as a supplemental
retirement benefit, survivor benefit, or benefit under Ar-
ticle IV of the Plan, as the case may be, to which such per-
son would have been entitled under this Plan prior to its
termination, suspension, or amendment, taking into account
the Participant's Final Salary calculated as if the date of
such termination, suspension, or amendment of the Plan were
the date of the termination of the Participant's employment
with the Company, but giving the Participant credit for
-16-
<PAGE> 17
purposes of his Percentage of Vesting and Accrued Benefit
Percentage through the actual date of his termination of
employment with the Company.
2. ADMINISTRATION. Revco D.S., Inc. shall
be the general administrator of this Plan. The routine ad-
ministration of this Plan shall be by the Committee which,
subject to the approval of the Board of Directors, shall
have authority to make, amend, interpret and enforce all
appropriate rules and regulations for the administration of
this Plan and decide or resolve any and all questions, in-
cluding interpretations of this Plan, as may arise in con-
nection with this Plan.
3. PLANS MUTUALLY EXCLUSIVE. If benefits
are payable to or with respect to a Participant under
Article II, Article III, or Article VI of the Plan, then
no benefits will be payable under the Pre-Retirement Death
Benefit Plan. Conversely, if benefits are payable with
respect to a Participant under the Pre-Retirement Death
Benefit Plan, then no benefits will be payable under
Article II, Article III, or Article VI of the Plan.
4. NON-ALIENATION OF RETIREMENT RIGHTS OR
BENEFITS. No Participant and no spouse or Child or other
beneficiary of a Participant shall encumber or dispose of
his right to receive any payments hereunder, which payments
or the right thereto are expressly declared to be non-
assignable and nontransferable. If a Participant, spouse,
Child, or other beneficiary without the written consent of
the Company attempts to assign, transfer, alienate or en-
cumber his right to receive any payment hereunder or per-
mits the same to be subject to alienation, garnishment,
attachment, execution, or levy of any kind, then thereafter
during the life of such Participant, spouse, Child, or
other beneficiary and also during any period in which any
Participant, spouse, Child, or other beneficiary is in-
capable in the judgment of the Company of attending to his
financial affairs, any payments which the Company is re-
quired to make hereunder may be made, in the discretion of
the Company, directly to such Participant, spouse, Child,
or other beneficiary or to any other person for the use or
benefit of such Participant, spouse, Child, or other bene-
ficiary or that of his dependents, if any. including any
person furnishing goods or services to or for his use or
benefit or the use or benefit of his dependents, if any.
Each such payment may be made without the intervention of
a guardian, the receipt of the payee shall constitute a
complete acquittance to the Company with respect thereto,
and the Company shall have no responsibility for the proper
application thereof.
-17-
<PAGE> 18
5. PLAN NOT AN EMPLOYMENT CONTRACT. Noth-
ing herein contained shall be construed as a commitment or
agreement on the part of any person employed by the Company
to continue his employment with the Company, and nothing
herein contained shall be construed as a commitment on the
part of the Company to continue the employment or the an-
nual rate of compensation of any such person for any pe-
riod, and all Participants shall remain subject to discharge
to the same extent as if the Plan had never been put into
effect.
6. INTEREST OF EMPLOYEE. The obligation of
the Company under the Plan to provide benefits to a Partic-
ipant, his spouse, or Children merely constitutes the unse-
cured promise of the Company to make payments as provided
herein, and no person shall have any interest in, or lien
or prior claim upon, any property of the Company.
7. CLAIMS OF OTHER PERSONS. The provisions
of the Plan shall in no event be construed as giving any
person, firm or corporation any legal or equitable right as
against the Company, its officers, employees, or directors,
except any such rights as are specifically provided for in
the Plan or are hereafter created in accordance with the
terms and provisions of the Plan.
8. SEVERABILITY. The invalidity or unen-
forceability of any particular provision of the Plan shall
not affect any other provision hereof, and the Plan shall
be construed in all respects as if such invalid or unen-
forceable provision were omitted herefrom.
9. GOVERNING LAW. The provisions of the
Plan shall be governed by and construed in accordance with
the laws of the State of Ohio.
Executed this 1st day of December, 1986.
REVCO D.S., INC.
By /s/ Sidney Dworkin
--------------------------------
And /s/ R. Carroll Hudson
-------------------------------
-18-
<PAGE> 19
AMENDMENT NO. 1
TO
REVCO D.S, INC.
SUPPLEMENTAL RETIREMENT
AND SURVIVOR BENEFIT PLAN
Revco D.S., Inc. (the "Company") hereby amends, effective as of July
27, 1992, the Revco D.S., Inc. Supplemental Retirement and Survivor Benefit
Plan (the "Plan") for the purpose of revising the definition of "Committee" and
modifying certain provisions of the Plan relating to benefits for the following
executive officers of the Company: D. Dwayne Hoven, Gregory K. Raven and Jack
A. Staph (each individually, an "Executive Committee Participant" and
collectively, the "Executive Committee Participants"). All capitalized terms
used but not defined in this Amendment No. 1 to the Plan shall have the
meanings ascribed to them in the Plan.
1. Article I, Section 7 of the Plan is hereby amended in its entirety
to read as follows: "7. The "Committee" shall mean the Human Resources
Committee of the Board of Directors of the Company".
2. The Plan is hereby modified, with respect to each of the
Executive Committee Participants, and for no other Participants, as follows:
a. Each Executive Committee Participant shall qualify for the
Reduced Early Retirement Benefit referred to in Article II,
Section 4 of the Plan after attaining age 55, provided that the
Executive Committee Participant has been employed by the Company
for a total of at least ten full years (the "Vesting Period").
Subject to reduction for Other Benefits, the amount of the benefit
payable to each Executive Committee Participant shall be 40% at
age 55 and shall increase ratably for later retirement (at a rate
of .2-2/3% for each full month) to 43.2% at age 56, 46.4% at age
57, 49.6% at age 58, 52.8% at age 59, and 56% at age 60 (and
continue to increase ratably thereafter, at .2-1/3% for each full
month, until reaching the maximum of 70% at age 65). The
provisions in the Plan concerning Accrued Benefit Percentage and
Percentage of Vesting shall not apply to the Executive Committee
participants for purposes of this clause (a). An illustration of
the early retirement benefits payable to each Executive Committee
Participant upon satisfaction of the Vesting Period is attached
as Exhibit A hereto.
b. Subject to the Executive Committee participant's satisfaction of
the Vesting period, the Reduced Early Retirement Survivor Benefit
referred to in Article III, Section 3 of the Plan shall be payable
to the spouse or Children, as the case may be, of any Executive
Committee participant who attains age 55. Subject to reduction for
Other Benefits, the amount of the benefit shall be 20% at age 55,
and shall increase ratably for later death (at a rate of .1-1/3%
for each full month) to 21.6% at age 56, 23.2% at age 57,
<PAGE> 20
24.8% at age 58, 26.4% at age 59, and 28% at age 60 (and continue
to increase ratably thereafter, at .1-1/6% for each full month,
until reaching the maximum of 35% at age 65). The provisions in
the Plan concerning Accrued Benefit Percentage and Percentage of
Vesting shall not apply to the Executive Committee Participants
for purposes of this clause (b). An illustration of the survivor
benefits payable to each Executive Committee Participant's
spouse or Children is attached as Exhibit B hereto.
c. The Qualifying Date for an Executive Committee Participant whose
employment with the Company was terminated other than by his
Voluntary Resignation shall be the date on which such Executive
Committee Participant has attained age 55; provided that the
Executive Committee Participant's Percentage of Vesting on the
date of termination is at least 50%. Subject to reduction for
Other Benefits and for the Executive Committee Participant's
Percentage of Vesting, as further described below, the amount of
the benefit payable to each Executive Committee Participant shall
be 40% at age 55 and shall increase ratably for later commencement
of benefit payments (at a rate of .2-2/3% for each full month) to
43.2% at age 56, 46.4% at age 57, 49.6% at age 58, 52.8% at age
59, and 56% at age 60 (and continue to increase ratably
thereafter, at .2-1/3% for each full month, until reaching the
maximum of 70% at age 65). For purposes of this clause (c), the
provisions in the Plan regarding Percentage of Vesting shall
apply; however, the Plan provisions regarding Accrued Benefit
Percentage shall NOT apply. An illustration of the termination
benefits payable to each Executive Committee Participant is
attached as Exhibits C-1, C-2 and C-3 hereto.
d. The terms "Other Benefits" and "Other Survivor Benefits" referred
to in Article II, Section 3 and Article III, Section 2,
respectively, of the Plan shall not include any monthly retirement
benefits actually paid to the Executive Committee Participant or
his surviving spouse or Children, as the case may be, from any
other plan maintained by any employer other than the Company.
e. The provisions of this Amendment shall be construed as a benefits
enhancement, and shall not provide for any duplication of benefits.
f. Each Executive Committee Participant shall execute a copy of this
Amendment. The agreements evidencing each Executive Committee
Participant's participation in the plan are hereby amended to
incorporate the provisions of this Amendment.
<PAGE> 21
g. Except as hereby amended, the plan shall remain in full force
and effect.
Executed on this 30th day of April, 1993.
REVCO D.S., INC.
By: /s/ D. Dwayne Hoven
-------------------------------
D. Dwayne Hoven
President and Chief Operating Officer
Executive Committee Participant:
- -------------------------------
<PAGE> 22
EXHIBIT A
---------
SUPPLEMENTAL RETIREMENT PLAN
ANNUAL BENEFIT COMPARISON
EARLY RETIREMENT/SEPARATION
BEGINNING AT
10 YEARS OR AGE 55, WHICHEVER IS LATER
<TABLE>
<CAPTION>
*ANNUAL RETIREMENT BENEFIT PAYMENTS
-----------------------------------
PARTICIPANT CURRENT PLAN AMENDED PLAN
- ----------- ------------ ------------
RETIRE PAYABLE PERCENT RETIRE/PAYABLE PERCENT
D. HOVEN AT AGE: AT 60 OF SALARY AT AGE: BENEFIT OF SALARY
<S> <C> <C> <C> <C> <C> <C>
- DATE 0F BIRTH: 09/05/1941 56 $129,600 (32.4%) 56 $172,800 (43.2%)
- DATE 0F HIRE: 01/04/19B8 57 160,000 (40.0%) 57 185,600 (46.4%)
- EARLIEST RETIREMENT: 58 176,000 (44.0%) 58 198,400 (49.6%)
DATE: 01/04/1998 59 192,0O0 (48.0%) 59 211,200 (52.8%)
60 224,000 (56.0%) 60 224,000 (56.0%)
----------------------------------------------------------------------
PARTICIPANT
- -----------
RETIRE PAYABLE PERCENT RETIRE/PAYABLE PERCENT
J. STAPH AT AGE: AT 60 OF SALARY AT AGE: BENEFIT OF SALARY
<S> <C> <C> <C> <C> <C> <C>
- DATE OF BIRTH: 08/21/1945 55 $120,792 (56.0%) 55 $86,280 (40.0%)
- DATE OF HIRE: 10/02/1972 56 120,792 (56.0%) 56 93,182 (43.2%)
- EARLIEST RETIREMENT 57 120,792 (56.0%) 57 100,085 (46.4%)
DATE: 08/21/2000 58 120,792 (56.0%) 58 106,987 (49.6%)
59 120,792 (56.0%) 59 113,890 (52.8%)
60 120,792 (56.0%) 60 120,792 (56.0%)
----------------------------------------------------------------------
PARTICIPANT
- -----------
RETIRE PAYABLE PERCENT RETIRE/PAYABLE PERCENT
G. RAVEN AT AGE: AT 60 OF SALARY AT AGE: BENEFIT OF SALARY
<S> <C> <C> <C> <C> <C> <C>
- DATE OF BIRTH: 09/14/1949 55 $142,800 (47.6%) 55 $120,000 (40.0%)
- DATE OF HIRE: 06/01/1987 56 151,200 (50.4%) 56 129,600 (43.2%)
- EARLIEST RETIREMENT 57 159,600 (53.2%) 57 139,200 (46.4%)
DATE: 09/14/2004 58 168,000 (56.0%) 58 148,800 (49.6%)
59 168,000 (56.0%) 59 158,400 (52.8%)
60 168,000 (56.0%) 60 168,000 (56.0%)
----------------------------------------------------------------------
<FN>
Under both plans, benefits continue to increase annually, up to 70% of salary, if the employee works until age 65.
* Based on base compensation as of April 1, 1993.
</TABLE>
NOTE: In accordance with the Plan, Other Benefits payable to the Executive
Committee Participant, together with the plan benefits, may not exceed
the Specified Plan Percentages.
<PAGE> 23
EXHIBIT B
---------
SURVIVOR BENEFITS
-----------------
The Survivor benefits payable to each Executive Committee Participant's
Spouse or Children will be fifty percent of the amounts shown on Exhibits A or
C, as applicable, under the heading "AMENDED PLAN -- Benefit".
NOTE: In accordance with the Plan, Other Benefits payable to the Executive
Committee Participant, together with the Plan benefits, may not exceed
the specified Plan percentages.
<PAGE> 24
EXHIBIT C-1
-----------
TERMINATION BENEFITS (1)
<TABLE>
<CAPTION>
PARTICIPANT CURRENT PLAN AMENDED PLAN
- ----------- ------------ ------------
Age at Percent Age at Percent
Commencement Annual of Commencement Annual of
D. HOVEN of Benefits Benefit Salary of Benefits Benefit Salary (2)
------------ ------- ------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
55 0 0 55 $ 80,000 20.0%
1 60 39,984 10.0% 60 112,000 28.0%
65 49,980 12.5% 65 140,000 35.0%
55 0 0 55 96,000 24.0%
2 60 57,577 14.4% 60 134,400 33.6%
65 71,971 18.0% 65 168,000 42.0%
55 0 0 55 112,000 28.0%
3 60 78,369 19.6% 60 156,800 39.2%
65 97,961 24.5% 65 196,000 49.0%
55 0 0 55 128,000 32.0%
4 60 102,359 25.6% 60 179,200 44.8%
65 127,949 32.0% 65 224,000 56.0%
55 0 0 55 144,000 36.0%
5 60 129,548 32.4% 60 201,600 50.4%
65 161,935 40.5% 65 252,000 63.0%
55 0 0 55 160,000 40.0% (3)
6 60 159,936 40.0% 60 224,000 56.0% (3)
65 199,920 50.0% 65 280,000 70.0% (3)
<FN>
1 Based on an assumed termination date of:
1 1/4/93 4 1/4/96
2 1/4/94 5 1/4/97
3 1/4/95 6 1/4/98
Also assumes that the Participant is not employed for benefit
commencement prior to age 65.
2 Takes into account Percentage of Vesting, but not the Accrued Benefit
Percentage.
3 Maximum benefit percentage for benefit commencement age.
</TABLE>
NOTE: In accordance with the Plan, Other Benefits payable to the Executive
Committee Participant, together with the Plan benefits, may not exceed
the Specified Plan percentages.
<PAGE> 25
EXHIBIT C-2
-----------
TERMINATION BENEFITS (1)
--------------------
<TABLE>
<CAPTION>
PARTICIPANT CURRENT PLAN AMENDED PLAN
- ----------- ------------ ------------
Age at Percent Age at Percent
Commencement Annual of Commencement Annual of
G. RAVEN of Benefits Benefit Salary of Benefits Benefit Salary (2)
------------ ------- ------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
55 0 0 55 $ 60,000 20.0%
1 60 21,000 7.0% 60 84,000 28.0%
65 26,250 8.75% 65 105,000 35.0%
55 0 0 55 72,000 24.0%
2 60 30,240 10.1% 60 100,800 33.6%
65 37,800 12.6% 65 126,000 42.0%
55 0 0 55 84,000 28.0%
3 60 41,160 13.7% 60 117,600 39.2%
65 51,450 17.2% 65 147,000 49.0%
55 0 0 55 96,000 32.0%
4 60 53,760 17.9% 60 134,400 44.8%
65 67,200 22.4% 65 168,000 56.0%
55 0 0 55 108,000 36.0%
5 60 68,040 22.7% 60 151,200 50.4%
65 85,050 28.4% 65 189,000 63.0%
55 0 0 55 120,000 40.0% (3)
6 60 84,000 28.0% 60 168,000 56.0% (3)
65 105,000 35.0% 65 210,000 70.0% (3)
<FN>
1 Based on an assumed termination date of:
1 6/1/92 4 6/1/95
2 6/1/93 5 6/1/96
3 6/1/94 6 6/1/97
Also assumes that the Participant is not employed for benefit
commencement prior to age 65.
2 Takes into account Percentage of Vesting, but not the Accrued Benefit
Percentage.
3 Maximum benefit percentage for benefit commencement age.
</TABLE>
NOTE: In accordance with the Plan, Other Benefits payable to the Executive
Committee Participant, together with the Plan benefits, may not exceed
the Specified Plan percentages.
<PAGE> 26
EXHIBIT C-3
-----------
TERMINATION BENEFITS (1)
--------------------
<TABLE>
<CAPTION>
PARTICIPANT CURRENT PLAN AMENDED PLAN
- ----------- ------------ ------------
Age at Percent Age at Percent
Commencement Annual of Commencement Annual of
J. STAPH of Benefits Benefit Salary of Benefits Benefit Salary (2)
------------ ------- ------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
55 0 0 55 $ 86,280 40.0% (3)
60 120,792 56.0% 60 120,792 56.0% (3)
65 150,990 70.0% 65 150,990 70.0% (3)
<FN>
1 Based on a termination date of 10/20/92 or later. Also assumes that the
Participant is not employed for benefit commencement prior to age 65.
2 Takes into account Percentage of Vesting, but not the Accrued Benefit
Percentage.
3 Maximum benefit percentage for benefit commencement age.
</TABLE>
NOTE: In accordance with the Plan, Other Benefits Payable to the Executive
Committee Participant, together with the Plan benefits, may not exceed the
Specified Plan percentages.
<PAGE> 1
Exhibit 11
1992 LONG-TERM INCENTIVE PLAN
OF
REVCO D.S., INC.
1. PURPOSE OF THE PLAN. This 1992 Long-Term Incentive Plan of Revco
D.S., Inc. adopted on this 27th day of July, 1992, is intended to enable
officers and key employees of the Company and its Subsidiaries to acquire or
increase their ownership of common stock of the Company. The opportunity so
provided is intended to foster in participants an incentive to put forth
maximum effort for the continued success and growth of the Company and its
Subsidiaries, to aid in retaining individuals who put forth such efforts, and
to assist in attracting the best available individuals to the Company and its
Subsidiaries in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "AWARD" means an Option, an Option granted in tandem with an
SAR, a Performance Plan Award, a Reload Option, a Restricted Stock Award,
a SAR or a Stock Bonus Award.
2.2 "AWARD AGREEMENT" means a written agreement in such form as may
be, from time to time, hereafter approved by the Committee, which shall
be duly executed by the Company and the Employee and which shall set
forth the terms and conditions of an Award under the Plan.
2.3 "BOARD" means the Board of Directors of Revco D.S., Inc.
2.4 "CHANGE IN CONTROL" means a change in control of the Company
of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act
(as in effect on the
<PAGE> 2
date the Plan is adopted by the Board), whether or not the Company is then
subject to such reporting requirement; provided, that, without limitation, a
Change in Control shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing twenty percent (20%) or more of the combined
voting power of the Company's then outstanding securities; provided,
however, that: (i) the twenty percent (20%) threshold of this clause (a)
shall be increased to fifty percent (50%) in the case of any such "person"
who, on the date this Plan is adopted by the Board, is such a "beneficial
owner" directly or indirectly, of securities of the Company representing
five percent (5%) or more of the combined voting power of the Company's
then outstanding securities; and (ii) a Change in Control shall not be
deemed to occur under this clause (a) by reason of the acquisition of
securities by the Company or an employee benefit plan (or any trust
funding such a plan) maintained by the Company, or by reason of the new
issuance of securities directly by the Company;
(b) during any period (not including any period prior to the
adoption of this Plan) of one (1) year or, if less, the period of time
elapsed from the date the Plan was adopted by the Board, there shall cease
to be a majority of the Board comprised of Continuing Directors; or
-2-
<PAGE> 3
(c) (i) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty percent (80%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or (ii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
2.5 "CODE" means the Internal Revenue Code of 1986, as in effect at the
time of reference, or any successor revenue code which may hereafter be adopted
in lieu thereof, and reference to any specific provisions of the Code shall
refer to the corresponding provisions of the Code as it may hereafter be
amended or replaced.
2.6 "COMMITTEE" means the Human Resources Committee of the Board or
any other committee appointed by the Board which is invested by the Board with
responsibility for the administration of the Plan and whose members meet the
requirements for eligibility to serve as set forth in Rule 16b-3 and in the
Plan.
2.7 "COMPANY" means Revco D.S., Inc., and, solely for purposes of
Sections 2.4 and 19 of the Plan, any other corporation in an unbroken chain of
corporations ending with Revco D.S., Inc. that owns, directly or indirectly,
stock
-3-
<PAGE> 4
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock of Revco D.S., Inc.
2.8 "COMMUNICATION" means individuals who at the beginning of any
period (not including any period prior to the adoption of this Plan) of one
(1) year or, if less, the period of time elapsed from the date the Plan was
adopted by the Board, constitute the Board, any new director(s) duly selected
as a nominee or nominees pursuant to the Stockholder's Agreement dated as of
June 1, 1992 by and between the Company and Zell/Chilmark Fund L.P., as such
agreement may be amended, restated, supplemented or otherwise modified from
time to time, and any new director(s) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved.
2.9 "EMPLOYEE STOCKHOLDER" means an Employee who, at the time an
Incentive Stock Option is granted owns, as defined in Section 424 of the Code,
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of: (a) the Company; or (b) if applicable, a Subsidiary
or a Parent.
2.10 "EMPLOYEES" means officers (including officers who are members of
the Board) and other key employees of the Company or any of its Subsidiaries.
2.11 "ERISA" means the Employee Retirement Income Security Act, as in
effect at the time of reference, or any successor law which may hereafter be
adopted
-4-
<PAGE> 5
in lieu thereof, and any reference to any specific provisions of ERISA shall
refer to the corresponding provisions of ERISA as it may hereafter be amended
or replaced.
2.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in
effect at the time of reference, or any successor law which may hereafter be
adopted in lieu thereof, and any reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Exchange Act as
it may hereafter be amended or replaced.
2.13 "EXERCISED OPTION" has the meaning ascribed to it in Section 2.24
hereof.
2.14 "FAIR MARKET VALUE" means, with respect to the Shares, the closing
price of the Shares on the New York Stock Exchange or other national securities
exchange, on the last business day prior to the date on which the value is to
be determined, as reported in the Wall Street Journal or such other source of
quotations for, or reports of trading of, the Shares as the Committee may
reasonably select from time to time; provided, however, if the Shares are not
then traded on such an exchange, but are then traded on the over-the-counter
market, Fair Market Value means the mean between the high and the low bid and
asked prices for the Shares on the over-the-counter market on the last business
day prior to the date on which the value is to be determined (or the next
preceding day on which sales occurred if there were no sales on such date);
provided further, however, if no sales have occurred in the over-the-counter
market during the three week period preceding the date on which the value is to
be determined, Fair Market Value means the average
-5-
<PAGE> 6
of the mean between the high and low bid and asked prices for the Shares on the
over-the-counter market for the three (3) month period ending on the last
business day prior to the date on which the value is to be determined; provided
further, however, if the Shares are reported in the National Market List of the
National Association of Securities Dealers, Inc. Automated Quotation System,
the closing price shall be substituted above for the mean of the high and the
low bid and asked prices.
2.15 "INCENTIVE STOCK OPTION" means an Option meeting the requirements
and containing the limitations and restrictions set forth in Section 422 of
the Code.
2.16 "NON-QUALIFIED STOCK OPTION" means an Option other than an
Incentive Option.
2.17 "OPTION" means the right to purchase the number of Shares specified
by the Committee, at a price and for a term fixed by the Committee, in
accordance with the Plan, and subject to such other limitations and
restrictions as the Plan and the Committee may impose.
2.18 "PARENT" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the employer
corporation if, at the time of the granting of the Option, each of the
corporations other than the employer corporation owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2.19 "PERFORMANCE GOALS" has the meaning ascribed to it in Section 11 of
the Plan.
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2.20 "PERFORMANCE PERIOD" has the meaning ascribed to it in Section 11
of the Plan.
2.21 "PERFORMANCE PLAN AWARD" means the right to receive Options, Reload
Options, Restricted Stock Awards, SARs, Shares, Stock Bonus Awards or units
(representing such monetary amount as designated by the Committee and payable
in cash or in Shares) pursuant to Section 11 of the Plan, which right is based
on, or subject to, in whole or in part, the achievement of certain performance
criteria specified by the Committee.
2.22 "PLAN" means the 1992 Long-Term Incentive Plan of Revco D.S., Inc.
2.23 "REGULATION T" means part 220, chapter II, title 12 of the Code of
Federal Regulations, issued by the Board of Governors of the Federal Reserve
System pursuant to the Exchange Act, as amended from time to time, or any
successor regulation which may hereafter be adopted in lieu thereof.
2.24 "RELOAD OPTION" means, with respect to an Employee who exercises an
Option or Reload Option (the "Exercised Option") with Shares, an Incentive
Stock Option or Non-Qualified Stock Option to purchase a number of Shares equal
to the number of Shares transferred to the Company upon exercise of the
Exercised Option, on terms substantially identical to those set forth in the
Award Agreement evidencing such Exercised Option, except that the option price
per Share shall equal the Fair Market Value of the Shares subject to the Reload
Option on the date the Reload Option is granted, and subject to such other
terms, limitations and restrictions as the
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Plan and the Committee may impose. All provisions in the Plan applicable to
Options shall also apply to Reload Options.
2.25 "RESTRICTED STOCK AWARD AGREEMENT" means an Award Agreement
executed in connection with a Restricted Stock Award.
2.26 "RESTRICTED STOCK AWARD" means the right to receive Shares, but
subject to forfeiture and/or other restrictions set forth in the related
Restricted Stock Award Agreement and the Plan.
2.27 "RULE 16B-3" means Rule 16b-3 of the General Rules and Regulations
of the Exchange Act as in effect at the time of reference, or any successor
rules or regulations which may hereafter be adopted in lieu thereof, and any
reference to any specific provisions of Rule 16b-3 shall refer to the
corresponding provisions of Rule 16b-3 as it may hereafter be amended or
replaced.
2.28 "SAR" means a stock appreciation right, which is a right to
receive an amount in cash, or Shares, or a combination of cash and Shares, as
determined or approved by the Committee, no greater than the excess, if any, of
(i) the Fair Market Value of a Share on the date the SAR is exercised, over
(ii) the SAR Base Price.
2.29 "SAR BASE PRICE" means the Fair Market Value of a Share on the date
an SAR was granted, or if the SAR was granted in tandem with an Option (whether
or not the Option was granted on a different date than the SAR), in the
Committee's discretion, the option price of a Share subject to the Option.
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2.30 "SHARES" means shares of the Company's $.01 par value common
stock or, if by reason of the adjustment provisions contained herein, any
rights under an Award under the Plan pertain to any other security, such
other security.
2.31 "STOCK BONUS AWARD" means the right to receive Shares as
Provided in Section 10 of the Plan.
2.32 "SUBSIDIARY" OR "SUBSIDIARIES" means any corporation or
corporations other than the employer corporation in an unbroken chain of
corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.33 "SUCCESSOR" means the legal representative of the estate of
a deceased Employee or the person or persons who shall acquire the right
to exercise or receive an Award by bequest or inheritance or by reason of
the death of the Employee.
2.34 "TERM" means the period during which a particular Award may be
exercised.
2.35 "WINDOW PERIOD" means the period beginning on the third
business day fullowing the date of release of the financial data specified
in paragraph (e)(1)(ii) of Rule 16b-3 and ending on the twelfth business
day following such date.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
issuance, vesting or exercise of Awards to be granted from time to time under
the Plan, an aggregate of 3,520,000 Shares, which Shares may be, in whole or in
part, as the Board shall from time
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to time determine, authorized but unissued Shares, or issued Shares which
shall have been reacquired by the Company. Any Shares subject to issuance upon
exercise of Options or SARs, or vesting of Performance Plan Awards, but which
are not issued because of a surrender, lapse, expiration, forfeiture or
termination of any such Option, SAR or Performance Plan Award prior to issuance
of the Shares shall once again be available for issuance in satisfaction of
Awards. Similarly, any Shares issued pursuant to a Restricted Stock Award which
are subsequently forfeited pursuant to the terms of the related Restricted
Stock Award Agreement shall once again be available for issuance in
satisfaction of Awards.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than three (3) disinterested persons as defined
in Rule 16b-3. Subject to the provisions of the Plan, and taking into account
the recommendations of the Company's management, the Committee shall have full
authority, in its discretion, to determine the Employees to whom Awards shall
be granted, the number of Shares to be covered by each of the Awards, and the
terms of any such Award; to amend or cancel Awards (subject to Section 23 of
the Plan), to accelerate the vesting of Awards; to require the cancellation or
surrender of any previously granted awards under this Plan or any other plans
of the Company as a condition to the granting of an Award, to interpret the
Plan; and to prescribe, amend, and, rescind rules and regulations relating to
the Plan, and generally to interpret and determine any and all matters
whatsoever relating to the administration of the Plan and the granting of
Awards hereunder. The Board may from time to time appoint members to the
Committee in substitution for or in addition to members previously
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<PAGE> 11
appointed and may fill vacancies, however caused, in the Committee. The
Company's Board shall select one of the Committee's members as its chairman.
The Committee shall hold its meetings at such times and places as it shall deem
advisable. A majority of its members shall constitute a quorum. Any action of
the Committee may be taken by a written instrument signed by all of the
members, and any action so taken shall be fully as effective as if it had been
taken by a vote of a majority of the members at a meeting duly called and held.
The Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable and shall appoint a Secretary who shall
keep minutes of its meetings and records of all action taken in writing without
a meeting. No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to such member's service on the
Committee. The members of the Committee shall be indemnified by the Company to
the fullest extent permitted by Delaware law, the Company's Amended and
Restated Certificate of Incorporation and the Company's Amended and Restated
By-Laws.
5. EMPLOYEES TO WHOM AWARDS MAY BE GRANTED. Awards may be granted in
each calendar year or portion thereof while the Plan is in effect to such of
the Employees as the Committee, in its discretion, shall determine. In
determining the Employees to whom Awards shall be granted and the number of
Shares to be issued or subject to purchase or issuance under such Awards, the
Committee shall take into account the recommendations of the Company's
management as to the duties of the respective Employees, their present and
potential contributions to the success of the Company and its Subsidiaries, and
such other factors as the Committee shall deem relevant in connection with
accomplishing the
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<PAGE> 12
purposes of the plan. No Award shall be granted to any member of the Committee
so long as his or her membership on the Committee continues or to any member of
the Board who is not also an officer or key employee of the Company or any
Subsidiary.
6. STOCK OPTIONS.
6.1 TYPES OF OPTIONS. Options granted under the Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options, (iii) a
combination of the foregoing or (iv) Reload Options. The Award Agreement
shall designate whether an Option is an Incentive Stock Option or a
Non-Qualified Stock Option and separate Award Agreements shall be issued
for each type of Option when a combination of an Incentive Stock Option
and a Non-Qualified Stock Option are granted on the same date to the same
Employee. Any Option which is designated as a Non-Qualified Stock Option
shall not be treated by the Company or the Employee to whom the Option
granted as an Incentive Stock Option for federal income tax purposes.
6.2 OPTION PRICE. The option price per Share of any Non-Qualified
Stock Option granted under the Plan shall be the Fair Market Value of the
Shares covered by the Option on the date the Option is granted unless the
Committee, in its sole discretion, determines to set the option price at
an amount less than or greater than the Fair Market Value of the Shares on
such date. The option price per Share of any Incentive Stock Option
granted under the Plan shall not be less than the Fair Market Value of the
Shares covered by the Option on the date the Option is granted. The
Committee, in its discretion, may provide in an Award Agreement that the
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<PAGE> 13
option price per Share of any Option granted under the plan will increase
over the term of the Option.
Notwithstanding anything herein to the contrary, the option price
per Share of any Incentive Stock Option granted to an Employee Stockholder
shall not be less than one hundred ten percent (110%) of the Fair Market
Value of the Shares covered by the Option on the date the Option is
granted.
6.3 TERM OF OPTIONS. Options granted hereunder shall be
exercisable for a Term of not more than ten (10) years from the date of
grant thereof, but shall be subject to earlier termination as hereinafter
provided. Each Award Agreement issued hereunder shall specify the Term of
the Option, which shall be determined by the Committee in accordance with
its discretionary authority hereunder. No Option in tandem with an SAR
shall be exercisable during the first six (6) months following the date of
grant of the SAR, except that this limitation shall not apply in the event
that it is permissible under Rule 16b-3 to exercise the Option prior to
the expiration of the six (6) month period.
Notwithstanding anything herein to the contrary, if an Incentive
Stock Option is granted to an Employee Stockholder, then such Incentive
Stock Option shall not be exercisable more than five (5) years from the
date of grant thereof, but shall be subject to earlier termination as
hereinafter provided.
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. No
Employee may be granted an Incentive Stock Option hereunder to the extent that
the aggregate fair market value (such fair market value being determined as of
the date of grant of the option in
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question) of the stock with respect to which incentive stock options are first
exercisable by such Employee during any calendar year (under all such plans of
the Employee's employer corporation, its Parent, if any, and its Subsidiaries,
if any) exceeds One Hundred Thousand Dollars ($100,000). For purposes of the
preceding sentence, options shall be taken into account in the order in which
they were granted. Any Option granted under the Plan which is intended to be an
Incentive Stock Option, but which exceeds the limitation set forth in this
Section 7, shall be a Non-Qualified Stock Option.
8. STOCK APPRECIATION RIGHTS.
8.1 GRANT OF SAR. The Committee, in its discretion, may grant an
Employee an SAR in tandem with an Option or may grant an Employee an SAR
on a stand alone basis. The Committee, in its discretion, may grant an
SAR in tandem with an Option either at the time the Option is granted or
at any time after the Option is granted, but no later than six (6) months
and one (1) day prior to the end of the Term of the Option, so long as
the grant of the SAR is made during the period in which grants of SARs
may be made under the Plan. The Committee, in its discretion, may grant
an SAR in tandem with an Option which is exercisable either in lieu of,
or in addition to, the exercise of the related Option.
8.2 LIMITATIONS ON EXERCISE. Each SAR granted in tandem with an
Option shall be exercisable to the extent, and only to the extent, the
related Option is exercisable and shall be for such Term as the Committee
may determine (which Term, which is not to exceed ten (10) years, may
expire prior to the Term of the related Option). Each SAR granted on a
stand alone basis shall be exercisable to
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the extent, and for such Term, as the Committee may determine. No SAR or any
related Option shall be exercisable during the first six (6) months following
the date of grant of the SAR, except that this limitation will not apply in the
event it is permissible under Rule 16b-3 to exercise the SAR prior to the
expiration of the six (6) month period. If, and to the extent, an Employee who
is subject to Section 16(b) of the Exchange Act is to receive cash in exchange
for an SAR, the SAR and any related Option are exercisable only during a Window
Period and the right of the Employee to request to be paid in cash may only be
made during a Window Period. The SARs shall be subject to such other terms and
conditions as the Committee, in its discretion, shall determine, which are
not otherwise inconsistent with the Plan. The terms and conditions may include
Committee approval of the exercise of the SAR, limitations on the time within
which and the extent to which such SAR shall be exercisable, limitations, if
any, on the amount of appreciation in value which may be recognized with regard
to such SAR, and specification of what portion, if any, of the amount payable
to the Employee upon exercise of such SAR shall be payable in cash and what
portion, if any, shall be payable in Shares. If, and to the extent, that Shares
are issued in satisfaction of amounts payable on exercise of an SAR, the
Shares shall be valued at their Fair Market Value on the date of exercise.
8.3 SARS IN TANDEM WITH INCENTIVE STOCK OPTIONS. With respect to SARs
granted in tandem with Incentive Stock Options, the following shall apply:
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(a) No SAR shall be exercisable unless the Fair Market
Value of the Shares on the date of exercise exceeds the option
price of the related Incentive Stock Option.
(b) In no event shall any amounts paid pursuant to the SAR
exceed the difference between the Fair Market Value of the Shares
on the date of exercise and the option price of the related
Incentive Stock Option.
8.4 SURRENDER OF OPTION OR SAR GRANTED IN TANDEM. If the Award
Agreement related to the grant of an SAR in tandem with an Option
provides that the SAR can only be exercised in lieu of the related
Option, then, upon exercise of such SAR, the related Option or portion
thereof with respect to which such SAR is exercised shall be deemed
surrendered and shall not thereafter be exercisable and, similarly, upon
exercise of the Option, the related SAR or portion thereof with respect
to which such Option is exercised shall be deemed surrendered and shall
not thereafter be exercisable. If the Award Agreement related to the
grant of an SAR in tandem with an Option provides that the SAR can be
exercised in addition to the related Option, then, upon exercise of such
SAR, the related Option or portion thereof with respect to which such SAR
is exercised shall not be deemed surrendered and shall continue to be
exercisable and, similarly, upon exercise of the Option, the related SAR
or portion thereof with respect to which such Option is exercised shall
not be deemed surrendered and shall continued to be exercisable.
9. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under
the Plan shall be subject to such terms and conditions as the Committee may, in
its discretion,
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determine and set forth in the related Restricted Stock Award Agreements.
Restricted Stock Awards shall be granted in accordance with, and subject to,
the provisions set forth below.
9.1 ISSUANCE OF SHARES. Each Restricted Stock Award shall be
evidenced by a Restricted Stock Award Agreement which shall set forth the
number of Shares issuable under the Restricted Stock Award. Subject to
the restrictions in Section 9.3 of the Plan, and subject further to such
other restrictions or conditions established by the Committee, in its
discretion, and set forth in the related Restricted Stock Award Agreement
(such as requiring the Employee to pay an amount equal to the aggregate
par value of the Shares to be issued thereunder), the number of Shares
granted under a Restricted Stock Award shall be issued in the recipient
Employee's name on the date of grant of such Restricted Stock Award or as
soon as reasonably practicable thereafter.
9.2 RIGHTS OF RECIPIENT EMPLOYEES. Shares received pursuant to
Restricted Stock Awards shall be duly issued or transferred to the
Employee, and a certificate or certificates for such Shares shall be
issued in the Employee's name. Subject to the restrictions in Section 9.3
of the Plan, and subject further to such other restrictions or conditions
established by the Committee, in its discretion, and set forth in the
related Restricted Stock Award Agreement, the Employee shall thereupon be
a stockholder with respect to all the Shares represented by such
certificate or certificates and shall have all the rights of a
stockholder with respect to such Shares, including the right to vote such
Shares and to receive dividends and other
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distributions paid with respect to such Shares. In aid of the
restrictions in Section 9.3 of the Plan and in the related Restricted
Stock Award Agreement, the certificate or certificates for Shares awarded
hereunder, together with a suitably executed stock power signed by such
recipient Employee, shall be held by the Company in its control for the
account of such Employee (i) until the restrictions in Section 9.3 of the
Plan and in the related Restricted Stock Award Agreement lapse pursuant
to the Plan or the Restricted Stock Award Agreement, at which time a
certificate for the appropriate number of Shares (free of all
restrictions imposed by the Plan or the Restricted Stock Award Agreement)
shall be delivered to the Employee, or (ii) until such Shares are
forfeited to the Company and cancelled as provided by the plan or the
Restricted Stock Award Agreement.
9.3 RESTRICTIONS. Except as otherwise determined by the Committee
in its sole discretion, each Share issued pursuant to a Restricted Stock
Award Agreement shall be subject, in addition to any other restrictions
set forth in the related Restricted Stock Award Agreement, to the
following restrictions until such restrictions have lapsed pursuant to
Section 9.4 of the Plan:
(a) DISPOSITION. The Shares awarded to an Employee and held by
the Company pursuant to Section 9.2 of the Plan, and the right to vote
such Shares or receive dividends on such Shares, may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed
of; provided, however, that such Shares may be transferred upon the
death of the Employee to the Employee's Successor. Any transfer or
purported transfer of such
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Shares in violation of the restrictions outlined in this Section 9.3
shall be null and void and shall result in the forfeiture of the Shares
transferred or purportedly transferred to the Company without notice and
without consideration.
(b) FORFEITURE. The Shares awarded to an Employee and held by
the Company pursuant to Section 9.2 of the Plan shall be forfeited to the
Company without notice and without consideration therefor immediately
upon the termination of the Employee's employment with the Company and
all Subsidiaries of the Company for any reason other than (i) death (if
the Committee so determines in its sole discretion), (ii) disability (if
the Committee so determines in its sole discretion), (iii) retirement (if
the Committee so determines in its sole discretion), (iv) the Employee's
attainment of age sixty-five (65) (if the Committee so determines in its
sole discretion), (v) Good Reason (as defined in the related Restricted
Stock Award Agreement) if by the Employee, or (vi) other than for Cause
(as defined in the related Restricted Stock Award Agreement) if by the
Company.
9.4 LAPSE OF RESTRICTIONS. Except as otherwise determined by the
Committee in its sole discretion, the restrictions set forth in Section 9.3 of
the Plan on Shares issued under a Restricted Stock Award shall lapse on, and
certificates for the Shares held for the account of the Employee in accordance
with Section 9.2 of the Plan hereof shall be appropriately distributed to the
Employee as soon as reasonably practical after, the earliest of:
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(a) the Employee's death, if the Committee so determines in its
sole discretion;
(b) the termination of the Employee's employment by reason of
the Employee being "disabled" as defined in Section 22(e)(3) of the Code,
if the Committee so determines in its sole discretion;
(c) the Employee's early, normal or late retirement pursuant to
the retirement plans of the Company or any of its Subsidiaries, if the
Committee so determines in its sole discretion;
(d) the Employee's attainment of age sixty-five (65), if the
Committee so determines in its sole discretion;
(e) the termination of the Employee's employment by the Employee
fur Good Reason (as defined in the related Restricted Stock Award
Agreement) or by the Company other than for Cause (as defined in the
related Restricted Stock Award Agreement); or
(f) (i) the first anniversary of the date of grant with
respect to one-fourth (1/4) of the Shares originally awarded,
(ii) the second anniversary of the date of grant with
respect to an additional one-fourth (1/4) of the Shares
originally awarded,
(iii) the third anniversary of the date of grant with
respect to an additional one-fourth (1/4) of the Shares
originally awarded, and,
(iv) the fourth anniversary of the date of grant with
respect to the balance of the Shares originally awarded.
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10. STOCK BONUS AWARDS. Stock Bonus Awards may be granted under the
Plan with respect to Shares, and shall be granted, subject to the provisions of
the Plan, upon such terms and conditions as the Committee may determine in its
discretion. The Committee, in its discretion, may require the Employees to whom
Stock Bonus Awards are granted to pay the Company an amount equal to the
aggregate par value of the Shares to be issued to such Employees. Subject to
the Employee delivering in cash or by check the amounts, if any, required to be
paid pursuant to this Section 10 or pursuant to Section 21 of the Plan
(relating to taxes), a certificate or certificates for such Shares shall be
issued in the Employee's name as soon as reasonably practicable following the
date of grant, or if such payments are required, following the date of such
payments. The Company shall deliver such certificate or certificates to the
Employee and the Employee shall thereupon be a stockholder with respect to all
Shares represented by such certificate or certificates and shall have all the
rights of a stockholder with respect to such Shares.
11. PERFORMANCE PLAN AWARDS.
(a) PERFORMANCE PLAN AWARDS. Performance Plan Awards may be
granted under the Plan in such form as the Committee may from time to
time approve. Performance Plan Awards may be granted alone, in addition
to or in tandem with other Awards under the Plan. Subject to the terms of
the Plan, including the terms of the Plan applicable to any underlying
type of Award that is the subject of a Performance plan Award (i.e., an
Option, an Option granted in tandem with an SAR, a Reload Option, a
Restricted Stock Award, an SAR or a Stock Bonus Award, as the case may
be), the Committee shall determine the number of Performance Plan
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Awards to be granted to an Employee, the terms and conditions applicable to any
particular Performance Plan Award made to an Employee and, in the case of a
Performance Plan Award of units, the monetary amount represented by each such
unit.
(b) PERFORMANCE GOALS AND PERFORMANCE PERIODS. A Performance Plan
Award shall provide that in order for an Employee to vest, in whole or in part,
in such Performance Plan Award the Company and/or the Employee must achieve
certain individual and/or aggregate performance criteria ("Performance Goals")
over a designated performance period ("Performance Period"). The Performance
Goals and Performance period shall be established by the Committee, in its sole
discretion. The Committee may also establish a schedule or schedules for any
such Performance Period setting forth the portion of the Performance Plan Award
which will be earned or forfeited based on the degree of achievement of the
performance Goals actually achieved or exceeded. In setting Performance Goals,
the Committee may use such measures as cumulative or non-cumulative return on
equity, earnings growth, revenue growth or such other individual and/or
aggregate measure or measures of performance in such manner as it deems
appropriate. During the Performance Period, the Committee, except as provided
otherwise in the Award Agreement evidencing the performance Plan Award, shall
have the authority to adjust upward or downward the Performance Goals in such
manner as it deems appropriate.
(c) PAYMENT OF UNITS. An Employee who has been granted a Performance
Plan Award of units shall be entitled to receive a payment with respect to
such units
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<PAGE> 23
in an amount equal to the number of units earned at the conclusion of
the respective Performance Period times the dollar value of each unit.
Payment in settlement of such unit shall be made in cash, in Shares, or
in any combination thereof, as the Committee in its sole discretion
shall determine, and shall be made as soon as practicable following the
conclusion of the respective Performance Period and the calculation of
the dollar value of such units.
12. CASH PAYMENTS FOR TAXES. The Committee may, in its sole
discretion, provide in an Award Agreement that the Company will make a cash
payment to the Employee covered thereby equal to the aggregate of the amount of
federal, state and local income taxes which such Employee would be required to
pay to each such taxing authority attributable to the realization of taxable
income, if any, as a result of the receipt of Shares pursuant to any Award
(other than an Incentive Stock Option) granted under the Plan. The Committee
may, in its discretion, require the Employee to make an election to be taxed
immediately under Section 83(b) of the Code as a condition to receiving such
payment. In computing the amount of such payment, it shall be assumed that
every Employee granted an Award under the Plan is subject to tax by each taxing
authority at the highest marginal tax rate in the respective taxing
jurisdiction of such Employee (provided that the highest marginal tax rate for
federal income tax purposes shall be determined under Section 1 of the Code),
taking into account the city and state in which such Employee resides, but
giving effect to the tax benefit, if any, which such Employee may enjoy to the
extent that any such tax is deductible in determining the tax liability of any
other taxing jurisdiction (disregarding the effects of Code Section 68 in
determining deductibility for federal income tax purposes).
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<PAGE> 24
Likewise, the Committee may, in its sole discretion, provide in an Award
Agreement that the Company will make a cash payment to the Employee covered
thereby equal to the amount of excise taxes (i.e., an "excise tax gross-up
payment") which such Employee would be required to pay pursuant to Section 4999
of the Code as a result of all or any part of such Employee's Award being
treated as an "excess parachute payment" within the meaning of Section 280G(b)
of the Code. In addition to the foregoing, the Committee may, in its
discretion, increase each cash payment due to an Employee hereunder, such that
each Employee who receives Shares and/or an excise tax gross-up payment
pursuant to any Award granted under this plan shall receive such Shares and/or
excise tax gross-up payment net of all income and/or excise taxes imposed on
such Employee on account of the receipt of such Shares and/or excise tax
gross-up payment.
13. DATE OF GRANT. The date of grant of an Award granted hereunder
shall be the date on which the Committee acts in granting the Award.
14. EXERCISE OF RIGHTS UNDER OPTIONS OR SARS.
14.1 NOTICE OF EXERCISE. An Employee entitled to exercise an
Option or SAR shall do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option or SAR
is being exercised and any other relevant information the Committee may
require. The notice shall be accompanied by payment in full of the
purchase price of any Shares to be purchased, which payment may be made
in cash or, with the Committee's approval (which in the case of Incentive
Stock Options must be given at the time of grant), in Shares valued at
Fair Market Value at the time of exercise or a combination thereof. No
Shares shall
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<PAGE> 25
be issued upon exercise of an Option until full payment has been made therefor.
An Employee exercising an SAR or an Option granted in tandem with an SAR may,
if the terms and conditions of the Award so provide, state in the notice of
exercise what percentage of the SAR the Employee desires to be paid in cash or
Shares, in which event the Committee may honor the request so made or satisfy
the SAR in cash or Shares or some combination of each, as the Committee may
determine in its sole discretion. All notices or requests provided for herein
shall be delivered to the Company's Director of Compensation, Senior Vice
President of Human Resources or Senior Vice President, Secretary and General
Counsel (or, in the absence of the aforementioned individuals, their respective
designees).
14.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole discretion,
may establish procedures whereby an Employee, subject to the requirements of
Rule 16b-3, Regulation T, federal income tax laws, and other federal, state and
local tax and securities laws, can exercise an Option or a Portion thereof
without making a direct payment of the option price to the Company; provided,
however, that these cashless exercise procedures shall not apply to Incentive
Stock Options which are outstanding on the date the Company establishes such
procedures unless the application of such procedures to such Options is
permitted pursuant to the Code and the regulations thereunder without affecting
the Options' qualification under Code Section 422 as Incentive Stock Options.
If the Company so elects to establish a cashless exercise program, the Company
shall determine, in its sole discretion, and from time to time, such
administrative procedures and policies as it deems
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<PAGE> 26
appropriate and such procedures and policies shall be binding on any
Employee wishing to utilize the cashless exercise program.
15. AWARD TERMS AND CONDITIONS. Each Award or each agreement setting
forth an Award shall contain such other terms and conditions not inconsistent
herewith as shall be approved by the Committee. For example, an Award Agreement
evidencing an Option may provide for the automatic grant of a Reload Option to
an Employee who exercises an Option with Shares.
16. RIGHT OF AWARD HOLDER. The holder of an Award shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase
or receipt under the Award except that (a) an Award holder's rights with
respect to a Restricted Stock Award shall be as prescribed in Section 9.2 and
(b) stockholder rights with respect to any other Award shall arise at the time
and to the extent that one or more certificates for such Shares shall be
delivered to the holder upon the due exercise or grant of the Award.
17. NONTRANSFERABILITY OF AWARDS. An Award shall not be transferable
other than: (a) by will or the laws of descent and distribution, and an Award
subject to exercise may be exercised, during the lifetime of the holder of the
Award, only by the holder or in the event of death, the holder's Successor, or
in the event of disability, the holder's personal representative, or (b)
pursuant to a qualified domestic relations order, as defined in the Code or
ERISA or the rules thereunder; provided, however, that an Incentive Stock
Option may not be transferred pursuant to a qualified domestic relations order
unless such transfer is otherwise permitted pursuant to the Code and the
regulations thereunder without affecting the Option's qualification under Code
Section 422 as an Incentive Stock Option.
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<PAGE> 27
18. ADUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations,
or exchanges of shares, separations, reorganizations or liquidations, or
similar events, or in the event of the issuance and/or exercise of rights,
options (other than options granted under any stock option plans of the
Company), warrants or convertible or exchangeable securities, to subscribe for,
purchase or acquire Shares at a price below the Fair Market Value per Share on
the date of such issuance and/or exercise, or in the event of extraordinary
cash or non-cash dividends being declared with respect to the Shares, or
similar transactions or events, the number and class of Shares available under
the Plan in the aggregate, the number and class of Shares subject to Awards
theretofore granted, applicable purchase prices and all other applicable
provisions, shall, subject to the provisions of the Plan, be equitably adjusted
by the Committee (which adjustment may, but need not, include payment to the
holder of an Option or SAR, in cash or in shares, in an amount equal to the
difference between the price at which such Option or SAR may be exercised and
the then current falr market value of the Shares subject to such Option or SAR
as equitably determined by the Committee or the Board, as the case may be). The
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Award.
19. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or any Award Agreement (other than a provision in any Award Agreement
which specifically
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<PAGE> 28
overrides this Section 19), in the case of a Change in Control of the Company,
the Board may, in its discretion, taking into account the purposes of this
Plan, determine, on a case by case basis, that each Award granted under the
Plan shall, subject to the following provisions, terminate ninety (90) days
after the occurrence of such Change in Control but, in the event of any such
termination:
(a) An Option or SAR holder shall have the right, commencing at
least five (5) days prior to such Change in Control and subject to any
other limitation on the exercise of such Option or SAR in effect on the
date of exercise, (i) to immediately exercise any Options not in tandem
with SARs in full, without regard to any vesting limitations, to the extent
they shall not have been theretofore exercised, provided, however, that no
Option not in tandem with an SAR shall terminate prior to the sixth (6th)
month anniversary of the date of grant of the respective Option and (ii) to
exercise at any time after the sixth (6th) month anniversary of the date of
the grant of the respective SAR (but subject to the restrictions of Rule
16b-3), any SARs or Options in tandem with SARs in full, without regard to
any vesting limitations, to the extent they shall not have been theretofore
exercised, provided, however, that no SAR or Option in tandem with an SAR
shall terminate prior to the end of the first Window Period following the
occurrence of such Change in Control;
(b) All restrictions on Restricted Stock Awards shall immediately
lapse and certificates for the affected Shares shall be appropriately
distributed; and
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<PAGE> 29
(c) All vesting limitations with respect to Performance Plan
Awards shall be deemed satisfied and any Option, Reload Option,
Restricted Stock Award, SAR, Share or Stock Bonus Award issuable
thereunder shall, subject to (a) and (b) above, be appropriately issued,
and any cash payment required to be made with respect to a unit shall be
appropriately made.
20. FORMS OF AWARDS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or by the stockholders of the Company
shall constitute the granting of any Award. An Award shall be granted hereunder
only by action taken by the Committee in granting an Award. Whenever the
Committee shall designate an Employee for the receipt of an Award, the
Company's Director of Compensation, Senior Vice President of Human Resources or
Senior Vice President, Secretary and General Counsel (or, in the absence of the
aforementioned individuals, their respective designees), or such other person
as the Committee shall appoint, shall forthwith send notice thereof to the
Employee, in such form as the Committee shall approve, stating the number of
Shares subject to the Award, its Term, and the other terms and conditions
thereof. The notice shall be accompanied by a written Award Agreement in such
form as may from time to time hereafter be approved by the Committee, which
shall have been duly executed by or on behalf of the Company. If the surrender
of previously issued Awards is made a condition of the grant, the notice shall
set forth the pertinent details of such condition. Execution by the Employee to
whom such Award is granted of said Award Agreement in accordance with the
provisions set forth in this Plan shall be a condition precedent to the
exercise or receipt of any Award.
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<PAGE> 30
21. TAXES.
21.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the right
to require a person entitled to receive Shares pursuant to the receipt, vesting
or exercise of an Award under the Plan to pay the Company the amount of any
taxes which the Company is or will be required to withhold with respect to such
Shares before the certificate for such Shares is delivered pursuant to the
Award. Furthermore, the Company may elect to deduct such taxes from any other
amounts then payable in cash or in shares or from any other amounts payable any
time thereafter to the Employee. The Company shall also have the right to
deduct from any cash payment payable to a person pursuant to an Award the
amount of any taxes which the Company is required by law to withhold with
respect to such cash payment. If the Employee disposes of Shares acquired
pursuant to an Incentive Stock Option in any transaction considered to be a
disqualifying disposition under Sections 421 and 422 of the Code, the Employee
shall notify the Company of such transfer and the Company shall have the right
to deduct any taxes required by law to be withheld from any amounts otherwise
payable then or at any time thereafter to the Employee.
21.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. Subject to Committee
approval (which in the case of Incentive Stock Options must be given at the
time of grant), an Employee may elect to satisfy the tax liability with respect
to the exercise of an Option by having the Company withhold Shares otherwise
issuable upon exercise of the Option; provided, however, that if an Employee is
subject to Section 16(b) of the Exchange Act at the time the Option is
exercised, such election must satisfy the requirements of Rule 16b-3.
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<PAGE> 31
22. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date hereof, and an Award shall not be granted under the Plan after
that date although the terms of any Awards may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Awards outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Award and this Plan.
23. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
422 of the Code or Rule 16b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Award granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Award
theretofore granted under the Plan.
24. DELIVERY OF SHARES ON EXERCISE OR GRANT. Delivery of certificates
for Shares pursuant to the grant or exercise of an Award may be postponed by
the Company for such period as may be required for it with reasonable diligence
to comply with any applicable requirements of any federal, state or local law
or regulation or any administrative or quasi-administrative requirement
applicable to the sale, issuance, distribution or delivery of such Shares. The
Committee may, in its sole discretion, require an Employee to furnish the
Company with appropriate representations and a written investment letter prior
to the exercise of an Award or the delivery of any Shares pursuant to an Award.
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<PAGE> 32
25. FEES AND COSTS. The Company shall pay all original issue taxes
on the issuance or exercise of any Award granted under the Plan and all other
fees and expenses necessarily incurred by the Company in connection therewith.
26. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter he submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of all
shares either (i) represented at a meeting duly held in accordance with
Delaware law within twelve (12) months after being approved by the Board, or
(ii) obtained by a written consent in accordance with Delaware law within
twelve (12) months after being approved by the Board, the Plan and all Awards
made under it shall be void and of no force and effect. In aid of this
provision, any Award granted prior to the approval of the Plan by the Company's
stockholders shall be conditioned upon receipt of such approval.
27. OTHER PROVISIONS. As used in the Plan, and in Awards and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such Awards and other documents
prepared in implementation of the Plan are for convenience only and shall not
affect the meaning of any provision hereof or thereof.
28. EQUITABLE REMEDIES. By accepting the grant of an Award, an
Employee agrees that monetary damages are insufficient to compensate for a
breach of the obligations
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<PAGE> 33
imposed by this Plan and that the rights and obligations under the Plan shall
be enforceable by equitable remedies.
29. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
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<PAGE> 34
Exhibit A
AMENDMENT NO. 1
TO THE 1992 LONG-TERM INCENTIVE PLAN
OF REVCO D.S., INC.
1. Section 3 of the Plan is hereby amended to increase the number of
Shares available under the Plan in the aggregate from 3,520,000 Shares to
6,520,000 Shares.
2. Section 5 of the Plan is hereby amended by adding the following
as the last sentence thereof:
"Moreover, during any one fiscal year of the Company, no Employee may be
granted Options, SARs or Options in tandem with SARs to acquire more than
500,000 Shares."
3. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Plan.
4. This Amendment No. 1 to the Plan shall be effective as of the date
approved by the Board. Unless this Amendment No. 1 to the Plan is approved by
the affirmative votes of the holders of shares having a majority of the voting
Power of all shares represented at a meeting duly held in accordance with
Delaware law with twelve (12) months after being approved by the Board, this
Amendment No. 1 shall be void and of no force and effect.
<PAGE> 1
Exhibit 12
1992 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
REVCO D.S., INC.
1. PURPOSE OF THE PLAN. This 1992 Non-Employee Directors' Stock
Option Plan of Revco D.S., Inc. adopted on this 27th day of July, 1992,
is intended to encourage directors of the Company who are not officers or
key employees of the Company or any of its Subsidiaries to acquire or increase
their ownership of common stock of the Company. The opportunity so provided is
intended to foster in participants an incentive to put forth maximum effort for
the continued success and growth of the Company and its Subsidiaries, to aid in
retaining individuals who put forth such efforts, and to assist in attracting
the best available individuals to the Company in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "BOARD" means the Board of Directors of Revco D.S., Inc.
2.2 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (as in effect on the date the Plan is adopted by the
Board), whether or not the Company is then subject to such reporting
requirement; provided, that, without limitation, such a Change in
Control shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty percent (20%) or more
of the combined voting power of
<PAGE> 2
the Company's then outstanding securities; provided, however,
that: (i) the twenty percent (20%) threshold of this clause (a)
shall be increased to fifty percent (50%) in the case of any
"person" who, on the date this Plan is adopted by the Board, is
such a "beneficial owner" directly or indirectly, of securities of
the Company representing five percent (5%) or more of the combined
voting power of the Company's then outstanding securities; and
(ii) a Change in Control shall not be deemed to occur under
this clause (a) by reason of the acquisition of securities by the
Company or an employee benefit plan (or any trust funding such a
plan) maintained by the Company, or by reason of the new issuance
of securities directly by the Company;
(b) during any period (not including any period prior to the
adoption of this Plan) of one (1) year or, if less, the period of
time elapsed from the date the Plan is adopted by the Board, there
shall cease to be a majority of the Board comprised of Continuing
Directors; or
(c) (i) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than eighty percent (80%) of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (ii)
the stockholders of the Company approve a plan of complete
liquidation of the
2
<PAGE> 3
Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and any reference to any
specific provisions of the Code shall refer to the corresponding
provisions of the Code as it may hereafter be amended or replaced.
2.4 "COMMITTEE" means the Human Resources Committee of the
Board or any other committee appointed by the Board which is invested
by the Board with responsibility for the administration of the Plan and
whose members meet the requirements for eligibility to serve as set
forth in Rule 16b-3 and in the Plan.
2.5 "COMPANY" means Revco D.S., Inc. and, solely for purposes
of Sections 2.2 and 12 of the Plan, any other corporation in an
unbroken chain of corporations ending with Revco D.S., Inc. that owns,
directly or indirectly, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock of Revco D.S,
Inc.
2.6 "CONTINUING DIRECTORS" means individuals who at the
beginning of any period (not including any period prior to the adoption
of this Plan) of one (1) year or, if less, the period of time elapsed
from the date this Plan is adopted by the Board, constitute the Board,
any new director(s) duly selected as a nominee or nominees pursuant to
the Stockholder's Agreement dated as of June 1, 1992 by and between the
Company and Zell/Chilmark Fund L.P., as such agreement may be amended,
restated, supplemented or otherwise modified from time to time, and any
3
<PAGE> 4
new director(s) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved.
2.7 "DIRECTORS" means directors (other than Talton R. Embry,
David M. Schulte, Boake A. Sells and Samuel Zell) who serve on the
Board and who are not officers or key employees of the Company or any
of its Subsidiaries.
2.8 "ERISA" means the Employee Retirement Income Security
Act, as in effect at the time of reference, or any successor law which
may hereafter be adopted in lieu thereof, and any reference to any
specific provisions of ERISA shall refer to the corresponding
provisions of ERISA as it may hereafter be amended or replaced.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of the Exchange Act shall refer to the corresponding
provisions of the Exchange Act as it may be amended or replaced.
2.10 "FAIR MARKET VALUE" means with respect to the Shares,
the closing price of the Shares on the New York Stock Exchange or other
national securities exchange, on the last business day prior to the
date on which the value is to be determined, as reported in the Wall
Street Journal or such other source of quotations for, or reports of
trading of, the Shares as the Committee may reasonably select from time
to time; provided, however, if the Shares are not then traded on such an
exchange, but are then traded on the over-the-counter market, Fair
Market Value
4
<PAGE> 5
means the mean between the high and low bid and asked prices for the
Shares on the over-the-counter market on the last business day prior to
the date on which the value is to be determined (or the next preceding
day on which sales occurred if there were no sales on such date);
provided further, however, if no sales have occurred in the
over-the-counter market during the three week period preceding the date
on which the value is to be determined, Fair Market Value means the
average of the mean between the high and low bid and asked prices for
the Shares on the over-the-counter market fur the three (3) month
period ending on the last business day prior to the date on which the
value is to be determined; provided further, however, if the Shares are
reported in the National Market List of the National Association of
Securities Dealers, Inc. Automated Quotation System, the closing price
shall be substituted above for the mean of the high and low bid and
asked prices.
2.11 "OPTION" means the right to purchase the number of Shares
specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee imposes.
2.12 "OPTION AGREEMENT" means a written agreement in such
form as may be, from time to time, hereafter approved by the Committee,
which shall be duly executed by the Company and the Director and which
shall set forth the terms and conditions of an Option under the Plan.
2.13 "PLAN" means the 1992 Non-Employee Directors' Stock
Option Plan of Revco D.S., Inc.
2.14 "REGULATION T" means Part 220, chapter II, title 12 of
the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve
5
<PAGE> 6
System pursuant to the Exchange Act, as amended from time to time, or
any successor regulation which may hereafter be adopted in lieu
thereof.
2.15 "RULE 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Exchange Act as in effect at the time of reference,
or any successor rules or regulations which may hereafter be adopted in
lieu thereof, and any reference to any specific provisions of Rule
16b-3 shall refer to the corresponding provisions of Rule 16b-3 as it
may hereafter be amended or replaced.
2.16 "SHARES" means shares of the Company's $.01 par value
common stock or, if by reason of the adjustment provisions contained
herein, any rights under an Option under the Plan pertain to any other
security, such other security.
2.17 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations other than the Company in an unbroken change of
corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.18 "SUCCESSOR" means the legal representative of the estate
of a deceased Director or the person or persons who shall acquire the
right to exercise or receive an Option by bequest or inheritance or by
reason of the death of the Director.
2.19 "TERM" means the period during which a particular Option
may be exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon
the exercise of Options to be granted from time to time under the Plan, an
aggregate of 120,000 Shares, which Shares may be, in whole or in part as the
Board shall from time to time determine,
6
<PAGE> 7
authorized but unissued Shares, or issued Shares which shall have been
reacquired by the Company. Any Shares subject to issuance upon exercise of
Options but which are not issued because of a surrender, lapse, expiration or
termination of any such Option prior to issuance of the Shares shall once again
be available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than three (3) disinterested persons as defined
in Rule 16b-3. Subject to the provisions of the Plan, the Committee shall have
full authority, in its discretion, to interpret the Plan; to prescribe, amend,
and rescind rules and regulations relating to the Plan; and generally to
interpret and determine any and all matters whatsoever relating to the
administration of the Plan and the granting of Options hereunder. The Board
may, from time to time, appoint members to the Committee in substitution for or
in addition to members previously appointed and may fill vacancies, however
cause, in the Committee. The Board shall select one of the Committee's members
as its chairman. The Committee shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a
quorum. Any action of the Committee may be taken by a written instrument signed
by all of the members, and any action so taken shall be fully as effective as
if it had been taken by a vote of a majority of the members at a meeting duly
called and held. The Committee shall make such rules and regulations for the
conduct of its business as it shall deem advisable and shall appoint a
Secretary who shall keep minutes of its meetings and records of all action
taken in writing without a meeting. No member of the Committee shall be liable,
in the absence of bad faith, for any act or omission with respect to his
service on the Committee. The members of the Committee shall be indemnified by
the Company to the fullest extent permitted by Delaware law, the
7
<PAGE> 8
Company's Amended and Restated Certificate of Incorporation and the Company's
Amended and Restated By-Laws.
5. GRANT OF OPTIONS.
5.1 EXISTING DIRECTORS. Each Director who is a Director on the
date the Plan is originally adopted shall be granted an Option on such
date to purchase 10,000 Shares without further action by the Board or the
Committee.
5.2 FUTURE DIRECTORS. Each Director who joins the Board after the
date the Plan is originally adopted shall be granted an Option on the
first day of his or her initial term on the Board to purchase 10,000
Shares without further action by the Board or the Committee.
5.3 LIMITATIONS. If the number of Shares available to grant under
the Plan on a scheduled date of grant is insufficient to make all
automatic grants required to be made pursuant to the Plan on such date,
then each eligible Director shall receive an Option to purchase a pro
rata number of the remaining Shares available under the Plan; provided
further, however, that if such proration results in fractional Shares,
then such Option shall be rounded down to the nearest number of whole
Shares.
6. BASIC STOCK OPTION PROVISIONS.
6.1 OPTION PRICE. The option price per Share of any Option
granted under the Plan on the date the Plan is originally adopted shall
be $8.88 and the option price per Share of any Option granted thereafter
under the Plan shall be the Fair Market Value of the Shares covered by
the Option on the date the Option is granted. On each anniversary of the
date of grant, the option price per Share of the Shares covered by any
Option shall be increased by an amount equal to the excess, if any,
8
<PAGE> 9
of (x) an amount equal to five percent (5%) of the option price per Share
then in effect, over (y) the aggregate amount of dividends per Share
which were paid during the one year period ending on such anniversary
date.
6.2 TERMS OF OPTIONS.
(a) Options granted hereunder shall be exercisable for a Term of
ten (10) years from the date of grant thereof, but shall be subject to
earlier termination as hereinafter provided, and
(b) Except as otherwise provided in the Plan, prior to its
expiration or termination, an Option granted hereunder may be exercised
within the following time limitations:
(i) After one (1) year from the date of grant, it may be
exercised as to not more than twenty percent (20%) of the Shares
originally subject to the Option.
(ii) After two (2) years from the date of grant, it may be
exercised as to not more than forty percent (40%) of the Shares
originally subject to the Option.
(iii) After three (3) years from the date of grant, it may
be exercised as to not more than sixty percent (60%) of the Shares
originally subject to the Option.
(iv) After four (4) years from the date of grant, it may be
exercised as to not more than eighty percent (80%) of the Shares
originally subject to the Option.
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<PAGE> 10
(v) After five (5) years from the date of grant, it
may be exercised as to any part or all of the Shares originally
subject to the Option.
6.3 TERMINATION OF DIRECTORSHIP. In the event a Director ceases
to be a member of the Board (other than by reason of death or
disability), then (a) an Option may be exercised by the Director (to the
extent that the Director was entitled to do so at the time he or she
ceased to be a member of the Board) at any time within three (3) months
after he or she ceases to be a member of the Board, but not beyond the
Term of the Option and (b) the portion of the Option that has not vested
as of the date the Director ceases to be a member of the Board shall
automatically terminate.
6.4 DEATH OR DISABILITY OF DIRECTOR. If a Director dies or
becomes disabled while he or she is a member of the Board, an Option may
be exercised in full by his or her Successor, in the event of death, or
by him or her or his or her personal representative, as the case may be,
in the event of disability, at any time within one (1) year after he or
she ceases to be a member of the Board on account of such death or
disability, but not beyond the Term of the Option, or prior to the
approval of the Plan by the Company's stockholders. If a Director shall
die within three (3) months after the date he or she ceases to be a
member of the Board, an Option may be exercised (to the extent the
Director shall have been entitled to do so at the time of his or her
death), by his or her Successor, at any time within one (1) year after
the Director's death, but not beyond the Term of the Option, or prior to
the approval of the Plan by the Company's Stockholders.
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<PAGE> 11
7. EXERCISE OF RIGHTS UNDER OPTIONS.
7.1 NOTICE OF EXERCISE. A Director entitled to exercise an
Option may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is being
exercised and any other relevant information the Committee may require.
The notice shall be accompanied by payment in full of the purchase price
of any Shares to be purchased, which payment shall be made in cash or by
certificates of Shares held for more than six (6) months, duly endorsed
in blank, equal in value to the purchase price of the Shares to be
purchased based on their Fair Market Value at the time of exercise or a
combination thereof. No Shares shall be issued upon exercise of an Option
until full payment has been made therefor. All notices or requests
provided for herein shall be delivered to the Company's President (or his
or her designee). No fractional Shares shall be issued.
7.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby a Director, subject to the
requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an
Option or a portion thereof without making a direct payment of the option
price to the Company. If the Company so elects to establish a cashless
exercise program, the Company shall determine, in its sole discretion,
and from time to time, such administrative procedures and policies as it
deems appropriate and such procedures and policies shall be binding on
any Director wishing to utilize the cashless exercise program.
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<PAGE> 12
8. OTHER OPTION TERMS AND CONDITIONS. Each Option or each Option
Agreement evidencing the grant of an Option shall contain such other terms and
conditions not inconsistent herewith as shall be approved by the Committee.
9. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have
any of the rights of a stockholder with respect to the Shares subject to
purchase or receipt under his or her Option, except to the extent that one or
more certificates for such Shares shall be delivered to him or her upon the due
exercise of the Option.
10. NONTRANSFERABILITY OF OPTIONS. An Option shall not be
transferable, other than: (a) by will or the laws of descent and distribution,
and an Option may be exercised, during the lifetime of the holder of the
Option, only by such holder or in the event of death, such holder's Successor,
or in the event of disability, such holder's personal representative, or (b)
pursuant to a qualified domestic relation order, as defined in the Code or
ERISA or the rules thereunder.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
changes in all of the outstanding Shares by reason of stock dividends, stock
splits, reclassifications, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations, reorganizations or
liquidations, or similar events, or in the event of the ISSUANCE AND/OR
EXERCISE OF RIGHTS, options (other than options granted under any stock option
plans of the Company), warrants, or convertible or exchangeable securities, to
subscribe for, purchase or acquire Shares at a price below the Fair Market
Value per Share ON THE DATE OF SUCH issuance and/or exercise, or in the event
of extraordinary cash or non-cash dividends being declared with respect to the
Shares, or similar transactions or events, the number and class of Shares
available under the Plan in the aggregate, the number and class of Shares
subject
12
<PAGE> 13
to Options theretofore granted, applicable purchase prices and all other
applicable provisions, shall, subject to the provisions of the Plan, be
equitably adjusted by the Committee (which adjustment may, but need not,
include payment to the holder of an Option, in cash or in shares, in an amount
equal to the difference between the price at which such Option may be exercised
and the then current Fair Market Value of the Shares subject to such Option as
equitably determined by the Committee). The foregoing adjustment and the
manner of application of the foregoing provisions shall be determined by the
Committee, in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
Option.
12. CHANGE IN CONTROL. Notwithstanding anything to the contrary
herein or in any Option Agreement, in the case of a Change in Control of the
Company, each Option granted under the Plan shall terminate ninety (90) days
after the occurrence of such Change in Control, and an Option holder shall have
the right, commencing at least five (5) days prior to such Change in Control
and subject to any other limitation on the exercise of such Option in effect on
the date of exercise, to immediately exercise any Option in full, without
regard to any vesting limitations, to the extent it shall not have been
previously exercised.
13. FORMS OF OPTIONS. An Option shall be granted hereunder on the date
or dates specified in the Plan. Whenever the Plan provides for the receipt of
an Option by a Director, the Company's President, or such other person as the
Committee shall appoint, shall forthwith send notice thereof to the Director,
in such form as the Committee shall approve, stating the number of Shares
subject to Option, its Term, and the other terms and conditions thereof. The
notice shall be accompanied by a written Option Agreement in such form as may
from time to time hereafter be approved by the Committee which shall have
13
<PAGE> 14
been duly executed by or on behalf of the Company. Execution by the Director to
whom such Option is granted of said Option Agreement in accordance with the
provisions set forth in this Plan shall be a condition precedent to the
exercise of any Option.
14. TAXES.
14.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have
the right to require a person entitled to receive Shares pursuant to the
an exercise of an Option under the Plan to pay the Company the amount of
any taxes which the Company is or will be required to withhold, if any,
with respect to such Shares before the certificate for such Shares is
delivered pursuant to the Option. Furthermore, the Company may elect to
deduct such taxes from any other amounts then payable in cash or in
shares or from any other amounts payable any time thereafter to the
Director.
14.2 DIRECTOR ELECTION TO WITHHOLD SHARES. Subject to Committee
approval, a Director may satisfy the withholding tax liability, if any,
with respect to the exercise of an Option, by having the Company withhold
Shares otherwise issuable upon exercise of the Option if such Director
makes an election to do so which satisfies the requirements of Rule
16b-3.
15. TERMINATION OF THE PLAN. The Plan shall terminate five (5) years
from the date hereof, and an Option shall not be granted under the Plan after
that date although the terms of any Options may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Options outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Option and this Plan.
14
<PAGE> 15
16. AMENDMENT OF THE PLAN. The Plan may be amended at any time and
from time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Rule
16b-3 would be required. Notwithstanding the foregoing, the Plan may not be
amended more than once every six (6) months to change the Plan provisions
listed in section (c)(2)(ii)(A) of Rule 16b-3, other than to comport with
changes in the Code, ERISA or Rule 16b-3. Notwithstanding the discretionary
authority granted to the Committee in Section 4 of the Plan, no amendment of
the Plan or any Option granted under the Plan shall impair any of the rights of
any holder, without the holder's consent, under any Option theretofore granted
under the Plan.
17. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for
Shares pursuant to an Option exercise may be postponed by the Company such
period as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Director to furnish the Company with appropriate
representations and a written investment letter prior to the exercise of an
Option or the delivery of any Shares pursuant thereto.
18. FEES AND COSTS. The Company shall pay all original issue taxes
on the exercise of any Option granted under the Plan and all other fees
and expenses necessarily incurred by the Company in connection therewith.
19. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares
15
<PAGE> 16
having a majority of the voting power of all shares either (i) represented at a
meeting duly held in accordance with Delaware law within twelve (12) months
after being approved by the Board or (ii) obtained by a written consent in
accordance with Delaware law within twelve (12) months after being approved by
the Board, the Plan and all Options made under it shall be void and of no force
and effect. In aid of this provision, any Option granted prior to the approval
of the Plan by the Company's stockholders shall be conditioned upon receipt of
such approval.
20. OTHER PROVISIONS. As used in the Plan, and in Option Agreements
and other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Option
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
21. EQUITABLE REMEDIES. By accepting the grant of an Option, a
Director agrees that monetary damages are insufficient to compensate for a
breach of the obligations imposed by this Plan and that the rights and
obligations under this Plan shall be enforceable by equitable remedies.
22. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
16
<PAGE> 17
AMENDMENT NO. 1
TO THE 1992 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
OF REVCO D.S., INC.
1. Section 2.7 of the Plan is hereby deleted and the following
substituted therefor:
"2.7 "DIRECTORS" means directors (other than Talton R. Embry,
David M. Schulte and Samuel Zell) who serve on the Board and who are not
officers or key employees of the Company or any of its subsidiaries."
2. Section 3 of the Plan is hereby amended to increase the number of
Shares reserved for use, upon the exercise of Options to be granted from time
to time under the Plan, from 120,000 Shares to 270,000 Shares.
3. Section 5.1 of the Plan is hereby amended by adding the following
sentence to the end thereof:
"On each anniversary date of such date, each such Director who is
still a Director on such anniversary date shall be granted an option to
purchase 5,000 Shares without further action by the Board or the
Committee."
4. Section 5.2 of the Plan is hereby amended by adding the following
sentence to the end thereof:
"On each anniversary date of the date the Director joined the
Board (or, with respect to any Director who joined the Board prior to
July 27, 1993, on each anniversary date of the date the Plan was
originally adopted), each such Director who is still a Director on such
anniversary date shall be granted an Option to purchase 5,000 Shares
without further action by the Board or the Committee."
5. Section 6.1 of the Plan is hereby amended by adding the following
as the second sentence thereof:
"Notwithstanding the foregoing, the initial option price per
Share for any Option granted under the Plan on July 27, 1993 shall
be $11.625.
6. Section 6.2(b) of the Plan is hereby amended to apply only to an
Option granted on the date the Plan was originally adopted or an initial Option
for 10,000 Shares granted to a Director who joins the Board after the date the
Plan was originally adopted (an "Initial Option").
<PAGE> 18
7. Section 6.2 of the Plan is hereby amended by adding the following
subsection (c) to the end thereof:
"(c) Except as otherwise provided in the plan, prior to its
expiration or termination, an Option other than an Initial Option may be
exercised at any time after the approval of the First Amendment by the
Company's stockholders."
8. Section 6.3 of the Plan is hereby deleted and the following
substituted therefor:
"6.3 TERMINATION OF DIRECTORSHIP. In the event a Director ceases
to be a member of the Board (other than by reason of death or
disability), then (a) an Initial Option may be exercised by the Director
(to the extent that the Director was entitled to do so at the time he or
she ceased to be a member of the Board) at any time within three (3)
months after he or she ceases to be a member of the Board, but not
beyond the Term of the Option, (b) an Option other than an Initial
Option may be exercised by the Director at any time within three (3)
months after the later of (x) the date he or she ceases to be a member
of the Board or (y) the date the First Amendment is approved by the
Company's stockholders, but not beyond the Term of the Option and (c)
the portion of an Initial Option that has not vested as of the date the
Director ceases to be a member of the Board shall automatically
terminate."
9. This First Amendment shall be effective as of July 27, 1993.
2
<PAGE> 19
AMENDMENT NO. 2
TO THE 1992 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
OF REVCO D.S., INC.
1. The third sentence of Section 6.1 of the Plan, as previously
amended, is hereby deleted and the following substituted therefor:
"On each anniversary of the date of grant, the option price per
Share of the Shares covered by the Option shall be increased by an
amount equal to five percent (5%) of the option price per Share then
in effect; provided, however, that the aforementioned five percent
(5%) increase shall cease immediately after the date the Shares
originally subject to the Option become exercisable, as set forth in
Section 6.2 below and as illustrated on Exhibit X hereto."
2. This Second Amendment shall be effective as of March 21, 1994 or
the date of stockholder approval of this amendment, whichever occurs last.
(as approved by stockholders @1994 consent solicitation)
<PAGE> 1
Exhibit 13
REVCO D.S., INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN. This 1993 Employee Stock Purchase Plan (the
"Plan") is intended as an incentive and to encourage stock ownership by all
eligible employees of Revco D.S., Inc., a Delaware corporation (the "Company")
and its subsidiaries, so that they may share in the fortunes of the Company by
acquiring or increasing their proprietary interest in the Company. The Plan
is designed to encourage eligible employees to remain in the employ of the
Company. It is intended that options issued pursuant to this Plan shall
constitute options issued pursuant to an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Definitions.
------------
2.1 "Account" shall mean the funds accumulated with respect
to an individual employee as a result of deductions from his or her paycheck
for the purpose of purchasing stock under this Plan. The funds allocated to
an employee's Account shall remain the property of the respective employee at
all times during each offering.
2.2 "Base Pay" means regular straight time earnings or draw,
but excludes compensation for overtime, commissions, bonuses, amounts paid as
reimbursement of expenses and other additional compensation.
2.3 "Common Stock" means the Company's Common Stock, $.O1 par
value.
2.4 "Fair Market Value" means the closing price for the
Common Stock on the New York Stock Exchange or other national stock exchange
or, if the stock is not traded on an exchange, the last sale price for the
Common Stock as reported on the National Association of Securities Dealers
Automated Quotation System.
2.5 "Offering Date" means the commencement date of the
offering if such date is a regular business day or the first business day
following such commencement date. A different date may be set by resolution
of the Board of Directors of the Company (the "Board").
2.6 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the employer
corporation if each of the corporations other than the employer corporation
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
<PAGE> 2
2.7 "Plan Year" means, in the case of the first Plan year,
September 1, 1993 to and including May 31, 1994, and thereafter means each
June 1 through May 31 of the following year.
2.8 "Subsidiary" or "Subsidiaries" means any corporation or
corporations other than the employer corporation in an unbroken chain of
corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
claim.
3. EMPLOYEES ELIGIBLE TO PARTICIPATE. Any person who is an
employee of the Company on the first day of each applicable Plan year is
eligible to receive options under the Plan; provided, however, that no
employee who immediately after the grant of options hereunder owns shares
(including all shares which may be purchased under outstanding options)
possessing 5% or more of the total combined voting power or value of all
classes of shares of the Company, or, if applicable, any Subsidiary or, if
applicable, a Parent shall be eligible to receive an option. For this
purpose, the rules of Section 424(d) of the Code shall apply in determining
share ownership.
4. OFFERINGS. The first offering under this Plan shall
commence on September 1, 1993 and terminate on May 31, 1994. Thereafter,
offerings shall commence on June 1 and terminate on May 31 of the following
year until the Plan is terminated by the Board or no additional shares of
Common Stock of the Company are available for purchase under the Plan.
5. PRICE. The purchase price per share shall be the LESSER
of (1) 85% of the Fair Market Value of the Common Stock on the Offering
Date; or (2) 85% of the Fair Market Value of the Common Stock on the last
business day of the offering.
6. STOCK SUBJECT TO THE PLAN. The stock subject to the
options shall be shares of the Company's authorized but unissued Common
Stock or shares of Common Stock reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 1,200,000, subject to increase or decrease by
reason of stock split-ups, reclassifications, stock dividends, changes in
par value and the like.
7. Changes in Capital Structure.
----------------------------
7.1 In the event that the outstanding shares of Common
Stock of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation, by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividend payable in shares,
2
<PAGE> 3
appropriate adjustment shall be made by the Board in the number or kind of
shares as to which an option granted under this Plan shall be exercisable, to
the end that the participant's proportionate interest shall be maintained as
before the occurrence of such event. Any such adjustment made by the Board
shall be conclusive.
7.2 If the Company is not the surviving or resulting
corporation in any reorganization, merger, consolidation or recapitalization,
each outstanding option shall be assumed by the surviving or resulting
corporation and each option shall continue in full force and effect, and shall
apply to the same number and class of securities of the surviving corporation
as a holder of the number of shares of Common Stock subject to the option
would be entitled under the terms of the reorganization, merger, consolidation
or recapitalization.
8. Participation. An eligible employee may become a
participant by completing, signing and filing an enrollment agreement
("Enrollment Agreement") and any other necessary papers with the Company at
least ten days prior to the commencement of the particular offering in which
he or she wishes to participate. Payroll deductions for a participant shall
commence on the Offering Date and shall end on the termination date of such
offering unless earlier terminated by the employee as provided in Section 14.
Participation in one offering under the Plan shall neither limit, nor require,
participation in any other offering.
9. Payroll Deductions.
------------------
9.1 At the time a participant files his or her Enrollment
Agreement, he or she shall elect to have deductions made from his or her pay
on each pay day during the time he or she is a participant in an offering at
not less than $10 or more than 10% of his or her Base Pay.
9.2 All payroll deductions made for a participant shall
be credited to his or her Account under the Plan. A participant may not make
any separate cash payment into such Account nor may payment for shares be made
other than by payroll deduction.
9.3 A participant may discontinue his or her payroll
deductions or participation in the Plan as provided in Section 14, but no
other change can be made during an offering and, specifically, except as
provided in Section 14, a participant may not alter the rate of his or her
payroll deductions for that offering.
10. Granting of Option.
------------------
10.1 On the Offering Date, this Plan shall be deemed to
have granted to the participant an option for as many full shares as he or she
will be able to purchase with the payroll deductions credited to his or her
Account during his or her
3
<PAGE> 4
participation in that offering.
10.2 Notwithstanding the foregoing, no employee shall
be granted an option which permits his or her rights to purchase Common
Stock under the Plan and any similar employee stock purchase plans of the
Company and, if applicable, a Subsidiary and, if applicable, a Parent to
accrue at a rate which exceeds $25,000 of Fair Market Value of such stock
(determined at the time such option is granted) for each calendar year
which such option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of
the Code.
10.3 If the total number of shares for which options
are to be granted on any date in accordance with Paragraph 10.1 exceeds the
number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available
in as nearly a uniform manner as shall be practical and as it shall
determine to be equitable.
11. EXERCISE OF OPTION. Each employee who continues to be
a participant in an offering on the last business day of that offering
shall be deemed to have exercised his or her option on such date and shall
be deemed to have purchased from the Company such number of full shares of
Common Stock reserved for the purpose of the Plan as his or her accumulated
payroll deductions on such date will pay for at the purchase price.
12. Employee's Rights as a Stockholder.
----------------------------------
12.1 No participating employee shall have any right as
a stockholder with respect to any shares under the Plan until the shares
have been purchased in accordance with Section 11 above and the stock
certificate has actually been issued.
12.2 Shares to be delivered to a participant under the
Plan will be registered in the name of the participant, or, if the
participant so directs, by written notice to the Company prior to the
termination date of the pertinent offering, in the names of the participant
and one such other person as may be designated by the participant, as joint
tenants with right of survivorship, tenants in common or as community
property, to the extent and in the manner permitted by applicable law.
13. DELIVERY. Certificates for stock issued to
participants will be delivered as soon as practicable after the end of each
offering.
14. Withdrawal.
----------
14.1 An employee may withdraw from the Plan, in whole
but not in part, at any time prior to the last business day of each
offering by delivering a
4
<PAGE> 5
withdrawal notice ("Withdrawal Notice") to the Company, in which event the
Company will refund the entire balance of his or her Account as soon as
practicable thereafter.
14.2 To re-enter the Plan, an employee who has previously
withdrawn must file a new Enrollment Agreement in accordance with Section 8.
His or her re-entry into the Plan cannot, however, become effective before the
beginning of the next offering following his or her withdrawal.
14.3 An employee may elect to discontinue his or her
payroll deductions during the course of a particular offering, at any time
prior to the last business day preceding the final pay day during such
offering by delivering an election to discontinue deductions to the Company,
and such election shall not constitute a withdrawal for the purposes of this
Section 14. In the event that an employee elects to discontinue his or her
payroll deductions pursuant to this Paragraph 14.3, the employee shall remain
a participant in such offering and shall be entitled to purchase from the
Company such number of full shares of Common Stock as set forth in and in
accordance with Section 11 of the Plan.
15. NO CARRYOVER OF ACCOUNT. Unless a participating employee
elects not to carryover the balance of his or her Account to the next
offering, the Company shall carryover the balance of his or her Account to the
next offering. Upon termination of the Plan, the balance of each employee's
Account shall be returned to him or her.
16. INTEREST. No interest will be paid or allowed on any money
in the Accounts of participating employees.
17. RIGHTS NOT TRANSFERABLE. No participant shall be permitted
to sell, assign, transfer, pledge, or otherwise dispose of or encumber either
the payroll deductions credited to his or her Account or any rights with
regard to the exercise of an option or to receive shares under the Plan other
than by will or the laws of descent and distribution, and such right and
interest shall not be liable for, or subject to, the debts, contracts, or
liabilities of the employee. If any such action is taken by the participant,
or any claim is asserted by any other party in respect of such right and
interest whether by garnishment, levy, attachment or otherwise, such action or
claim will be treated as an election to withdraw funds in accordance with
Section 14.
18. TERMINATION OF EMPLOYEE'S RIGHTS. An employee's rights
under the Plan will terminate when he or she ceases to be an employee because
of resignation, lay-off, or discharge. A Withdrawal Notice will be
considered as having been received from the employee on the day his or her
employment ceases, and all payroll deductions not used will be refunded.
If an employee's employment shall be terminated by reason of
retirement, death, or disability prior to the end of the current offering, he
or she (or his or her
5
<PAGE> 6
designated beneficiary, in the event of his or her death, or if none, his
or her legal representative) shall have the right, within 90 days
thereafter, to elect to have the balance of his or her Account either paid
to him or her in cash or applied at the end of the current offering toward
the purchase of Common Stock.
19. ADMINISTRATION OF THE PLAN. The Plan shall be
administered by the Board, if each director is a "disinterested person"
(as defined below). If all directors are not "disinterested persons," the
Plan shall be administered by a committee consisting of two or more
members of the Board, each of whom shall be a "disinterested person,"
which committee (the "Committee") may be an executive, compensation or
other committee, including a separate committee especially created for
this purpose. The Committee shall have such of the powers and authority
vested in the Board hereunder as the Board may delegate to it (including
the power and authority to interpret any provision of this Plan or of any
option). The members of such Committee shall serve at the discretion of
the Board. A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of
the members present. Any action may be taken by a written instrument
signed by an of the members of the Committee and any action so taken shall
be fully effective as if it had been taken at a meeting. The Board and/or
the Committee, if one has been established by the Board, shall be referred
to in this Plan as the "Plan Administrator." "Disinterested person" shall
be defined by reference to the rules and regulations promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Act"). The Human Resources Committee shall be the Plan Administrator
until a different Plan administrator is established by the Board.
Subject to the provisions of this Plan, and with a view to
effecting its purpose, the Plan Administrator shall have sole authority,
in its absolute discretion, to (a) construe and interpret this Plan; (b)
define the terms used in this Plan; (c) prescribe, amend and rescind rules
and regulations relating to this Plan; (d) correct any defect, supply any
omission or reconcile any inconsistency in this Plan; (e) determine the
time or times at which options shall be granted under this Plan; (f)
determine all other terms and conditions of options; and (g) make all
other determinations necessary or advisable for the administration of this
Plan. All decisions, determinations and interpretations made by the Plan
Administrator shall be binding and conclusive on all participants in this
Plan and on their legal representatives, heirs and beneficiaries.
20. TERMINATION AND AMENDMENTS TO PLAN. The Plan may be
terminated at any time by the Board. It will terminate in any case on the
earlier of (a) the date on which all or substantially all of the unissued
shares of Common Stock reserved for the purpose of the Plan have been
purchased, or (b) twenty years from the date the Plan is adopted by the
Board. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded.
6
<PAGE> 7
The Board also reserves the right to amend the Plan from time to
time in any respect provided, however, that no amendment shall be effective
without prior approval of the stockholders (a) which would, except as provided
in Section 6 and 7, increase the aggregate number of shares of Common Stock to
be issued under the Plan, (b) which would change the class of employees
eligible to receive options under the Plan or (c) if such amendment requires
stockholder approval for any other reason in order for the Plan to be eligible
or continue to qualify for the benefits conferred by Securities and Exchange
Commission Rule 16b-3, as amended from time to time, or any successor rule or
regulatory requirements.
21. APPROVAL OF STOCKHOLDERS. The Plan shall not take effect
until approved by the holders of a majority of the outstanding shares of Common
Stock of the Company, which approval must occur within the period beginning
twelve months before and ending twelve months after the date the Plan is
adopted by the Board.
Date Approved by Board: March 9, 1993
Date Approved by Stockholders:
7
<PAGE> 8
FIRST AMENDMENT
TO THE
REVCO D.S., INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
1. A new Section 2.9 is added to the Plan as follows:
"2.9 "Designated Affiliate" means any corporation which is either a
Subsidiary or a Parent with respect to the Company and whose employees are
designated as eligible to participate in the Plan pursuant to Section 4.2."
2. The first sentence of Section 3 of the Plan is deleted and in its
place is substituted the following:
"Any person who is an employee of the Company or a Designated
Affiliate on the first day of each applicable Plan Year is eligible to
receive options under the Plan; provided, however, that: (i) no employee who
immediately after the grant of options hereunder owns shares (including all
shares which may be purchased under outstanding options) possessing 5% or
more of the total combined voting power or value of all classes of shares of
the Company, or, if applicable, any Subsidiary or, if applicable, a Parent
shall be eligible to receive an option; and (ii) eligibility for an initial
offering with respect to employees of a Designated Affiliate shall be
determined in accordance with Section 4.2, subject to clause (i) above.
3. Section 4 of the Plan is deleted and in its place is substituted the
following:
"4. Offerings.
4.1 The first offering under the Plan shall commence on
September 1, 1993, and terminate on May 31, 1994. Thereafter,
offerings shall commence on June 1 and terminate on May 31 of the
following year until the Plan is terminated by the Board or no
additional shares of Common Stock of the Company are available for
purchase under the Plan.
4.2 Any corporation which is either a Parent or a Subsidiary
of the Company may be designated by the Human Resources Committee as a
Designated Affiliate and such designation shall remain in effect
unless and until revoked by such Committee. With respect to the first
Plan Year in which a corporation becomes a Designated Affiliate, the
Human Resources Committee may, at its discretion, establish an initial
offering for the
<PAGE> 9
employees of such corporation over a period of less than a full
Plan Year. Such initial offering would commence on the date
established by the Human Resources Committee and would end on the
following May 31. Eligibility to participate in any such initial
offering would be available only to persons who are employees of
the Designated Affiliate on the commencement date of such initial
offering.
4. This First Amendment shall be effective upon approval of the First
Amendment by the Company's stockholders.
<PAGE> 10
SECOND AMENDMENT
TO THE
REVCO D.S., INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
1. Section 6 of the Plan is hereby amended to increase the number of shares of
the Company's Common Stock available for issuance under the Plan from
1,200,000 to 2,700,000 shares.
2. This Second Amendment shall be effective upon approval of the Second
Amendment by the Company's stockholders.
<PAGE> 1
Exhibit 14
The Audit Committee, which met three times during the year, consists of
Messrs. Evans, Guttag, Reinhold, Schulte and Thorsen (Chairman). The Audit
Committee's responsibilities include the following: (i) satisfying itself that
the Company's internal control system is effective and sufficient to safeguard
the assets of the Company and permit the issuance of reliable financial reports
for both internal and external purposes; (ii) reviewing the Company's accounting
principles and practices and approving changes that are expected to have a
significant impact on the Company's current or future financial statements;
(iii) satisfying itself that the Company's financial statements present fairly
the Company's financial condition and the results of its operations; (iv)
satisfying itself as to the adequacy of the Company's financial statement
disclosure; and (v) serving as an informed voice on the Board of Directors in
evaluating and supporting the financial, accounting and internal audit functions
of the Company.
The Human Resources Committee, which met twice during the year, consists of
Messrs. Dammeyer, Embry (Chairman) and Evans and Ms. Rosenberg. The Human
Resources Committee's responsibilities include the following: (i) reviewing and
approving the Company's executive compensation structure and overall benefits
program; (ii) administering certain of the Company's benefit plans; (iii)
monitoring the performance and succession of senior management and recommending
improvements when and as necessary; and (iv) providing for orderly continuity
(including by recommending director nominees to the full Board) of membership on
the Board of Directors and its Committees.
The Pension Administration/Investment Committee, which met once during the
year, consists of Messrs. Borghese, Dammeyer (Chairman) and Schulte. The Pension
Administration/Investment Committee's responsibilities include the following:
(i) administering the Revco D.S., Inc. Retirement Income Plan and Trust, as
amended, in a nondiscriminatory manner for the exclusive benefit of participants
and their beneficiaries, as required by the Plan documents and applicable law;
and (ii) administering the 401(k) Savings Plan of Revco D.S., Inc., as amended,
in a nondiscriminatory manner for the exclusive purpose of providing benefits to
the members and their beneficiaries, in accordance with the Plan documents and
applicable law.
COMPENSATION OF THE BOARD
Only directors of the Company who are Revco employees are eligible to
participate in the Company's profit sharing, management incentive or pension
plans, except that, under the Pension Plan, directors who were covered by the
plan as Revco employees with vested rights retain such vested rights.
Only directors of the Company who are not Revco employees are paid fees or
remuneration for services on the Board or on any committee of the Board. Such
fees consist of an annual stipend of $30,000 for each director plus $1,000 for
each committee member, other than the committee chairman, or $1,250 for the
committee chairman, for each committee meeting attended on a date on which no
Board meeting is scheduled. The annual stipend is paid in equal quarterly
payments which are subject to a $1,000 reduction for each missed Board meeting.
Directors also receive payment of travel and lodging expenses in connection with
their attendance at Board and committee meetings.
Pursuant to the terms of the Company's 1992 Non-Employee Directors' Stock
Option Plan, as amended (the "Directors' Plan"), current and future non-employee
directors of the Company other than Messrs. Zell, Embry and Schulte are eligible
to receive grants of non-qualified stock options. The current non-employee
directors eligible to receive stock options under the Directors' Plan are
Messrs. Borghese, Dammeyer, Evans, Guttag, Reinhold and Thorsen and Ms.
Rosenberg. On July 27, 1992, each of the directors identified above (other than
Messrs. Dammeyer and Guttag and Ms. Rosenberg) as being eligible to receive
options under the Directors' Plan, as well as one former director who was a
director on July 27, 1992, was granted an option to purchase 10,000 shares of
Common Stock at the fair market value on the date of grant. Mr. Dammeyer was
granted, on December 15, 1992, an option to purchase 10,000 shares of Common
Stock at the fair market value on the date of grant. Mr Guttag and Ms. Rosenberg
were each granted, on March 21, 1994, an option to purchase 10,000 shares of
Common Stock at the fair market value on the date of grant. On July 27, 1993,
July 27, 1994 and July 27, 1995, each eligible director (other than Mr. Guttag
and Ms. Rosenberg), and on
5
<PAGE> 2
March 21, 1995, each of Mr. Guttag and Ms. Rosenberg, was granted an option to
purchase 5,000 shares of Common Stock at the fair market value on the date of
grant.
PROCEEDINGS RELATING TO DIRECTORS
On September 9, 1993, Mr. Embry and Magten Asset Management Corporation
("Magten"), without admitting or denying the allegations in a complaint by the
Securities and Exchange Commission (the "Commission"), consented to the entry of
judgments enjoining them from violating (and, in the case of Mr. Embry, aiding
and abetting violations of) anti-fraud and other provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Investment Advisers
Act of 1940, as amended, and the Investment Company Act of 1940, as amended. The
Commission's complaint alleged principally that Mr. Embry failed to advise
clients of certain personal trades relevant to the clients' holdings, to obtain
certain consents required under applicable law in connection therewith and to
comply with certain reporting requirements. The complaint did not involve the
securities of the Company. As part of the settlement, Mr. Embry made a $1
million payment for the benefit of certain of Magten's clients.
During fiscal year 1994, Mr. Thorsen consented, without a hearing and
without admitting or denying the matters set forth therein, to the issuance of
an order of the Commission, and to the entry of the findings and imposition of
the remedial sanctions set forth therein. The matters covered by the order have
no relationship either to the Company or its securities.
ELECTION OF DIRECTORS
NOMINEES
The twelve persons nominated by the Board of Directors for election at the
1995 Annual Meeting are Carl A. Bellini, Livio M. Borghese, Rod F. Dammeyer,
Talton R. Embry, Ben Evans, John V. Guttag, D. Dwayne Hoven, Walter B. Reinhold,
Sheli Z. Rosenberg, David M. Schulte, Thomas O. Thorsen and Sam Zell.
Biographical information regarding the twelve nominees and information regarding
their share ownership is set forth herein under the captions "The Board of
Directors" and "Security Ownership of Certain Persons".
VOTING INFORMATION FOR PROPOSAL ONE
The shares represented by the enclosed proxy will be voted "FOR" the
election of the twelve nominees unless otherwise directed. All elections for
Directors shall be decided by a plurality of the votes of the shares of Common
Stock voting in person or by proxy, and entitled to vote on the election of
Directors, at the Annual Meeting. The Company anticipates that all nominees
will, if elected, be able to serve. However, if any nominee becomes unable to
serve for any reason, the shares represented by the enclosed proxy may be voted
for such substituted nominee as may be designated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL
NOMINEES.
6
<PAGE> 3
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth information regarding the stock ownership as
of August 18, 1995 of all directors of the Company, all directors and officers
as a group, and all persons who are known by the Company to own beneficially
more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENTAGE
- --------------------------------------- ---------- ----------
<S> <C> <C>
FMR Corp. 9,450,822(1) 14.08%(1)
82 Devonshire Street Boston,
Massachusetts 02109
General Motors Investment Management 3,486,525(2) 5.20%(2)
Corporation
767 Fifth Avenue
New York, New York 10153
Magten Asset Management Corporation 7,400,799(3) 11.03%(3)
35 East 21st Street
New York, New York 10010
Zell/Chilmark Fund, L.P. 13,102,288(4) 19.52%(4)
Two North Riverside Plaza,
Suite 1500
Chicago, Illinois 60606
DIRECTORS:
Carl A. Bellini 126,314(5) *(5)
Livio M. Borghese 21,199(6) *(6)
Rod F. Dammeyer 19,835(7) *(7)
Talton R. Embry 7,750,948(8) 11.55%(8)
Ben Evans 32,624(9) *(9)
John V. Guttag 15,521(10) *(10)
D. Dwayne Hoven 302,303(11) *(11)
Walter B. Reinhold 26,310(12) *(12)
Sheli Z. Rosenberg 7,169(13) *(13)
David M. Schulte 13,102,288(4) 19.52%(4)
Thomas O. Thorsen 22,042(14) *(14)
Sam Zell 13,102,288(4) 19.52%(4)
NAMED EXECUTIVE OFFICERS:
D. Dwayne Hoven 302,303(11) *(11)
Carl A. Bellini 126,314(5) *(5)
Gregory K. Raven 200,392(15) *(15)
Jack A. Staph 104,906(16) *(16)
James P. Mastrian 91,112(17) *(17)
All directors and officers as a group 22,193,042 33.07%
(34 individuals)
(4)(5)(6)(7)(8)(9) (4)(5)(6)(7)(8)(9)
(10)(11)(12)(13) (10)(11)(12)(13)
(14)(15)(16)(17)(18) (14)(15)(16)(17)(18)
</TABLE>
- ---------
* Less than 1%
(1) Based on a Statement on Schedule 13G, dated February 13, 1995, filed by FMR
Corp., a corporation organized under the laws of the Commonwealth of
Massachusetts. In its filing, FMR Corp. states that: Fidelity Management &
Research Company, a wholly-owned subsidiary of FMR Corp. and an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, is the beneficial owner of 8,862,866 of the shares of Common Stock as
a result of acting as investment adviser to several investment companies
registered under Section 8 of the Investment Company Act of 1940;
10
<PAGE> 4
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.
and a bank as defined in Section 3(a)(6) of the Exchange Act, is the
beneficial owner of 563,422 shares of Common Stock as a result of its
serving as investment manager of institutional accounts; and Fidelity
International Limited, a Bermudian joint stock company incorporated for an
unlimited duration by private act of the Bermuda legislature, is the
beneficial owner of 24,534 shares of Common Stock.
(2) Based on a Statement on Schedule 13G, dated April 28, 1994, filed by
General Motors Investment Management Corporation ("GMIMCo"), a corporation
organized under the laws of the State of Delaware. In its filing, GMIMCo
states that it is registered as an investment adviser under the Investment
Advisers Act of 1940 and that its principal business is providing
investment advice and investment management services with respect to the
assets of certain employee benefit plans of General Motors Corporation
("GM") and its subsidiaries and with respect to the assets of certain
direct and indirect subsidiaries of GM and associated entities. GMIMCo also
states that it has the responsibility to select and terminate investment
managers with respect to such plans and, in this regard, three such
retained managers, one of whom is Magten Asset Management Corporation,
manage the shares to which this footnote relates on a discretionary basis
(including with respect to voting and investment power). GMIMCo states
that, in view of its authority to terminate such managers, the information
in the Schedule 13G was provided.
(3) Magten Asset Management Corporation ("Magten") has beneficial ownership of
an aggregate 7,400,799 shares of Common Stock of the Company.
Investment advisory clients of Magten beneficially own all of the shares of
Common Stock shown as beneficially owned by Magten (collectively, the
"Investment Advisory Shares"). Magten has shared dispositive power with
respect to all of the shares of Common Stock beneficially owned by the
clients, shared voting power with respect to 5,481,708 of these shares and
no voting power with respect to 1,919,091 of these shares.
Magten may be deemed to be the beneficial owner of the Investment Advisory
Shares because Magten's investment advisory contracts with its investment
advisory clients grant it the power to vote and dispose of such shares.
Magten has declared that pursuant to Rule 13d-4 promulgated under the
Exchange Act, the filing by it of its Schedule 13D shall not be construed
as an admission that it is the beneficial owner of those shares.
(4) All of these shares are owned by Zell/Chilmark. Zell/Chilmark is a Delaware
limited partnership. The general partner of Zell/Chilmark is ZC Limited
Partnership, an Illinois limited partnership whose sole business is to act
as general partner of and manage the investment of the capital of
Zell/Chilmark. The sole general partner of ZC Limited Partnership is ZC
Partnership, a Delaware general partnership, the sole partners of which are
ZC, Inc., an Illinois corporation wholly-owned and controlled by Samuel
Zell, and CZ Inc., a Delaware corporation wholly-owned and controlled by
David M. Schulte. Mr. Zell and Mr. Schulte are directors of the Company.
Under the regulations of the Commission, Mr. Zell and Mr. Schulte may be
deemed to be the beneficial owners of all of the shares of Common Stock
which are beneficially owned by Zell/Chilmark. Mr. Zell and Mr. Schulte
disclaim beneficial ownership of the shares of Common Stock beneficially
owned by Zell/Chilmark.
(5) Consists of: (i) 35,216 shares held by Mr. Bellini individually; (ii) 1,305
shares held by Mr. Bellini's son who resides with him; and (iii) 89,793
shares subject to currently exercisable non-qualified stock options granted
pursuant to the Incentive Plan. Mr. Bellini disclaims beneficial ownership
of the shares referred to in (ii) above.
(6) Consists of: (i) 6,353 shares held by Mr. Borghese individually; and (ii)
14,846 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Directors' Plan.
(7) Consists of: (i) 19,835 shares subject to currently exercisable
non-qualified stock options granted pursuant to the Directors' Plan.
11
<PAGE> 5
(8) Mr. Embry, as sole stockholder and a Managing Director of Magten, may be
deemed to beneficially own all the shares of Common Stock beneficially
owned by Magten, as described in footnote (3) above.
In addition, Mr. Embry owns directly 1,413 shares of Common Stock. Mr.
Embry has sole voting and dispositive power with respect to the 1,413
shares of Common Stock owned directly by him.
Mr. Embry, as trustee of four pension trusts for the benefit of current and
former employees of Magten, including himself (the "Pension Trusts"), also
has sole voting and dispositive power with respect to 338,320 shares of
Common Stock owned by such trusts (collectively, the "Pension Trust
Shares").
Mr. Embry, as trustee for three trusts for members of his family (the
"Family Trusts"), has sole voting and investment power with respect to
8,061 shares of Common Stock (collectively, the "Family Trust Shares").
Mr. Embry, as custodian for his son, has sole dispositive and voting power
with respect to 942 shares of Common Stock, and may be deemed under Section
13(d) of the Exchange Act to have beneficial ownership of 1,413 shares of
Common Stock of the Company owned by his wife.
The shares described in footnote (3) above as beneficially owned by Magten
with respect to which Mr. Embry may be deemed a beneficial owner, together
with the additional shares described in this footnote (8) with respect to
which Mr. Embry may also be deemed a beneficial owner, aggregate 7,750,948
shares of Common Stock.
Mr. Embry has declared that pursuant to Rule 13d-4 the filing by him of his
Schedule 13D shall not be construed as an admission that he is the
beneficial owner of the Investment Advisory Shares, the Pension Trust
Shares (to the extent such shares exceed his and his wife's pro rata
interest as beneficiaries of such trusts) or the Family Trust Shares. Mr.
Embry disclaims beneficial ownership of the shares owned by his wife.
(9) Consists of: (i) 10,582 shares held by Mr. Evans individually; and (ii)
22,042 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Directors' Plan.
(10) Consists of: (i) 8,352 shares held by Mr. Guttag individually; and (ii)
7,169 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Directors' Plan.
(11) Consists of: (i) 38,218 shares held jointly by Mr. Hoven and his wife; and
(ii) 264,085 shares subject to currently exercisable non-qualified stock
options granted pursuant to the Incentive Plan.
(12) Consists of: (i) 4,268 shares held by Mr. Reinhold individually; and (ii)
22,042 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Directors' Plan.
(13) Consists of 7,169 shares subject to currently exercisable non-qualified
stock options granted pursuant to the Directors' Plan.
(14) Consists of 22,042 shares subject to currently exercisable non-qualified
stock options granted pursuant to the Directors' Plan.
(15) Consists of: (i)10,722 shares held by Mr. Raven individually; (ii) 187,687
shares subject to currently exercisable non-qualified stock options granted
pursuant to the Incentive Plan; and (iii) 1,983 shares held by Mr. Raven's
wife. Mr. Raven disclaims beneficial ownership of the shares owned by his
wife. On August 3, 1995, Mr. Raven announced his resignation from his
positions with the Company.
(16) Consists of: (i) 10,512 shares held by Mr. Staph individually; and (ii)
94,394 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Incentive Plan.
(17) Consists of: (i) 8,884 shares held by Mr. Mastrian individually; and (ii)
82,228 shares subject to currently exercisable non-qualified stock options
granted pursuant to the Incentive Plan.
(18) Includes 1,119,772 shares subject to currently exercisable non-qualified
stock options granted pursuant to the Directors' Plan and the Incentive
Plan.
12
<PAGE> 6
EXECUTIVE COMPENSATION
COMPENSATION AND OPTION TABLES AND PERFORMANCE GRAPH
The following tables show information with respect to the annual
compensation for services in all capacities to the Company for the fiscal years
ended May 29, 1993, May 28, 1994 and June 3, 1995 of (i) the chief executive
officer and (ii) those persons who were, at June 3, 1995, the other four most
highly compensated executive officers of the Company (the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------- PAYOUTS
-------------------------------- SECURITIES ---------
OTHER RESTRICTED UNDERLYING LONG-TERM ALL
ANNUAL STOCK OPTIONS INCENTIVE OTHER
NAME AND SALARY (5) BONUS (6) COMPENS. AWARD(S) GRANTED PAYOUTS COMPENS.
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------------------------- ----- ---------- --------- --------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Dwayne Hoven (1) 1995 $600,001 $877,548 (7) $0 336,009 $ 0 $277
President and Chief Executive Officer 1994 488,461 407,164 (7) 0 105,500 0 0
1993 394,339 200,000 (7) 0 300,000 0 0
Carl A. Bellini (2) 1995 401,332 439,742 (7) 0 104,263 0 185
Executive Vice President and 1994 342,594 227,180 (7) 0 45,000 0 0
Chief Operating Officer 1993 241,250 109,675 (7) 0 125,000 0 0
Gregory K. Raven (3) 1995 383,590 362,895 (7) 0 84,507 0 151
Executive Vice President-Finance 1994 313,283 207,663 (7) 0 0 0 0
and Chief Financial Officer 1993 296,702 127,459 (7) 0 250,000 0 0
James P. Mastrian (4) 1995 285,865 313,254 (7) 0 71,536 0 132
Executive Vice President of Marketing 1994 237,312 157,645 (7) 0 20,000 0 0
1993 220,272 94,276 (7) 0 100,000 0 0
Jack A. Staph 1995 242,208 231,919 (7) 0 41,814 0 109
Senior Vice President, Secretary 1994 225,241 149,304 (7) 0 0 0 0
and General Counsel 1993 217,192 91,855 (7) 0 125,000 0 0
<FN>
- ---------------
(1) D. Dwayne Hoven was elected Chief Executive Officer of the Company effective
August 1993 and was elected President of the Company in July 1992. From
December 1991 to July 1992, Mr. Hoven served as Executive Vice President,
Marketing and Stores for the Company.
(2) Carl A. Bellini was elected Executive Vice President and Chief Operating
Officer on October 13, 1993. From August 1992 to October 1993, Mr. Bellini
served as Executive Vice President of Marketing and Stores. From June 1992
to August 1992, Mr. Bellini was not an employee of the Company.
(3) On August 3, 1995, Gregory K. Raven announced his resignation from his
positions with the Company.
(4) James P. Mastrian was elected Executive Vice President of Marketing on July
26, 1994. From June 1992 to July 1994, Mr. Mastrian served as Senior Vice
President of Marketing.
(5) Salary information for fiscal year 1995 is based upon a fifty-three week
reporting period. Salary information for fiscal years 1994 and 1993 is based
upon fifty-two week reporting periods.
(6) Under the provisions of the EVA bonus plan, certain limitations exist
regarding cash payout of the bonus earned. A portion of the bonus earned is
deferred until future years and is paid out in accordance with plan
provisions. Accordingly, not all of the bonus earned was paid. See "Report
of the Human Resources Committee" included herein.
(7) Amounts are below the minimum amount required to be disclosed by applicable
Exchange Act rules.
</TABLE>
13
<PAGE> 7
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------------------------------
% OF TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
GRANTED TO ANNUAL RATES OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM (2)
GRANTED IN FISCAL BASE PRICE EXPIRATION ----------------------------------------
NAME (#) YEAR ($/SH) DATE 5% 10%
- ----------------------- ------- ---------- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
D. Dwayne Hoven 300,000 20.2% $ 18.00 July 26, 2004 $ 2,529,900 $ 7,740,300
26,952(4) 1.8% 18.00 July 27, 2002 201,547 524,728
9,057(4) 0.6% 18.00 December 13, 2003 70,056 214,461
Carl A. Bellini 30,000 2.0% 19.00 September 20, 2004 267,090 817,020
60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060
10,400(4) 0.7% 18.00 August 19, 2002 69,701 194,407
3,863(4) 0.3% 18.00 December 13, 2003 29,880 91,472
Gregory K. Raven (3) 60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060
2,455(4) 0.2% 18.00 July 27, 2002 21,098 50,536
22,052(4) 1.5% 18.00 July 27, 2002 164,905 429,330
James P. Mastrian 60,000 4.0% 18.00 July 26, 2004 505,980 1,548,060
9,801(4) 0.7% 18.00 July 27, 2002 73,292 190,816
1,735(4) 0.1% 18.00 January 03, 2004 13,420 41,083
Jack A. Staph 30,000 2.0% 18.00 July 26, 2004 252,990 774,030
9,801(4) 0.7% 18.00 July 27, 2002 73,292 190,816
2,013(4) 0.1% 18.00 July 27, 2002 17,300 41,438
<FN>
- ---------------
(1) All options granted after July 27, 1993 are granted at the fair market value
of the common stock at the date of grant. On each anniversary of the date of
grant, the exercise price for each option granted increases annually by an
amount equal to 5% of the option price then in effect for all non-vested
options. Except for certain immediately vested options granted in July 1992
(see "Report of the Human Resources Committee"), options granted pursuant to
the Incentive Plan vest as follows: 20% on the first anniversary of the date
of grant; 40% on the second anniversary of the date of grant; 60% on the
third anniversary of the date of grant; 80% on the fourth anniversary of the
date of grant and 100% on the fifth anniversary of the date of grant.
Options granted are for a term of not more than ten years from the date of
grant.
(2) The dollar amounts under these columns are the result of the calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's stock price. The dollar amounts assume that the
exercise price increases by 5% per year on all non-vested options. The
Company did not use an alternative formula for a grant date valuation, as
the Company is not aware of any formula which will determine with reasonable
accuracy a present value based on the future unknown or volatile factors.
(3) On August 3, 1995, Gregory K. Raven announced his resignation from his
positions with the Company.
(4) These options were granted pursuant to anti-dilution provisions of the
Incentive Plan as a result of a rights offering consummated in fiscal 1995.
These options vest in accordance with the terms of the original option grant
to which they pertain.
</TABLE>
14
<PAGE> 8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
- ----------------------- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
D. Dwayne Hoven 0 $0 143,695 $1,430,111
572,814 2,187,086
Carl A. Bellini 0 0 44,352 417,653
211,411 937,202
Gregory K. Raven (1) 0 0 126,277 1,408,271
208,230 1,482,094
James P. Mastrian 0 0 48,268 506,232
143,268 742,353
Jack A. Staph 0 0 66,434 747,152
95,880 660,987
<FN>
- ---------------
(1) On August 3, 1995, Gregory K. Raven announced his resignation from his
positions with the Company.
</TABLE>
15
<PAGE> 9
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG REVCO D.S., INC., S & P 500 INDEX, AND PEER GROUP(A)
Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95
REVCO 100 141.81 195.59 247.06
S & P 81.43 91.03 100 111.61 116.37 139.86
PEER 75.63 101.6 100 115.15 118.85 142.46
(a) Peer group consists of the Company and the following drugstore chains: Arbor
Drugs, Inc.; Big B, Inc.; Drug Emporium, Inc.; F&M Distributors; Fay's Inc.;
Genovese Drug Stores, Inc.; Longs Drug Stores Corporation; Rite Aid
Corporation; and Walgreen Co.
The first day of trading of the Company's common stock was June 1, 1992.
For purposes of constructing the above performance chart, the base year (i.e.
100) was set at June 1992, the beginning of the Company's 1993 fiscal year.
16
<PAGE> 10
REPORT OF THE HUMAN RESOURCES COMMITTEE
Dear Stockholders:
The Human Resources Committee (the "Committee") was created in June 1992.
The current Committee consists of four members, none of whom is an employee of
the Company. The Committee's functions include the review and approval of the
Company's executive compensation structure and overall benefits program.
Specifically, the Committee (i) reviews and recommends to the Board the
financial targets for the Executive Compensation Program (as described below);
(ii) reviews and approves long-term incentive plans and makes recommendations to
the Board; (iii) reviews and approves other matters relating to officer and key
employee compensation; (iv) approves incentive objectives for members of the
management executive committee for the upcoming fiscal year; (v) reviews and
approves awards for the immediately preceding fiscal year under the Executive
Compensation Program, and advises the Board of Directors; and (vi) reviews and
approves salary increases for members of the management executive committee.
The Committee believes that executive compensation should be tied closely
to corporate performance, and to that end has taken steps to restructure certain
elements of the executive compensation program to ensure that executive
compensation is directly linked to total stockholder value. During the fiscal
year ended June 3, 1995, there were three major components of executive
compensation: base salary and bonus under the Revco Executive Compensation
Program, and awards under the Incentive Plan. Each of these components is
further discussed below.
EXECUTIVE COMPENSATION PROGRAM
Base salary and bonus guidelines are set forth in the Revco Executive
Compensation Program. The purpose of the Executive Compensation Program is to
establish and maintain a performance and achievement oriented environment
throughout the Company. The program emphasizes the development of the Company so
as to achieve and sustain above average growth in earnings with excellence in
management, retailing, pharmacy and customer service. With this emphasis in
mind, the program is designed so that executives may earn higher than average
total compensation (base salary plus bonus) for doing an above-average job.
BASE SALARY. The Company's overall salary structure is reviewed annually,
using outside executive compensation surveys of the retail industry in general
and chain drugstores in particular, to ensure that it remains competitive.
Positions are classified within the salary structure on the basis of assigned
responsibilities. The salary mid-point of a grade assigned to a position is the
salary level that approximates the Company's judgment, based on an evaluation of
the latest survey information available, as to appropriate compensation levels.
Where salary information is unavailable for a particular position, the salary
grade assigned is based on other positions having similar responsibilities
within the Company and in companies with comparable revenues.
Individual base salaries are reviewed at least annually; however, salaries
are not necessarily increased each year. Decisions relating to salary increases
are based upon guidelines furnished by senior management. Salary increases are
granted based on each executive's performance as well as his position in the
applicable salary range.
Based on the most recent outside executive compensation surveys, the
Committee believes that the Company's executive compensation ranks in the median
among the general retail industry and in the upper quartile among chain
drugstores.
BONUS. On July 27, 1993 the Board of Directors approved the Committee's
recommendation, which was based on an extensive review of the Company's previous
bonus program in consultation with an outside firm, that the bonus program be
modified. The objectives underlying the revised bonus program are to (i) more
closely link bonus awards to value added for the Company's stockholders, and
(ii) promote a culture of performance and ownership among the Company's
managers. The program involves sharing certain of the Company's business risks
with stockholders, but also provides access to the upside potential associated
with value creation. Accordingly, the program rewards long-term enduring
improvements in stockholder value. The
17
<PAGE> 11
program, as revised effective with the 1995 fiscal year to ensure the existence
of a direct link between bonuses and total stockholder value, is described
below. All executive officers and senior managers, and certain regional and
district managers are eligible to receive bonuses under the bonus program.
Awards under the bonus program are focused on the generation of improved
economic value added ("EVA"), which consists of net operating profit after
taxes, as reduced by a capital charge. EVA results from (i) enhanced business
efficiencies, (ii) profitable growth, and (iii) strategic expense reduction. For
the fiscal year ended June 3, 1995, EVA was $40.289 million and target EVA was
$20.379 million. At the beginning of each fiscal year, participants in the bonus
program are credited with a number of performance units equal to their target
bonus, which is a percentage (ranging from 15% to 60% for the Chief Executive
Officer) of their base compensation. At the end of the fiscal year the units
have a value based on the Company's EVA performance. If EVA improves
sufficiently (currently, EVA for a fiscal year must improve by $5 million from
the average of the previous year's actual EVA and the previous year's target
EVA), the units have a $1.00 value and the target award is earned.
Underperformance results in a less than $1.00 unit value while particularly
strong performance generates a greater than $1.00 value. The percentage increase
or decrease is determined by reference to an EVA target interval based on a
percentage of the Company's capital (currently, the Company must achieve an EVA
increase of $14 million over the annual target EVA in order to achieve a unit
value or $2.00). More specifically, the excess or deficit of actual EVA over
target EVA is divided by the target interval to determine the percentage value
of a unit. Bonus awards flow through a "bonus bank". If the bank balance is less
than a specified percentage of the target award (currently 125%), the entire
balance is paid; however, when the bank balance exceeds the specified percentage
of the target award, only a portion of the excess (currently 1/3) is paid
currently, and the balance is deferred and ultimately paid only if EVA
performance is sustained. At the end of each three-year period, the expected EVA
improvement target, as well as the EVA target interval, is adjusted to equal a
percentage of the Company's ending capital at such time based on the average EVA
improvement of certain representative companies and the average standard
deviation of EVA of these companies. The amount of the bonus paid to the
participants other than the Chief Executive Officer is also subject to the
participant's satisfaction of individual performance objectives. The portion of
the bonus based on satisfaction of individual performance goals ranges from 25%
to 75%. For the plan year ended June 3, 1995, the Company exceeded target EVA
with respect to the named executive officers by 142.21%, resulting in a value
per unit of $2.42.
LONG-TERM INCENTIVE PLAN
The Incentive Plan was adopted by the Board of Directors on July 27, 1992
and approved by the Company's stockholders on October 14, 1992. There are
6,520,000 shares of Common Stock reserved for issuance under the Incentive Plan;
as of August 18, 1995, 2,571,721 shares remained available for grants under the
Incentive Plan. The Incentive Plan provides for the grant of incentive and
non-qualified stock options, reload options, stock appreciation rights,
restricted stock awards, stock bonus awards and performance plan awards. The
Committee administers the Incentive Plan and has sole discretion to determine
those employees to whom awards will be granted, the number of awards to be
granted, the provisions applicable to each award and the time periods during
which the awards may be exercised. No awards may be granted after July 27, 2002.
To date, long-term incentive awards granted under the Incentive Plan
consist solely of non-qualified stock options. In order to enhance the link to
stockholder value and to create a strong performance requirement for options,
the options include a 5% cost of capital charge. Under this approach, the
exercise price of options granted under the Incentive Plan increases annually by
5% until the shares subject to the option vest.
Awards made under the Incentive Plan are intended to provide key employees
with additional incentives designed to enhance the profitable growth of the
Company as well as the value of the Company's common stock. During the fiscal
year ended June 3, 1995, the Committee awarded non-qualified stock options to
acquire 336,009 shares of Common Stock, at a price per share of $18, to the
President and Chief Executive Officer, and an aggregate of 302,120 shares, at an
average price per share of $18.10, to the other named executive officers, for a
total of 638,129 of the 1,485,239 options that were awarded under the Incentive
Plan for the fiscal year ended June 3, 1995. These awards were made in
recognition of the Company's strong
18
<PAGE> 12
financial performance and commitment to excellence in the conversion of stores
acquired from Hook-SupeRx, Inc., and were based on a multiple of competitive
annual grants as observed in the marketplace for persons in similar positions.
Based on the survey information referred to above, the Committee believes that
when the value of these stock options is considered in combination with cash
compensation levels, the resulting total compensation opportunities for each of
the named executive officers falls within the range of retail industry and chain
drugstore compensation levels.
With the exception of a total of 75,000 immediately vested grants (25,000
of which were awarded to the Chief Executive Officer, all of which have been
exercised) made on July 27, 1992 to the named executive officers, awards made
under the Incentive Plan vest over a period of five years at a rate of 20% each
year, thereby encouraging the retention of key employees who receive awards.
During the fiscal year ended June 3, 1995, the Committee adjusted the number of
options held by officers and key employees through the grant of fair market
value options pursuant to anti-dilution provisions of the Incentive Plan as a
result of the completion during the fiscal year of a rights offering.
COMPLIANCE WITH SECTION 162(M) OF THE CODE
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying "performance-based compensation" will not be
subject to the deduction limit if certain requirements are met. The Company may
modify the bonus program from time to time to the extent necessary to ensure
satisfaction of the requirements of Section 162(m). The Committee intends to
take the position that the bonus portion of the program, as well as certain
elements of the 1992 Long-Term Incentive Plan satisfy the requirements of
Section 162(m); however, there can be no assurance that the incentive and
performance-related elements of the program will in fact qualify as "performance
based compensation" under Section 162(m) of the Code or that the tax
deductibility of compensation paid pursuant thereto will not in fact be limited
by the $1 million statutory cap on deductible executive compensation.
RESPECTFULLY SUBMITTED,
<TABLE>
<S> <C>
Talton R. Embry, Chairman Ben Evans
Rod F. Dammeyer Sheli Z. Rosenberg
</TABLE>
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVES
The Company has entered into employment agreements (the "Executive
Employment Agreements") with each of the named executive officers. Each of the
Executive Employment Agreements is effective until terminated by the Company or
the named executive officer, with or without cause. The Executive Employment
Agreements provide that, in the event of a termination for cause by the named
executive officer or a termination without cause by the Company, the Company
will have an obligation to continue benefits and to pay the terminated named
executive officer's salary for a period of 24 months.
DEFINED BENEFIT PLAN
The Revco Retirement Income Plan and Trust, as amended ("Pension Plan"), is
a defined benefit pension plan generally covering employees of the Company,
other than those covered by collective bargaining agreements that provide for
pension benefits.
On reaching normal retirement at or after age 65, a participant is
generally entitled to receive a monthly retirement benefit for life. Alternative
actuarially equivalent forms of benefit payments are provided for in the Pension
Plan. Vesting under the Pension Plan occurs after five years of service (with no
vesting where less than five years of service has been completed).
The annual retirement benefit at the normal retirement age of at least 65
is equal to an amount which, when added to the participant's social security
benefit, is the product of the employee's average earnings for the last five
years of his service and the applicable percentage set forth in the table below.
If the employee has
19
<PAGE> 13
fewer than 30 years of credited service with the Company, the benefit determined
by this formula is reduced by a percentage determined substantially by the ratio
of the number of years of credited service to 30. A participant who has attained
age 55 and has completed five years of service may elect early retirement with
reduced monthly benefit payments.
The amounts shown in the following table are based on the pension being
paid during the lifetime of the retired employee only, including social security
benefits, and would be reduced for service of less than 30 years and on an
actuarially equivalent basis in the event of a survivor benefit or other
optional form of payment.
<TABLE>
<CAPTION>
RETIREMENT BENEFIT
FINAL AVERAGE (% OF FINAL
MONTHLY PAY AVERAGE PAY)
------------------------- ------------------
<S> <C>
$ 500 81%
1,000 73
1,500 65
2,000 60
2,500 56
3,000 54
3,500 52
4,000 51
4,500 or more 50
</TABLE>
The following table sets forth the estimated annual benefits (including
social security) payable to a participant who qualifies for normal retirement in
1995 with the specified average earnings during the last five calendar years
prior to retirement and the specified years of credited service:
<TABLE>
<CAPTION>
AVERAGE ANNUAL EARNINGS
FOR YEARS OF CREDITED SERVICE
FIVE-YEAR PERIOD ----------------------------------------------------------------------
PRECEDING RETIREMENT(1) 10 15 20 25 30 OR MORE
- -------------------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$125,000 $ 30,426 $ 38,445 $ 46,464 $ 54,483 $ 62,500
150,000 34,592 44,694 54,796 64,898 75,000
175,000 38,758 50,943 63,128 75,313 87,500
200,000 42,926 57,195 71,464 85,733 100,000
225,000 47,092 63,444 79,796 96,148 112,500
250,000 51,258 69,693 88,128 106,563 125,000*
300,000 59,592 82,194 104,796 127,398* 150,000*
400,000 76,258 107,193 138,128* 169,063* 200,000*
450,000 84,592 119,694 154,795* 189,898* 225,000*
500,000 92,926 132,195* 171,463* 210,733* 250,000*
600,000 109,592 157,194* 204,796* 252,398* 300,000*
700,000 126,258* 182,193* 238,128* 294,063* 350,000*
<FN>
- ---------
(1) For plan years beginning on or after January 1, 1989, the Code limits the
amount of compensation that can be used for plan calculation purposes to
$200,000 (indexed). For plan years beginning on or after January 1, 1994,
this limit is reduced to $150,000 (indexed).
* As required by the Code, plan payments may not provide annual benefits
exceeding a maximum amount, currently $120,000.
</TABLE>
The years of credited service of those individuals named in the Cash
Compensation Table as of June 3, 1995, were: Mr. Hoven--6.9167; Mr.
Bellini--3.7500; Mr. Raven--7.5000; Mr. Staph--22.1667; and Mr.
Mastrian--4.2500. The amounts covered under the Pension Plan include salary and
bonus for each of the named executive officers in the summary compensation
table.
20
<PAGE> 1
Exhibit 15
[Zell/Chilmark]
TERMINATION AGREEMENT
TERMINATION AGREEMENT ("Agreement") dated as of the 29th day of November,
1995, by and between REVCO D.S., INC., a Delaware corporation (the "Company"),
and ZELL/CHILMARK FUND, L.P., a Delaware limited partnership (the
"Stockholder").
RECITALS
WHEREAS, the Company and the Stockholder previously entered into a
Stockholder's Agreement dated as of June 1, 1992 (the "Existing Stockholder's
Agreement");
WHEREAS, the Company and the Stockholder previously entered into a
Registration Rights Agreement dated as of June 1, 1992 (the "Existing
Registration Rights Agreement" and, together with the Existing Stockholder's
Agreement, the "Existing Agreements");
WHEREAS, Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean
Acquisition Corporation, a Delaware corporation ("Sub") and the Company intend
to enter into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Sub will commence a cash tender offer for the issued and outstanding
shares of common stock, par value $.01 per share, of the Company (the "Offer")
and subsequent thereto, Sub will be merged with and into the Company;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required the Company and the Stockholder to terminate the
Existing Agreements.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties agree as follows:
1. Effective as of the consummation of the Offer, the Existing Agreements
will be terminated and will be of no further force and effect. Accordingly,
effective as of the consummation of the Offer, the parties hereto will have no
rights or obligations with respect to the Existing Agreements, all of which
rights and obligations will be void and of no further force and effect.
2. This Agreement will be governed and construed in accordance with the laws
of the State of Delaware without giving effect to the principles of conflicts
of law thereof.
<PAGE> 2
3. This Agreement may be executed in two or more counterparts, all of which
will be considered one and the same agreement and will become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
REVCO D.S., INC. ZELL/CHILMARK FUND, L.P.
By: /s/ D. Dwayne Hoven By: ZC Limited Partnership,
-------------------------- general partner
Name: D. Dwayne Hoven
Title: President and By: ZC Partnership,
Chief Executive general partner
Officer
By: CZ Inc.,
a partner
By: /s/ Sheli Z. Rosenberg
--------------------------
Name: Sheli Z. Rosenberg
Title: Vice President
2
<PAGE> 1
Exhibit 16
[Magten]
TERMINATION AGREEMENT
TERMINATION AGREEMENT ("Agreement") dated as of the 29th day of November,
1995, by and between REVCO D.S., INC., a Delaware corporation (the "Company"),
and MAGTEN ASSET MANAGEMENT CORPORATION, as agent for and on behalf of
individual investment advisory clients, a Delaware corporation (as used herein,
the term "Stockholder" shall mean Magten Asset Management Corporation, as agent
for and on behalf of such investment advisory clients).
RECITALS
WHEREAS, the Company and the Stockholder previously entered into a
Registration Rights Agreement dated as of January 20, 1993 (the "Existing
Agreement");
WHEREAS, Rite Aid Corporation, a Delaware corporation ("Parent"), Ocean
Acquisition Corporation, a Delaware corporation ("Sub") and the Company intend
to enter into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Sub will commence a cash tender offer for the issued and outstanding
shares of common stock, par value $.01 per share, of the Company (the "Offer")
and subsequent thereto, Sub will be merged with and into the Company;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required the Company and the Stockholder to terminate the
Existing Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties agree as follows:
1. Effective as of the consummation of the Offer, the Existing Agreement will
be terminated and will be of no further force and effect. Accordingly,
effective as of the consummation of the Offer, the parties hereto will have no
rights or obligations with respect to the Existing Agreement, all of which
rights and obligations will be void and of no further force and effect.
2. This Agreement will be governed and construed in accordance with the laws
of the State of Delaware without giving effect to the principles of conflicts
of law thereof.
3. This Agreement may be executed in two or more counterparts, all of which
will be considered one and the same agreement and will become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
REVCO D.S., INC. MAGTEN ASSET MANAGEMENT
CORPORATION, as agent for
and on behalf of individual
investment advisory clients
By: /s/ D. Dwayne Hoven By: /s/ Talton R. Embry
------------------------- -------------------------
Name: D. Dwayne Hoven Name: Talton R. Embry
Title: President and Chief Title: Chairman
Executive Officer
2
<PAGE> 1
Exhibit 17
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
EVELYN SILVERT,, :
: C.A. No. 14717
Plaintiff, :
:
v. :
:
REVCO D.S. INC., CARL A. BELLINI, LIVIO M. BORGHESE, ROD F. :
DAMMEYER, TALTON R. EMBRY, BEN EVANS, JOHN V. GUTTAG, D. :
DWAYNE HOVEN, WALTER B. REINHOLD, SHELI Z. ROSENBERG, DAVID :
M. SCHULTE, THOMAS O. THORSEN, SAM ZELL and RITE AID :
CORP., :
:
Defendants. :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
CLASS ACTION COMPLAINT
----------------------
Plaintiff, by her attorneys, alleges upon information and belief, except
with respect to her ownership of common stock of Revco D.S. Inc. ("Revco") as
follows:
PARTIES
-------
1. Plaintiff is the owner of shares of defendant Revco.
2. Revco D.S. Inc. is a Delaware corporation with executive offices at 1925
Enterprise Parkway, Twinsburg, Ohio 44087-2271. Revco operates retail drug
stores, typically featuring prescription and over-the-counter drugs, health and
<PAGE> 2
beauty aids, toiletries, vitamins, tobacco products and sundries. As of
October 4, 1995, Revco had approximately 67,149,458 shares of common stock
outstanding.
3. Defendant Carl A. Bellini is Executive Vice President, Chief Operating
Officer and a director of Revco.
4. Defendant Livio M. Borghese is a director of Revco.
5. Defendant Rod F. Dammeyer is a director of Revco.
6. Defendant Talton R. Embry is a director of Revco.
7. Defendant Ben Evans is a director of Revco.
8. Defendant John V. Guttag is a director of Revco.
9. Defendant D. Dwayne Hoven is Chief Executive
Officer, President and a director of Revco.
10. Defendant Walter B. Reinhold is a director of Revco.
11. Defendant Sheli Z. Rosenberg is a director of Revco.
12. Defendant David M. Schulte is a director of Revco. Schulte is, and
has since 1990, together with defendant Sam Zell, acted as a general partner of
affiliates of Zell Chilmark Fund, L.P.
2
<PAGE> 3
13. Defendant Thomas O. Thorsen is a director of Revco.
14. Defendant Sam Zell is a director of Revco. Zell, individually and/or
through Zell Chilmark Fund, L.P., owns and/or controls approximately 19.52% of
Revco's common stock. Revco pays certain fees to Zell Chilmark Fund, L.P.
and/or its affiliates.
15. The foregoing Directors of Revco (collectively the "Director
Defendants"), owe fiduciary duties to Revco and its public shareholders.
16. Rite Aid Corp. ("Rite Aid") is a Delaware corporation with executive
offices at 30 Hunter Lane, Camp Hill, Pennsylvania 17011-2404.
Rite Aid operates retail drug stores, discount automotive parts stores,
discount book stores, dry cleaning establishments, and specialized
laboratories. As of September 2, 1995, Rite Aid had approximately 85,750,467
shares of common stock outstanding. Rite Aid knowingly and substantially
participated in and is benefitting from breaches of fiduciary duties alleged
herein, and therefore is liable as an aider and abettor thereof.
CLASS ACTION ALLEGATIONS
------------------------
17. Plaintiff brings this action on her own behalf and as a class action
on behalf of all shareholders of
3
<PAGE> 4
defendant Revco (except defendants herein and any person, firm, trust,
corporation or other entity related to or affiliated with any of the
defendants) or their successors in interest, who have been or will be adversely
affected by the conduct of defendants alleged herein.
18. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable.
As of October 4, 1995, there were over 67 million shares of Revco common stock
outstanding owned by shareholders scattered throughout the United States.
(b) There are questions of law and fact which are common to members of
the Class and which predominate over any questions affecting any individual
members. The common questions include, inter alia, the following:
i. Whether one or more of the defendants has engaged in a plan and
scheme to entrench and/or enrich themselves at the expense of defendant
Revco's public stockholders in the sale of Revco;
ii. Whether the Director Defendants have engaged in a proper process
to ensure maximization of Revco shareholder value;
4
<PAGE> 5
iii. Whether the Director Defendants have breached fiduciary duties owed
by them to plaintiff and members of the Class, and/or have aided and abetted in
such breaches, by virtue of their participation and/or acquiescence and by
their other conduct complained of herein;
iv. Whether the Director Defendants have wrongfully failed adequately to
seek a purchaser of Revco at the highest available price and, instead, have
agreed to allow the valuable assets of Revco to be acquired by Rite Aid at an
unfair and inadequate price and without paying an appropriate premium to
Revco's public shareholders;
v. Whether the structure of Rite Aid's acquisition of Revco is wrongfully
coercive and/or will wrongfully impede maximization of Revco shareholder value;
vi. Whether plaintiff and the other members of the Class will be
irreparably damaged by the conduct and transactions complained of herein; and
vii. Whether defendants have breached or aided and abetted the breaches
of the fiduciary and other common law duties owed by them to plaintiff and the
other members of the Class.
19. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are
5
<PAGE> 6
typical of the claims of the other members of the Class and plaintiff has the
same interest as the other members of the Class. Accordingly, plaintiff is an
adequate representative of the Class and will fairly and adequately protect the
interests of the Class.
20. Defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate injunctive relief with
respect to the Class as a whole.
21. The prosecution of separate actions by individual members of the Class
could create a risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for defendants or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications.
22. Plaintiff anticipates that there will not be any difficulty in the
management of this litigation.
23. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
6
<PAGE> 7
SUBSTANTIVE ALLEGATIONS
-----------------------
24. On November 30, 1995, it was announced that Revco and Rite Aid agreed
for Rite Aid to acquire Revco (the "Transaction"). Under the terms of the
Transaction, Rite Aid will commence a first-step cash tender offer at $27.50
cash per Revco share for at least 50.1% of the Revco shares outstanding, and
the remaining shares of Revco will be acquired by Rite Aid in a second-step
merger in exchange for Rite Aid stock.
25. However, reportedly the value of the Rite Aid common stock that will
be exchanged for the Revco shares in the second-step merger will be determined
from 15 random days within the 40 day period leading up to the Revco
shareholder vote on the merger. If the average market value of Rite Aid stock
during the selected days is $27.50, the share exchange will be one-for-one. If
Rite Aid stock value is above or below $27.50 per share, the amount paid to
Revco shareholders will be adjusted up or down but only to reflect 50% of the
divergence from the $27.50 price. Rite Aid will not issue less than .91666 or
more than 1.125 of its shares for each Revco share. If the average value of
Rite Aid stock is less than $27.50, Rite Aid will have the additional option of
delivering one of its shares plus cash equal to 50% of the
7
<PAGE> 8
decrease in Rite Aid's share price. In no event will more than $2.75 per Revco
share be paid in cash. Further, if all other conditions of the merger are
satisfied, but Rite Aid shareholders do not approve the issuance of Rite Aid
stock pursuant to the merger, each Revco share will be converted into the right
to receive a combination of cash and Rite Aid common stock representing an
aggregate of 19.9% of Rite Aid's outstanding shares.
26. Moreover, further impeding maximization of Revco shareholder value,
the Director Defendants have agreed to and Revco has granted Rite Aid an option
to purchase 19.9% of Revco's shares under certain circumstances for $27.50 per
share (the "Lock-Up").
27. On November 29, 1995, Revco's shares closed at $25.50 per share.
Thus, even the $27.50 per share tender offer price represents less than an 8%
premium over the pre-announcement closing price of Revco.
28. Defendants, acting in concert, have violated fiduciary duties owed to
the public shareholders of Revco and put certain of defendants' own personal
interests and the interests of defendant Rite Aid ahead of the interests of the
Revco public shareholders.
29. The Director Defendants apparently failed to (1) undertake an adequate
evaluation of Revco's worth as a
8
<PAGE> 9
potential merger/acquisition candidate; (2) take adequate steps to enhance
Revco's value and/or attractiveness as a merger/acquisition candidate; or (3)
effectively expose Revco to the marketplace in an effort to create an active
and open auction for Revco. Instead, defendants have agreed to a sale of Revco
to Rite Aid pursuant to terms which will coerce Revco shareholders to tender
into the tender offer and impede maximization of shareholder value through
their conduct including the Lock-Up.
30. While the Director Defendants should continue to seek out other
possible purchasers of the assets of Revco or its stock in a manner designed to
obtain the best transaction reasonably available for Revco's shareholders, or
seek to enhance the value of Revco for all its current shareholders, they have
instead resolved wrongfully to allow Rite Aid to obtain the valuable assets of
Revco at an inadequate price which disproportionately benefits Rite Aid, and
have wrongfully agreed to the Lock-Up further impeding maximization of
shareholder value.
31. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to Revco's public shareholders. These maneuvers
by the defendants will deny members of the Class an appropriate premium in the
sale of Revco and the opportunity to share appropriately
9
<PAGE> 10
in the true value of Revco's assets, future earnings and businesses.
32. In contemplating, planning and/or effecting the foregoing, defendants
are not acting in good faith toward plaintiff and the Class, and defendants
have breached, and are breaching, their fiduciary duties to plaintiff and the
Class.
33. Because the Director Defendants (and those acting in concert with
them) dominate and control the business and corporate affairs of Revco and
because they are in possession of private corporate information concerning
Revco's businesses and future prospects, there exists an imbalance and
disparity of knowledge and economic power between the defendants and the public
shareholders of Revco.
34. By reason of the foregoing acts, practices and course of conduct, the
Director Defendants have failed to exercise loyalty, good faith and due care
toward Revco and its public shareholders.
35. As a result of the actions of the Defendants, plaintiff and the Class
have been and will be damaged and have been and will be impeded from obtaining
the highest value available for their shares of Revco common stock.
36. Unless enjoined by this Court, the Director Defendants will continue
to breach fiduciary duties owed to
10
<PAGE> 11
plaintiff and the Class, all to the irreparable harm of the Class.
37. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring that this action may be maintained as a class action;
B. Declaring that the proposed Transaction is unfair, unjust and
inequitable to plaintiff and the other members of the Class;
C. Enjoining preliminarily and permanently the defendants from taking any
steps necessary to accomplish or implement the proposed Transaction that is
not fair and equitable, and enjoining any improper device or transaction which
will impede maximization of shareholder value;
D. Requiring defendants to compensate plaintiff and the members of the
Class for all losses and damages suffered and to be suffered by them as a
result of the acts and transactions complained of herein, together with
prejudgment and post-judgment interest;
E. Awarding plaintiff the costs and disbursements of this action, including
reasonable attorneys', accountants', and experts' fees; and
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F. Granting such other and further relief as may be just and proper.
Dated: November 30, 1995 CHIMICLES, JACOBSEN & TIKELLIS
_______________________________
Pamela S. Tikellis
James C. Strum
Robert J. Kriner, Jr.
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
Attorneys for Plaintiff
OF COUNSEL:
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ, LLP
Jeffrey C. Smith, Esquire
270 Madison Avenue, 9th Floor
New York, New York 10016
(212) 545-4600
FARUQUI & FARUQUI, LLP
415 Madison Avenue
New York, New York 10017
(212) 986-1074
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