-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pXizJQ9/ynPDdhLBZNx9G8Gz/MYNWleTpxqunxod+fj7n1ebiNThfMf/3zCSL1mo B6VOrcLN4boxN17Sa/Z3bg== 0000889812-94-000138.txt : 19941230 0000889812-94-000138.hdr.sgml : 19941230 ACCESSION NUMBER: 0000889812-94-000138 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19941229 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PERRY DRUG STORES INC CENTRAL INDEX KEY: 0000077628 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 380947300 STATE OF INCORPORATION: MI FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-13541 FILM NUMBER: 94566945 BUSINESS ADDRESS: STREET 1: 5400 PERRY DR STREET 2: P O BOX 436021 CITY: PONTIAC STATE: MI ZIP: 48343-6021 BUSINESS PHONE: 3133341300 MAIL ADDRESS: STREET 1: 5400 PERRY DR P O BOX 436021 STREET 2: 5400 PERRY DR P O BOX 436021 CITY: PONTIAC STATE: MI ZIP: 48343-6021 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0304 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 30 HUNTER LANE CITY: CAMP HILL OWN STATE: PA ZIP: 17011 BUSINESS PHONE: 7177612633 MAIL ADDRESS: STREET 1: PO BOX 3165 CITY: HARRISBURG STATE: PA ZIP: 17105 FORMER COMPANY: FORMER CONFORMED NAME: LEHRMAN LOUIS & CO DATE OF NAME CHANGE: 19680510 FORMER COMPANY: FORMER CONFORMED NAME: RACK RITE DISTRIBUTORS DATE OF NAME CHANGE: 19680510 SC 14D1 1 TENDER OFFER STATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ PERRY DRUG STORES, INC. ------------------------ (NAME OF SUBJECT COMPANY) LAKE ACQUISITION CORPORATION RITE AID CORPORATION ------------------------ (BIDDERS) COMMON STOCK, $.05 PAR VALUE ------------------------ (TITLE OF CLASS OF SECURITIES) 714611 10 0 ------------------------ (CUSIP NUMBER OF CLASS OF SECURITIES) FRANKLIN C. BROWN, ESQ. EXECUTIVE VICE PRESIDENT AND CHIEF LEGAL COUNSEL RITE AID CORPORATION 30 HUNTER LANE CAMP HILL, PA 17011 TELEPHONE: (717) 761-2633 ------------------------ (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) With a copy to: NANCY A. LIEBERMAN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM 919 THIRD AVENUE NEW YORK, NY 10022 TELEPHONE: (212) 735-3000 ------------------------ CALCULATION OF FILING FEE TRANSACTION VALUATION* AMOUNT OF FILING FEE** $134,017,752 $26,803.55 * Estimated for purpose of calculating the filing fee only. The calculation assumes the purchase of 11,842,382 shares of common stock, $.05 par value (the 'Shares') (which represents 12,027,382 Shares outstanding less 185,000 Shares owned by the Bidders), and 341,050 Shares reserved for issuance upon exercise of options, at a price per Share of $11.00 in cash. Such number of Shares represents all the Shares outstanding as of December 23, 1994, and assumes the exercise of all existing options to acquire Shares from the Company. **The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate value of cash offered by Lake Acquisition Corporation for such number of Shares. / / Check box if any part of the fee is offset as provided Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. AMOUNT PREVIOUSLY PAID: NOT APPLICABLE FILING PARTY: NOT APPLICABLE FORM OR REGISTRATION NO.: NOT APPLICABLE DATE FILED: NOT APPLICABLE PAGE 1 OF PAGES EXHIBIT INDEX IS LOCATED ON PAGE 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP NO. 714611 10 0 14D-1 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS LAKE ACQUISITION CORPORATION (I.R.S. Identification Number to be applied for.) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f). / / N/A - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,115,284* - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / N/A - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 9.27%* - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- * On December 23, 1994, Rite Aid Corporation, a Delaware corporation ('Parent'), and Lake Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ('Purchaser'), entered into Shareholders Agreements (the 'Shareholders Agreements') with a Mr. Jack Robinson and Mrs. Aviva Robinson (collectively, the 'Selling Shareholders'), shareholders of Perry Drug Stores, Inc. (the 'Company'), pursuant to which the Selling Shareholders agreed, among other things, to tender an aggregate of 1,115,284 shares of common stock, $.05 par value per share (the 'Shares'), of the Company owned by them (representing approximately 9.02% of the Shares outstanding calculated on a fully diluted basis excluding shares reserved for issuance upon conversion of the Convertible Debentures (as defined herein)) into Purchaser's offer to purchase all of the outstanding Shares. Upon certain circumstances, Parent also has the right to acquire from the Selling Shareholders all of their Shares. The Shareholders Agreements are described more fully in Section 11 of the Offer to Purchase, dated December 29, 1994. 2 CUSIP NO. 714611 10 0 14D-1 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS RITE AID CORPORATION (23-1614034) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS BK, WC, 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f). / / N/A - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware - -------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,300,284* - -------------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / N/A - -------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 10.81%* - -------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- * On December 23, 1994, Rite Aid Corporation, a Delaware corporation ('Parent'), and Lake Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ('Purchaser'), entered into Shareholders Agreements (the 'Shareholders Agreements') with a Mr. Jack Robinson and Mrs. Aviva Robinson (collectively, the 'Selling Shareholders'), shareholders of Perry Drug Stores, Inc. (the 'Company'), pursuant to which the Selling Shareholders agreed, among other things, to tender an aggregate of 1,115,284 shares of common stock, $.05 par value per share (the 'Shares'), of the Company owned by them (representing approximately 9.02% of the Shares outstanding calculated on a fully diluted basis excluding shares reserved for issuance upon conversion of the Convertible Debentures (as defined herein)) into Purchaser's offer to purchase all of the outstanding Shares. Upon certain circumstances, Parent also has the right to acquire from the Selling Shareholders all of their Shares. The Shareholders Agreements are described more fully in Section 11 of the Offer to Purchase, dated December 29, 1994. 3 TENDER OFFER This Tender Offer Statement on Schedule 14D-1 is filed by Lake Acquisition Corporation, a Delaware corporation ('Purchaser'), and Rite Aid Corporation, a Delaware corporation and the owner of all of the outstanding capital stock of Purchaser ('Parent'), relating to the offer by Purchaser to purchase all outstanding shares of common stock, $.05 par value (the 'Shares'), of Perry Drug Stores, Inc. (the 'Company'), at $11.00 per Share, net to the seller in cash, on the terms and subject to the conditions set forth in the Offer to Purchase, dated December 29, 1994 (the 'Offer to Purchase'), and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively (which, as amended from time to time, together constitute the 'Offer'). ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Perry Drug Stores, Inc., a Michigan corporation (the 'Company'). The address of the Company's principal executive offices is 5400 Perry Drive, P.O. Box 436021, Pontiac, MI 48343-6021. (b) The information set forth on the cover page under 'Introduction' in the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d); (g) This Statement is filed by Purchaser and Parent. The information set forth on the cover page, under 'Introduction,' in Section 8 and in Schedule I of the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five years, neither Purchaser or Parent nor, to their knowledge, any of the persons listed in Schedule I (Directors and Executive Officers) to the Offer to Purchase, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) None. (b) The information set forth under 'Introduction' and in Sections 10 and 11 of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth under 'Introduction' and in Section 9 of the Offer to Purchase is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS. (a)-(e) The information set forth under 'Introduction' and Sections 10 and 11 of the Offer to Purchase is incorporated herein by reference. (f)-(g) The information set forth in Section 13 of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth under 'Introduction' and in Schedule II of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth under 'Introduction' and in Section 11 of the Offer to Purchase is incorporated herein by reference. 4 ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth under 'Introduction' and in Section 16 of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth under 'Introduction' and in Section 11 of the Offer to Purchase is incorporated herein by reference. (b)-(e) The information set forth in Sections 13 and 15 of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated December 29, 1994. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement, dated December 29, 1994. (a)(8) Text of Press Release, dated December 27, 1994. (b)(1) Form of Credit Agreement, dated as of February 7, 1994, as amended by Amendment No. 1 dated as of February 16, 1994, by and among Parent and Morgan Guaranty Trust Company of New York, as agent, and the financial institutions named therein. (c)(1) Agreement and Plan of Merger, dated as of December 23, 1994, by and among Parent, Purchaser and the Company. (c)(2) Shareholders Agreement, dated as of December 23, 1994, by and among Parent, Purchaser and Mr. Jack Robinson. (c)(3) Shareholders Agreement, dated as of December 23, 1994, by and among Parent, Purchaser and Mrs. Aviva Robinson. (c)(4) Consulting Agreement, dated as of December 23, 1994, by and between Parent and Mr. Jack Robinson. (c)(5) Confidentiality Agreement, dated December 14, 1994, by and between Parent and the Company. (d) None. (e) Not applicable. (f) None. 5 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: December 29, 1994 RITE AID CORPORATION By: /s/ MARTIN L. GRASS ---------------------------------- Name: Martin L. Grass Title: President and Chief Operating Officer 6 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: December 29, 1994 LAKE ACQUISITION CORPORATION By: /s/ MARTIN L. GRASS ---------------------------------- Name: Martin L. Grass Title: Vice President 7 EXHIBIT INDEX
PAGE EXHIBIT DESCRIPTION NO. - ---------- -------------------------------------------------- ----- (a)(1) -- Offer to Purchase, dated December 29, 1994. (a)(2) -- Letter of Transmittal. (a)(3) -- Notice of Guaranteed Delivery. (a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Form of Summary Advertisement, dated December 29, 1994. (a)(8) -- Text of Press Release, dated December 27, 1994. (b)(1) -- Form of Credit Agreement, dated as of February 7, 1994, as amended by Amendment No. 1 dated as of February 16, 1994, by and among Parent and Morgan Guaranty Trust Company of New York, as agent, and the financial institutions named therein. (c)(1) -- Agreement and Plan of Merger, dated as of December 23, 1994, by and among Parent, Purchaser and the Company. (c)(2) -- Shareholders Agreement, dated as of December 23, 1994, by and among Parent, Purchaser and Mr. Jack Robinson. (c)(3) -- Shareholders Agreement, dated as of December 23, 1994, by and among Parent, Purchaser and Mrs. Aviva Robinson. (c)(4) -- Consulting Agreement, dated as of December 23, 1994 by and between Parent and Mr. Jack Robinson. (c)(5) -- Confidentiality Agreement, dated December 14, 1994, by and between Parent and the Company. (d) -- None. (e) -- Not applicable. (f) -- None.
8 EX-99.(A)(1) 2 OFFER TO PURCHASE EXHIBIT (a)(1) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. at $11.00 NET PER SHARE IN CASH by LAKE ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES (AND THE ASSOCIATED RIGHTS) WHICH, WHEN ADDED TO THE SHARES OWNED BY LAKE ACQUISITION CORPORATION (THE 'PURCHASER') AND ITS AFFILIATES, CONSTITUTES AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS, EXCLUDING SHARES RESERVED FOR ISSUANCE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES (AS DEFINED HEREIN). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 14. RITE AID CORPORATION ('PARENT') AND THE PURCHASER HAVE ENTERED INTO SHAREHOLDERS AGREEMENTS WITH MR. JACK ROBINSON, INDIVIDUALLY AND AS TRUSTEE, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE COMPANY, AND MRS. AVIVA ROBINSON, INDIVIDUALLY AND AS TRUSTEE (TOGETHER WITH MR. ROBINSON, THE 'SELLING SHAREHOLDERS'), PURSUANT TO WHICH, AMONG OTHER THINGS, THE SELLING SHAREHOLDERS HAVE AGREED TO TENDER IN THE OFFER, AND HAVE GRANTED PARENT AN OPTION TO ACQUIRE AT THE OFFER PRICE, UPON THE TERMS AND SUBJECT TO THE CONDITIONS THEREOF, ALL SHARES OWNED BY THE SELLING SHAREHOLDERS (OR APPROXIMATELY 9.02% OF THE COMPANY'S OUTSTANDING SHARES CALCULATED ON A FULLY DILUTED BASIS, EXCLUDING SHARES RESERVED FOR ISSUANCE UPON CONVERSION OF THE CONVERTIBLE DEBENTURES). THE BOARD OF DIRECTORS OF PERRY DRUG STORES, INC. UNANIMOUSLY HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF PERRY DRUG STORES, INC., AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's shares of common stock, par value $.05 per share (the 'Common Stock') and the associated Rights (as defined herein, and together with the Common Stock, the 'Shares') should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with the certificate(s) evidencing tendered Shares, and any other required documents, to the Depositary or tender such Shares pursuant to the procedures for book-entry transfer set forth in Section 3 or (ii) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such shareholder desires to tender such Shares. A shareholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedures for book-entry transfer described in this Offer to Purchase on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance, or for additional copies of this Offer to Purchase, the Letter of Transmittal or other tender offer materials, may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. A shareholder may also contact brokers, dealers, commercial banks and trust companies for assistance concerning the Offer. ------------------------ The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. December 29, 1994 TABLE OF CONTENTS
PAGE ------ INTRODUCTION......................................................... 1 THE TENDER OFFER..................................................... 3 1. Terms of the Offer............................................... 3 2. Acceptance for Payment and Payment for Shares.................... 4 3. Procedures for Tendering Shares.................................. 5 4. Withdrawal Rights................................................ 7 5. Certain Federal Income Tax Consequences.......................... 8 6. Price Range of Shares; Dividends................................. 8 7. Certain Information Concerning the Company....................... 9 8. Certain Information Concerning the Purchaser and Parent.......... 10 9. Source and Amount of Funds....................................... 12 10. Background of the Offer; Contacts with the Company............... 13 11. Purpose of the Offer; Plans for the Company; Merger Agreement; Shareholders Agreements; Consulting Agreement; and Other Agreements..................................................... 14 12. Dividends and Distributions...................................... 26 13. Effect of the Offer on the Market for the Shares; Exchange Listing and Exchange Act Registration.......................... 26 14. Conditions of the Offer.......................................... 27 15. Regulatory Approvals; State Takeover Laws........................ 28 16. Fees and Expenses................................................ 30 17. Miscellaneous.................................................... 30 Schedule I--Information Concerning the Directors and Executive Officers of Parent and the Purchaser............................... I-1 Schedule II--Transactions in Shares During the Past 60 Days by Parent............................................................. II-1
i To the Holders of Common Stock of Perry Drug Stores, Inc.: INTRODUCTION Lake Acquisition Corporation (the 'Purchaser'), a Delaware corporation and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), hereby offers to purchase all outstanding shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated Preferred Stock Purchase Rights (the 'Rights' and, together with the Common Stock, the 'Shares') issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (the 'Rights Agreement'), at a price of $11.00 per Share, net to the seller in cash, without interest thereon (the 'Offer Price'), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'). Until the Distribution Date (as defined herein), the Rights will be evidenced by and trade with the certificates evidencing the Common Stock. See Section 11 for a brief description of the Rights Agreement and its application to the Offer and the Merger (as defined herein). Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. The Purchaser will pay all charges and expenses of Harris Trust Company of New York, as Depositary (the 'Depositary'), and MacKenzie Partners, Inc., as Information Agent (the 'Information Agent'), incurred in connection with the Offer. See Section 16. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST 5,999,217 SHARES, WHICH, WHEN ADDED TO THE SHARES OWNED BY PARENT, THE PURCHASER AND ITS AFFILIATES, CONSTITUTES A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE 'MINIMUM CONDITION'). PARENT OWNS 185,000 SHARES (OR 1.5% OF THE OUTSTANDING SHARES CALCULATED ON A FULLY DILUTED BASIS) WHICH IT HAS ACQUIRED IN OPEN MARKET TRANSACTIONS. ASSUMING THE PURCHASE BY THE PURCHASER OF THE SELLING SHAREHOLDERS' 1,115,284 SHARES, THE PURCHASER WILL NEED TO PURCHASE AN ADDITIONAL 4,883,933 SHARES TO SATISFY THE MINIMUM CONDITION. THE BOARD OF DIRECTORS OF THE COMPANY (THE 'BOARD') HAS, BY UNANIMOUS VOTE, APPROVED EACH OF THE OFFER AND THE MERGER, HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Company has advised Parent that Wasserstein Perella & Co., Inc. ('Wasserstein Perella') and Peter J. Solomon Company Limited ('PJSC') have each delivered to the Board its opinion as to the fairness of the $11.00 per Share cash consideration to be received by the shareholders of the Company (other than Parent) pursuant to the Offer and the Merger. Copies of the opinions of Wasserstein Perella and PJSC, which set forth the factors considered and the assumptions made by Wasserstein Perella and PJSC are contained in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the 'Schedule 14D-9'), which is being mailed to shareholders herewith. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 23, 1994 (the 'Merger Agreement'), by and among Parent, the Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware ('Delaware Law') and the Michigan Business Corporation Act ('Michigan Law'), Purchaser will be merged with and into the Company (the 'Merger'). Following consummation of the Merger, the Company will continue as the surviving corporation (the 'Surviving Corporation') and will be a wholly owned subsidiary of Parent. At the effective time of the Merger (the 'Effective Time'), each issued and outstanding Share, including the associated Rights, immediately prior to the Effective Time (other than Shares held in the treasury of the Company or owned by the Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent) will be converted into the right to receive the Offer Price, without interest (the 'Merger Consideration'). The Merger Agreement is more fully described in Section 11. 1 The Merger Agreement provides that, promptly upon the purchase by the Purchaser of Shares pursuant to the Offer and from time to time thereafter, the Purchaser shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board as will give the Purchaser representation on the Board equal to the product of the total number of directors on the Board multiplied by the percentage that the aggregate number of Shares then beneficially owned by the Purchaser and its affiliates following such purchase bears to the total number of Shares then outstanding. In the Merger Agreement, the Company has agreed to use its best efforts promptly to cause the Purchaser's designees to be elected as directors of the Company, including increasing the size of the Board or securing the resignations of incumbent directors or both. Notwithstanding the foregoing, the Company has agreed to use all reasonable efforts to assure that prior to the Effective Time the Board shall retain at least two directors who are directors on the date of the Merger Agreement. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including, if required by law, the approval and adoption of the Merger Agreement by the requisite vote of the shareholders of the Company. See Section 11. Under the Company's Restated Articles of Incorporation and Michigan Law, except as otherwise described below, the affirmative vote of the holders of a majority of the outstanding Shares is required to approve and adopt the Merger Agreement and the Merger. Consequently, if the Purchaser acquires (pursuant to the Offer or otherwise) at least a majority of the then outstanding Shares, the Purchaser will have sufficient voting power to approve and adopt the Merger Agreement and the Merger without the vote of any other shareholder. Under Michigan Law and Delaware Law, if the Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the then outstanding Shares, the Purchaser will be able to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, without a vote of the Company's shareholders. In such event, Parent, the Purchaser and the Company have agreed to take, at the request of the Purchaser, all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without a meeting of the Company's shareholders. If, however, the Purchaser does not acquire at least 90% of the then outstanding Shares pursuant to the Offer or otherwise and a vote of the Company's shareholders is required under Michigan Law, a significantly longer period of time will be required to effect the Merger. See Section 11. Immediately after the execution of the Merger Agreement, Jack A. Robinson, Chairman and Chief Executive Officer of the Company, and Aviva Robinson, the wife of Jack A. Robinson (collectively, the 'Selling Shareholders') each, individually and as trustee, entered into a Shareholders Agreement, dated as of December 23, 1994, with Parent and the Purchaser (collectively, the 'Shareholders Agreements'). The Selling Shareholders collectively own 1,115,284 Shares, or approximately 9.02% of the outstanding Shares calculated on a fully diluted basis. Pursuant to the Shareholders Agreements, the Selling Shareholders have agreed to validly tender pursuant to the Offer and not withdraw all Shares which are owned of record or beneficially by them prior to the Expiration Date (as defined herein). Pursuant to the Shareholders Agreements, Parent has the right to acquire from the Selling Shareholders at $11.00 per Share, all of their Shares if (i) the Offer is terminated, abandoned or withdrawn by Parent or the Purchaser (whether due to the failure of any of the conditions to the Offer or otherwise), or (ii) the Merger Agreement is terminated in accordance with its terms. Subject to certain conditions specified in the Shareholders Agreements, such right is exercisable in whole but not in part for the 90 day period following the first to occur of the foregoing events. The Shareholders Agreements are more fully described in Section 11. Parent and Jack A. Robinson, the Chairman and Chief Executive Officer of the Company (the 'Consultant'), have entered into a consulting agreement dated as of December 23, 1994, (the 'Consulting Agreement'), pursuant to which Parent has agreed to pay the Consultant, in addition to certain other benefits, consulting fees at a rate of $225,000 per year. The term of the Consulting Agreement is 10 years from the consummation of the Offer. The Consulting Agreement is more fully described in Section 11. Pursuant to the Merger Agreement, the Company has agreed to amend the Rights Agreement, as necessary (the 'Rights Amendment'), (i) to prevent the Merger Agreement, the Shareholders Agreements or the consummation of any of the transactions contemplated thereby, including without limitation, the Offer and the consummation of the Offer and the Merger, from resulting in the distribution of separate rights certificates or the occurrence of a Distribution Date (as defined in the Rights Agreement) or being deemed a Triggering Event (as 2 defined in the Rights Agreement) and (ii) to provide that neither Parent nor the Purchaser will be deemed to be an Acquiring Person (as defined in the Rights Agreement) by reason of the transactions expressly provided for in the Merger Agreement and the Shareholders Agreements. The Rights Amendment will render the Rights inoperative with respect to any acquisition of Shares by Parent, the Purchaser or any of their affiliates pursuant to the Merger Agreement and/or the Shareholders Agreements. Upon consummation of the Merger, all Rights will expire and be of no further force or effect. The Company has informed the Purchaser that, as of December 23, 1994, there were 12,027,382 Shares issued and outstanding, 341,050 Shares are reserved for issuance upon exercise of the outstanding options granted under the Company's option plans or rights granted under the Company's Restricted Stock Plan and 2,758,400 Shares are reserved for issuance upon conversion of the 8 1/2% Convertible Subordinated Debentures due 2010 which are convertible at an effective price of $18.125 per Share (the 'Convertible Debentures'). As a result, as of such date, the Minimum Condition would be satisfied if the Purchaser acquired 5,999,217 Shares, given that the Purchaser already owns 185,000 Shares. For purposes of the Offer, calculation of the Company's outstanding Shares on a fully diluted basis excludes Shares reserved for issuance upon conversion of the Convertible Debentures. THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. THE TENDER OFFER 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date (as hereinafter defined) and not withdrawn in accordance with Section 4. The term 'Expiration Date' means 12:00 Midnight, New York City time, on Friday, January 27, 1995, unless and until the Purchaser, in its sole discretion (but subject to the terms of the Merger Agreement), shall have extended the period of time during which the Offer is open, in which event the term 'Expiration Date' shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition. If the Minimum Condition is not satisfied or any or all of the other events set forth in Section 14 shall have occurred or shall be determined by the Purchaser to have occurred prior to the Expiration Date, the Purchaser reserves the right (but shall not be obligated) to (i) decline to purchase any of the Shares tendered in the Offer and terminate the Offer, and return all tendered Shares to the tendering shareholders, (ii) except for the Minimum Condition, waive or amend any or all conditions to the Offer, to the extent permitted by applicable law and the provisions of the Merger Agreement, and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the 'Commission'), purchase all Shares validly tendered, or (iii) extend the Offer and, subject to the right of shareholders to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended. The Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the events specified in Section 14, by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering shareholder to withdraw its Shares. See Section 4. Subject to the applicable regulations of the Commission, the Purchaser also expressly reserves the right, in its sole discretion (but subject to the terms of the Merger Agreement), at any time and from time to time, (i) to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, payment for, any Shares pending receipt of any regulatory approval specified in Section 15 or in order to comply in whole or in part with any other applicable law, (ii) to terminate the Offer and not accept for payment any Shares if any of the conditions referred to in Section 14 has not been satisfied or upon the occurrence of any of the events specified in Section 14 and (iii) to waive any condition or otherwise amend the Offer in any respect by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof. 3 The Merger Agreement provides that, without the consent of the Company, the Purchaser will not decrease the Offer Price, decrease the number of Shares sought in the Offer, waive the Minimum Condition, or amend any condition of the Offer in a manner adverse to the shareholders, except that if on the initial scheduled Expiration Date, all conditions to the Offer shall not have been satisfied or waived, the Offer may be extended from time to time until June 1, 1995. In addition, the Merger Agreement provides that without the consent of the Company, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such an increase in the Offer Price. The Purchaser acknowledges that (i) Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the 'Exchange Act') requires the Purchaser to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer, and (ii) the Purchaser may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the first sentence of the second preceding paragraph), any Shares upon the occurrence of any of the conditions specified in Section 14 without extending the period of time during which the Offer is open. Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, with such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that material changes be promptly disseminated to shareholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Purchaser will extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. Subject to the terms of the Merger Agreement, if, prior to the Expiration Date, the Purchaser should decide to decrease the number of Shares being sought or to increase or decrease the consideration being offered in the Offer, such decrease in the number of Shares being sought or such increase or decrease in the consideration being offered will be applicable to all shareholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such decrease in the number of Shares being sought or such increase or decrease in the consideration being offered is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended at least until the expiration of such ten business day period. For purposes of the Offer, a 'business day' means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. The Company has provided the Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal, and other relevant materials, will be mailed to record holders of Shares whose names appear on the Company's shareholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will purchase, by accepting for payment, and will pay for, all Shares validly tendered prior to the Expiration Date (and not properly withdrawn in accordance with Section 4) promptly after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions set forth in Section 14. Subject to applicable rules of the Commission and the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its discretion, to delay acceptance for payment of, or payment for, Shares pending receipt of any regulatory approvals specified in Section 15. See Section 15. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the 'Share Certificates') or timely confirmation of 4 a book-entry transfer (a 'Book-Entry Confirmation') of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company, the Midwest Securities Trust Company or the Philadelphia Depository Trust Company (each a 'Book-Entry Transfer Facility' and, collectively, the 'Book-Entry Transfer Facilities') pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, and (iii) any other documents required by the Letter of Transmittal. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, tendered Shares if, as and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment. Payment for Shares accepted pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from the Purchaser and transmitting payments to such tendering shareholders. Under no circumstances will interest on the purchase price for Shares be paid by the Purchaser, regardless of any delay in making such payment. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering shareholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, the Purchaser increases the consideration to be paid per Share pursuant to the Offer, the Purchaser will pay such increased consideration for all such Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. Shareholders of the Company will be required to tender one Right for each Share tendered in order to effect a valid tender of such Share. If Rights Certificates have been distributed to holders of Shares prior to the consummation of the Offer, Rights Certificates representing a number of Rights equal to the number of Shares being tendered must be delivered to the Depositary in order for such Shares to be validly tendered. If Rights Certificates have not been distributed prior to the time Shares are accepted for payment by the Purchaser, a tender of Shares will also constitute a tender of the associated Rights. The Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURES FOR TENDERING SHARES. Valid Tender of Shares. In order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering shareholder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at each Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make 5 book-entry delivery of Shares by causing a Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date or the tendering shareholder must comply with the guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantee. Signatures on all Letters of Transmittal must be guaranteed by a participant in the Security Transfer Agents Medallion Program or the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an 'Eligible Institution'), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled 'Special Delivery Instructions' or the box entitled 'Special Payment Instructions' on the Letter of Transmittal, or (ii) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder's Share Certificates are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser herewith, is received by the Depositary as provided below prior to the Expiration Date; and (iii) in the case of a guarantee of Shares, the Share Certificates for all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantee and any other documents required by such Letter of Transmittal, are received by the Depositary within five New York Stock Exchange, Inc. ('NYSE') trading days after the date of execution of the Notice of Guaranteed Delivery. Any Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares purchased pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, if available, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) and (iii) any other documents required by the Letter of Transmittal. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Shares pursuant to any of the procedures described above will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding on all parties. The Purchaser reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of, or payment for, such Shares may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right, in its sole discretion, to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to Shares of any 6 particular shareholder, whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. None of Parent, the Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. Appointment as Proxy. By executing a Letter of Transmittal as set forth above, a tendering shareholder irrevocably appoints designees of the Purchaser as such shareholder's proxies, each with full power of substitution, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by the Purchaser (and any and all non-cash dividends, distributions, rights, other Shares, or other securities issued or issuable in respect of such Shares on or after December 23, 1994). All such proxies shall be considered coupled with an interest in the tendered Shares. This appointment will be effective if, when, and only to the extent that, the Purchaser accepts such Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior proxies given by such shareholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given. The designees of the Purchaser will, with respect to the Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of such shareholder as they in their sole discretion may deem proper at any annual, special, adjourned or postponed meeting of the Company's shareholders, by written consent or otherwise, and the Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares the Purchaser must be able to exercise full voting rights with respect to such Shares. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL. The Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering shareholder and the Purchaser upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after February 27, 1995, or at such later time as may apply if the Offer is extended. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering shareholders are entitled to withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set 7 forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of Parent, the Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed to not have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for Shares pursuant to the Offer or in the Merger will be a taxable transaction for federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. In general, a shareholder will recognize gain or loss for federal income tax purposes equal to the difference between the amount of cash received in exchange for the Shares sold and such shareholder's adjusted tax basis in such Shares. Assuming the Shares constitute capital assets in the hands of the shareholder, such gain or loss will be capital gain or loss and will be long term capital gain or loss if the holder has held the Shares for more than one year at the time of the sale. Gain or loss will be calculated separately for each block of Shares tendered pursuant to the Offer. The foregoing discussion may not be applicable to certain types of shareholders, including shareholders who acquired Shares pursuant to the exercise of stock options or otherwise as compensation, individuals who are not citizens or residents of the United States and foreign corporations, or entities that are otherwise subject to special tax treatment under the Internal Revenue Code of 1986, as amended. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally traded on the NYSE and quoted under the symbol PDS. The following table sets forth, for the quarters indicated, the high and low sales prices per Share on the NYSE as reported by the Dow Jones News Service.
MARKET PRICE ---------------- HIGH LOW ------- ------- FISCAL YEAR ENDED OCTOBER 31, 1993: First Quarter............................................. $ 9 3/4 $ 7 3/4 Second Quarter............................................ 8 3/4 7 3/8 Third Quarter............................................. 7 3/4 6 1/2 Fourth Quarter............................................ 7 1/2 5 3/8 FISCAL YEAR ENDED OCTOBER 31, 1994: First Quarter............................................. 6 3/4 5 3/4 Second Quarter............................................ 6 3/4 5 3/8 Third Quarter............................................. 6 4 1/2 Fourth Quarter............................................ 7 1/2 5 1/2 FISCAL YEAR ENDED OCTOBER 31, 1995: First Quarter (through December 28, 1994)................. 10 7/8 6 5/8
On December 23, 1994, the last full trading day prior to the public announcement of the execution of the Merger Agreement, the reported closing sales price of the Shares on the NYSE Composite Tape was $7 5/8 per Share. On December 28, 1994, the last full trading day prior to the date of this Offer to Purchase, the reported closing sales price of the Shares on the NYSE Composite Tape was $10 3/4 per Share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. The Company does not pay cash dividends on the Shares. Certain agreements pertaining to the Company's long-term indebtedness contain covenants which restrict the Company's ability to pay dividends. 8 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Neither Parent nor the Purchaser assumes any responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent or the Purchaser. The Company is a Michigan corporation and its principal executive offices are located at 5400 Perry Drive, Pontiac, Michigan 48343. The telephone number of the Company at such offices is (810) 334-1300. The Company is the largest drugstore chain in Michigan. The Company was incorporated in 1920 and is the surviving corporation of the merger of Perry Pharmacy, Inc. (formerly known as A.S. Putnam & Co.) and Perry Drug Stores, Inc. The Company operates approximately 225 stores in 136 communities in Michigan. The primary business of the Company is to operate a chain of drugstores. In addition to prescription drugs, the Company's drugstores also sell non-prescription drugs and a broad selection of traditional drugstore merchandise and services. The Company presently offers approximately 1,000 private label products, including a wide variety of health aids. Financial Information. Set forth below is certain selected consolidated financial information relating to the Company and its subsidiaries which has been excerpted or derived from the financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993, as amended (the 'Company Form 10-K') and an earnings release issued by the Company disclosing certain financial information for the Company's fiscal year ended October 31, 1994 (the 'Earnings Release'). More comprehensive financial information is included in the Company Form 10-K, the Earnings Release and other documents filed by the Company with the Commission. The financial information that follows is qualified in its entirety by reference to the Company Form 10-K and other documents, including the financial statements and related notes contained therein. The Company Form 10-K and other documents may be examined and copies may be obtained from the offices of the Commission in the manner set forth below. Copies of the Earnings Release may be obtained from the Company. PERRY DRUG STORES, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED OCTOBER 31, ---------------------------- 1994 1993 1992 -------- -------- -------- OPERATING STATEMENT DATA: Net Sales................ $737,070 $698,432 $674,431 Cost of Goods Sold....... 545,780 523,765 514,577 Total Cost and Expenses............... 728,674 704,196 683,337 Earnings from Continuing Operations before Taxes.................. 8,396 (5,764) (8,906) Net Earnings (loss)...... 4,781 (4,223) (5,972) PER SHARE INFORMATION: Net Earnings (loss) per Share.................. 0.40 (0.35) (0.54)
AT OCTOBER 31, --------------------------------------- 1994 1993 1992 ----------- ------------ ------------ BALANCE SHEET DATA: Current Assets................ $ 161,577 $ 146,060 $ 157,726 Property, Plant and Equipment, net......................... 56,543 60,047 58,485 Total Assets.................. 245,758 239,454 256,222 Long-Term Debt, current portion..................... 180 8,180 6,295 Current Liabilities........... 96,059 95,506 93,488 Long-Term Debt, excluding current portion............. 90,746 89,850 104,440 Shareholders' Equity.......... 56,189 51,154 55,170
9 The Company is subject to the information and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's shareholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy statements and other information concerning the Company should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Except as otherwise noted in this Offer to Purchase, all of the information with respect to the Company and its affiliates set forth in this Offer to Purchase has been derived from publicly available information. 8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT. The Purchaser. The Purchaser, a newly incorporated Delaware corporation, has not conducted any business other than in connection with the Offer, the Merger Agreement and the Shareholders Agreements. All of the issued and outstanding shares of capital stock of the Purchaser are beneficially owned by Parent. The principal executive offices of the Purchaser are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. The telephone number of the Purchaser at such offices is (717) 761-2633. Parent. Parent is a Delaware corporation organized in 1968. The principal executive offices of Parent are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. The telephone number of Parent at such offices is (717) 761-2633. Parent operates one of the nation's largest chains of drugstores, serving customers at approximately 2,679 convenient locations in 23 eastern states and the District of Columbia. Personal pharmacy service is the cornerstone of Parent's business, with prescription sales currently totaling over 50% of drugstore sales. Other shopping advantages include an extensive selection of personal care items, over-the-counter medications, seasonal merchandise and a quality line of Rite Aid brand products. Parent is subject to the information and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning Parent's directors and officers, their remuneration, stock options granted to them, the principal holders of Parent's securities, any material interests of such persons in transactions with Parent and other matters is required to be disclosed in proxy statements distributed to Parent's shareholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection and copies may be obtained in the same manner as set forth for the Company in Section 7. The Parent's Common Stock is listed on the NYSE, and reports, proxy statements and other information concerning Parent should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 10 Set forth below are certain selected consolidated financial data with respect to Parent and its subsidiaries for Parent's last three fiscal years, excerpted or derived from audited financial statements presented in Parent's 1994 Annual Report to Shareholders and from the unaudited financial statements contained in Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended November 26, 1994, in each case filed by Parent with the Commission. More comprehensive financial information is included in such reports and other documents filed by Parent with the Commission. The financial information summary set forth below is qualified in its entirety by reference to those reports and other documents which have been filed with the Commission and all the financial information and related notes contained therein. RITE AID CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTY-NINE WEEKS ENDED YEAR ENDED ---------------------------- -------------------------------------------- NOVEMBER 26, NOVEMBER 27, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29, 1994 1993 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) INCOME STATEMENT DATA: Net Sales................................ $3,180,085 $2,981,273 $4,058,711 $3,833,591 $3,530,560 Income from Continuing Operations before Taxes.................................. 144,312 123,464 45,670 200,569 187,202 Income (Loss) from Discontinued Operations............................. -- 6,824 (16,920) 8,646 9,075 Net Income............................... 88,032 80,704 9,288 132,396 124,016 PER SHARE INFORMATION: Net Income per Share..................... 1.04 .92 .11 1.51 1.43
NOVEMBER 26, FEBRUARY 26, FEBRUARY 27, 1994 1994 1993 ------------ ------------ ------------ (UNAUDITED) BALANCE SHEET DATA: Current Assets..................... $ 1,214,826 $ 1,125,425 $ 1,079,684 Property, Plant and Equipment, net.............................. 696,457 638,694 551,392 Net Non-Current Assets of Discontinued Operations.......... 58,493 77,784 71,406 Total Assets....................... 2,123,346 1,989,070 1,858,506 Current Liabilities................ 418,916 362,209 268,039 Long-Term Debt, less Current Portion.......................... 663,598 613,418 489,220 Total Liabilities.................. 1,151,471 1,034,356 822,863 Total Stockholders' Equity......... 971,875 954,714 1,035,643
The name, citizenship, business address, principal occupation or employment and five-year employment history for each of the directors and executive officers of the Purchaser and Parent are set forth in Schedule I hereto. Except as described in this Offer to Purchase, (i) none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of the Purchaser, Parent or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days except as set forth in Schedule II hereto. Except as provided in the Merger Agreement, the Shareholders Agreements and as otherwise described in this Offer to Purchase, none of the Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or 11 relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, since November 1, 1991, neither the Purchaser nor Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the Commission applicable to the Offer. Except as set forth in this Offer to Purchase, since November 1, 1991, there have been no contracts, negotiations or transactions between any of the Purchaser, Parent, or any of their respective subsidiaries, or, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the Purchaser and Parent to consummate the Offer and the Merger (including the cash out of stock options) and to pay related fees and expenses (inclusive of estimated expenses of the Company) is estimated to be approximately $137 million. The total amount of funds required to refinance all existing indebtedness under the Company's existing credit agreement and to effect a redemption of the Company's Convertible Debentures is estimated to be approximately $91.4 million. The Purchaser will obtain all of such funds from Parent or its affiliates. Parent will provide the $228.4 million for the foregoing transactions from its working capital, the proceeds of its existing commercial paper program and/or Parent's existing Credit Agreement (as defined below). The Company's commercial paper program involves the private placement of unsecured, commercial paper with maturities of up to 270 days. The commercial paper generally has an effective interest rate approximating the then market rate of interest for commercial paper of similar rating, currently approximately 6.25%. Parent may refinance any commercial paper borrowings used to finance the purchase of Shares pursuant to the Offer through private placements of additional commercial paper or, depending on market or business conditions, through such other financing as Parent may deem appropriate. The Company plans to obtain a portion of the funds needed for the Offer and related transactions through unsecured borrowings from a syndicate of financial institutions led by Morgan Guaranty Trust Company of New York ('Morgan') pursuant to a Credit Agreement, dated as of February 7, 1994, and amended by Amendment No. 1 to the Credit Agreement, dated as of February 16, 1994 (the 'Credit Agreement'), among Parent, Morgan, as agent, and the financial institutions named therein. Under the terms of the Credit Agreement, Parent is provided with a $350 million five-year revolving credit facility (the 'Credit Facility'). Loans made under the Credit Facility bear interest, at Parent's option, (a) at a rate equal to the sum of the applicable margin and the (i) London inter-bank offered rate ('LIBOR'), (ii) certificate of deposit rate ('CD') or (iii) Base Rate (the greater of Morgan's prime rate and the sum of federal funds rate and 50 basis points), or (b) at a rate determined by a competitive bid system among the financial institutions party to the Credit Facility. The interest rate for LIBOR and CD loans varies with the interest period chosen by Parent. Parent may choose interest periods of, in the case of LIBOR, one, two, three or six months, and in the case of CD, 30, 60, 90 or 180 days. The current interest rate for three month LIBOR is approximately 3.37% per annum and for 90 day CD is approximately 3.25% per annum. Morgan's current prime rate is 8 1/2% per annum. The applicable margin and certain fees payable by Parent are subject to adjustments based on the Company's rating from time to time by Standard & Poor Corporation and Moody's Investors Service, Inc. The margin on loans made pursuant to the Credit Facility ranges, in the case of LIBOR, from 25 to 75 basis points, and in the case of CD, from 37.5 to 67.5 basis points. No margin is payable under the Credit Facility for loans bearing interest at the Base Rate. Parent will pay a utilization fee of 6.25 basis points per annum on all borrowings in excess of 50% of the Credit Facility. Parent will also pay facility fees (ranging from 8 to 20 basis points per annum) and fees on the unused portion of the Credit Facility (ranging from 8 to 25 basis points per annum). The Credit Agreement includes representations and warranties, covenants, events of default and other terms customary to financings of this type. A copy of the Credit Agreement has been filed with the Commission 12 as an exhibit to the Tender Offer Statement on Schedule 14D-1 (the 'Schedule 14D-1') and is incorporated herein by reference. Parent expects to repay any borrowing through future cash flow from operations or from future borrowings. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. In early November 1994, Mr. Jack Robinson, the Chairman and Chief Executive Officer of the Company, and Mr. Alex Grass, the Chairman and Chief Executive Officer of Parent, and Mr. Martin Grass, the President and Chief Operating Officer of Parent, held a telephonic discussion with respect to general industry matters. In the course of such discussion, Messrs. Alex and Martin Grass suggested to Mr. Robinson that Parent had an interest in acquiring the Company. Mr. Robinson stated that he would consider the matter and would respond at a future time. Messrs. Alex and Martin Grass had another conversation with Mr. Robinson in early November in which further discussions were held concerning the possible acquisition of the Company by Parent. On or about November 21, 1994, Mr. Robinson called Mr. Alex Grass to advise him that the Board of Directors of the Company had authorized a meeting between PJSC, the Company's financial advisor, and Parent. On November 22, 1994, Messrs. Alex and Martin Grass met with representatives of PJSC to discuss a possible acquisition of the Company. In early December, representatives of PJSC contacted Martin Grass to advise him that the Company would enter into a confidentiality agreement and would be prepared to allow Parent to conduct due diligence with respect to the Company. On December 14, 1994, the Company and Parent entered into the Confidentiality Agreement (as defined). From December 16, 1994 through December 18, 1994, members of Parent's senior management conducted a due diligence review of the Company at the Company's offices in Michigan and at the offices of PJSC in New York. On December 17, 1994, Messrs. Alex and Martin Grass met with Mr. Robinson to discuss, among other things, the Shareholders Agreements and Consulting Agreement and other matters relating to the proposed transaction. On December 18, 1994, Mr. Martin Grass informed a representative of the Company that Parent was prepared to make an all cash offer of $11.00 per Share if acceptable to the Board, subject to the negotiation of a definitive Merger Agreement. On December 19, 1994, the Board of Directors of Parent held a meeting. At such meeting, members of Parent's senior management and Parent's outside legal advisor 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, Shareholders Agreements and Consulting Agreement and authorized senior management of Parent to proceed with the negotiations relating to the proposed transaction. During the week of December 19, 1994, members of senior management of Parent and its legal advisor negotiated the terms of the Merger Agreement with representatives of the Company and its legal advisor, and negotiated the terms of the Shareholders Agreements and Consulting Agreement with the Selling Shareholders and their legal advisor. Negotiations continued through December 23, 1994, culminating in Parent and the Company agreeing upon a form of definitive Merger Agreement and Parent and the Selling Shareholders agreeing upon a form of Shareholders Agreement and Consulting Agreement. On December 23, 1994, the Board of Directors of Parent held a meeting to approve the Merger Agreement, the Offer, the Shareholders Agreements, the Consulting Agreement and the related transactions. The Board of Directors of the Company also met on December 23, 1994. At such meeting, the Company's Board reviewed the proposed transaction with the Company's management and the Company's legal and financial advisors and approved the Merger Agreement and the transactions contemplated thereby. Parent, the Purchaser and the Company executed and delivered the Merger Agreement in the early evening of December 23, 1994. On December 27, 1994, Parent and the Company issued a joint press release announcing the execution of the Merger Agreement and Shareholders Agreements. The Purchaser commenced the Offer on December 29, 1994. 13 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; MERGER AGREEMENT; SHAREHOLDERS AGREEMENTS; CONSULTING AGREEMENT; AND OTHER AGREEMENTS. Purpose of the Offer. The purpose of the Offer, the Merger, the Merger Agreement and the Shareholders Agreements is to enable Parent to acquire control of the Company's Board of Directors and the entire equity interest in the Company. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of Parent. The Offer is being made pursuant to the Merger Agreement. Plans for the Company. It is expected that, initially following the Merger, the business and operations of the Company will, except as set forth in this Offer to Purchase, be integrated into the operations of Parent as rapidly as practicable following the Merger. Parent intends to close the Company's corporate headquarters at 5400 Perry Drive, Pontiac, Michigan (the 'Headquarters') within approximately six months following consummation of the Merger and to integrate the Company's corporate headquarters operations into Parent's operations. In addition, Parent will continue to evaluate the business and operations of the Company during the pendency of the Offer and after the consummation of the Offer and the Merger and will take such further actions as it deems appropriate under the circumstances then existing. Merger Agreement. THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE SCHEDULE 14D-1. THE MERGER AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE PLACE AND IN THE MANNER SET FORTH IN SECTION 7 OF THIS OFFER TO PURCHASE. The Offer. The Merger Agreement provides that the Purchaser will commence the Offer and that, upon the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, the Purchaser will purchase all Shares validly tendered pursuant to the Offer. The Merger Agreement provides that, without the written consent of the Company by the Board of Directors (or a duly authorized Committee thereof), the Purchaser will not decrease the Offer Price, decrease the number of Shares sought in the Offer, waive the Minimum Condition, or amend any condition of the Offer in a manner adverse to the holders of Shares except that if on the initial scheduled Expiration Date, all conditions of the Offer shall not have been satisfied or waived, the Offer may be extended until June 1, 1995. In addition, the Merger Agreement provides that, without the consent of the Company, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such an increase in the Offer Price. The Merger. The Merger Agreement provides that, subject to the terms and conditions thereof, and in accordance with Michigan Law and Delaware Law, at the Effective Time, the Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation. The respective obligations of Parent and the Purchaser, on the one hand, and the Company, on the other hand, to effect the Merger are subject to the conditions that: (i) the Merger Agreement shall have been approved and adopted by the requisite vote of the holders of Common Stock, if required by applicable law and the Restated Articles of Incorporation, in order to consummate the Merger; (ii) no statute, rule, order, decree or regulation shall have been enacted or promulgated by any foreign or domestic government or any governmental agency or authority of competent jurisdiction which prohibits the consummation of the Merger and all foreign or domestic governmental consents, orders and approvals required for the consummation of the Merger and the transactions contemplated by the Merger Agreement will have been obtained and shall be in effect at the Effective Time; (iii) there shall be no order or injunction of a foreign or United States federal or state court or other governmental authority of competent jurisdiction in effect precluding, restraining, enjoining or prohibiting consummation of the Merger; and (iv) Parent, the Purchaser or their affiliates shall have purchased the Shares pursuant to the Offer. The Merger Agreement provides that at the Effective Time, each issued and outstanding share of Common Stock, including the associated Rights (other than Shares that are owned by the Company as treasury stock and any Shares owned by Parent, the Purchaser or any other wholly owned subsidiary of Parent) shall be converted into the right to receive the Offer Price, without interest. 14 Pursuant to the Merger Agreement, each issued and outstanding share of common stock, par value $.01 per share, of the Purchaser shall be converted into one fully paid and non-assessable share of common stock of the Surviving Corporation. The Merger Agreement provides that the Company will execute the Rights Amendment (i) to prevent the Merger Agreement, the Shareholders Agreements or the consummation of any of the transactions contemplated thereby, including without limitation, the Offer and the consummation of the Offer and the Merger, from resulting in the distribution of separate rights certificates or the occurrence of a Distribution Date (as defined in the Rights Agreement) or being deemed a Triggering Event (as defined in the Rights Agreement) and (ii) to provide that neither Parent nor the Purchaser will be deemed to be an Acquiring Person (as defined in the Rights Agreement) by reason of the transactions expressly provided for in the Merger Agreement and the Shareholders Agreements. The Rights Amendment will render the Rights inoperative with respect to any acquisition of Shares by Parent, the Purchaser or any of their affiliates pursuant to the Merger Agreement and/or the Shareholders Agreements. Upon consummation of the Merger, all Rights will expire and be of no further force or effect. The Company's Board of Directors. The Merger Agreement provides that, promptly upon the purchase of and payment for any Shares by Parent or any of its subsidiaries which represents at least a majority of the outstanding Shares (on a fully diluted basis), Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by the Purchaser, Parent or any of their affiliates bears to the total number of Shares then outstanding. The Company shall, upon request of the Purchaser, use its best efforts promptly either to increase the size of its Board of Directors or, at the Company's election, secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Company's Board, and shall cause Parent's designees to be so elected. The Merger Agreement also provides that the Company shall cause persons designated by Parent to constitute the same percentage (rounded up to the next whole number) as is on the Company's Board of Directors of (i) each committee of the Company's Board of Directors, (ii) each board of directors (or similar body) of each subsidiary of the Company and (iii) each committee (or similar body) of each such board, in each case only to the extent permitted by applicable law or the rules of any stock exchange on which the Shares are listed. Notwithstanding the foregoing, until the Effective Time, the Company shall use all reasonable efforts to retain as members of its Board of Directors at least two directors who are directors of the Company on the date of the Merger Agreement; 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. The Company's obligation to appoint the Purchaser's designees to the Board of Directors is subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Shareholders Meeting. Pursuant to the Merger Agreement, the Company will, if required by applicable law in order to consummate the Merger, duly call, give notice of, convene and hold a special meeting of its shareholders (the 'Special Meeting') as soon as practicable following the acceptance for payment and purchase of Shares by the Purchaser pursuant to the Offer for the purpose of considering and taking action upon the Merger Agreement. The Merger Agreement provides that the Company will, if required by applicable law in order to consummate the Merger, prepare and file with the Commission a preliminary proxy or information statement relating to the Merger and the Merger Agreement and use its reasonable efforts (i) to obtain and furnish the information required to be included by the Commission in the Proxy Statement (as defined herein) and, after consultation with Parent, to respond promptly to any comments made by the Commission with respect to the preliminary proxy or information statement and cause a definitive proxy or information statement (the 'Proxy Statement') to be mailed to its shareholders and (ii) to obtain the necessary approvals of the Merger and the Merger Agreement by its shareholders. If the Purchaser acquires at least a majority of the outstanding Shares, the Purchaser will have sufficient voting power to approve the Merger, even if no other shareholder votes in favor of the Merger. The Company has agreed, subject to the fiduciary obligations of the Board under applicable law as advised by independent counsel, to include in the Proxy Statement the recommendation of the Board that shareholders of the Company vote in favor of the approval of the Merger and the adoption of the Merger Agreement. Parent agrees that it will vote, or cause to be voted, all of the Shares then owned by it, the Purchaser 15 or any of its other subsidiaries and affiliates in favor of the approval of the Merger and the adoption of the Merger Agreement. The Merger Agreement provides that in the event that Parent, the Purchaser or any other subsidiary of Parent acquires at least 90% of the outstanding Shares, pursuant to the Offer or otherwise, Parent, the Purchaser and the Company agree, at the request of Parent and subject to the terms of the Merger Agreement, to take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without a meeting of shareholders of the Company, in accordance with Michigan Law and Delaware Law. Interim Operations. In the Merger Agreement, the Company has agreed that, except as expressly contemplated by the Merger Agreement or agreed to by Parent, prior to the time the directors of the Purchaser have been elected to, and shall constitute a majority of, the Board of Directors of the Company: (i) the business of the Company and its subsidiaries shall be conducted only in the ordinary and usual course 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; (ii) the Company will not, directly or indirectly, (a) sell, transfer or pledge or agree to sell, transfer or pledge any Common Stock, preferred stock or capital stock of any of its subsidiaries beneficially owned by it, either directly or indirectly; or (b) split, combine or reclassify the outstanding Common Stock or any outstanding capital stock of any of the subsidiaries of the Company; (iii) neither the Company nor any of its subsidiaries shall (a) amend its articles of incorporation or by-laws or similar organizational documents; (b) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock; (c) issue, sell, 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 shares of preferred stock reserved for issuance on the date hereof upon exercise of outstanding Rights pursuant to the Rights Agreement or issuances pursuant to the exercise of Options (as defined in the Merger Agreement) outstanding as of the date of the Merger Agreement; (d) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any material assets other than in the ordinary and usual course of business and consistent with past practice, or incur or modify any material indebtedness or other liability, other than in the ordinary and usual course of business and consistent with past practice; (e) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (f) grant any increase in the compensation payable or to become payable by the Company or any of its subsidiaries to any of its executive officers or key employees, or 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; (g) enter into any employment or severance agreement with or, except in accordance with the existing written policies of the Company, grant any severance or termination pay to any officer, director or employee of the Company or any of its subsidiaries; (h) modify, amend or terminate any of its material contracts or waive, release or assign any material rights or claims, except in the ordinary course of business and consistent with past practice; (i) permit any material insurance policy naming the Company as a beneficiary or a loss payable payee to be cancelled or terminated without notice to Parent, except in the ordinary course of business and consistent with past practice; (j) incur or assume any long-term debt, or, except in the ordinary course of business, incur or assume any short-term indebtedness in amounts not consistent with past practice; (k) 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 and consistent with past practice; (l) make any loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned subsidiaries of the Company or customary loans or advances to employees in accordance with past practice); (m) enter into any material commitment or transaction (including, but not limited to, any borrowing, capital expenditure or purchase, sale or lease of assets); (n) change any of the accounting principles used by it unless required by generally accepted accounting principles; (o) 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, (1) in the ordinary course of business and consistent with past practice, of claims, liabilities or obligations reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of the Company and its consolidated subsidiaries, (2) incurred in the ordinary course of business and consistent with 16 past practice, or (3) which are legally required to be paid, discharged or satisfied (provided that if such claims, liabilities or obligations referred to in this clause (3) are legally required to be paid and are also not otherwise payable in accordance with clauses (1) or (2), the Company will notify Parent in writing if such claims, liabilities or obligations exceed, individually or in the aggregate, $100,000 in value, reasonably in advance of their payment); (p) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries (other than the Merger); (q) take, or agree to commit to take, any action that would make any representation or warranty of the Company contained in the Merger Agreement inaccurate in any respect at, or as of any time prior to, the Effective Time; or (r) enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. No Solicitation. In the Merger Agreement, the Company has agreed that neither the Company 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 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, or any of its affiliates or representatives) concerning any merger, tender offer, exchange offer, sale of assets, sale of shares of capital stock or debt securities or similar transactions involving the Company or any subsidiary, division or operating or principal business unit of the Company (an 'Acquisition Proposal'). The Company also agreed that it will immediately cease any existing activities, discussions or negotiations with any parties conducted prior to the date of the Merger Agreement with respect to any of the foregoing. The Merger Agreement provides that the Company may, directly or indirectly, provide access and furnish information to a third party and may negotiate and participate in discussions and negotiations with such third party concerning an Acquisition Proposal if such third party has submitted a bona fide written proposal to the Board of Directors of the Company and if in the opinion of the Board of Directors of the Company, after consultation with independent legal counsel, the failure to provide such information or access or to engage in such discussions or negotiations would be inconsistent with the fiduciary duties of the Board to the Company's shareholders under applicable law. The Company has agreed to immediately notify Parent of any such proposal, or if an inquiry is made, the Company will keep Parent fully apprised of all developments with respect to any such Acquisition Proposal. Directors' and Officers' Insurance and Indemnification. In the Merger Agreement, Parent has agreed to indemnify the present and former officers, directors, employees and agents of the Company and its subsidiaries with respect to matters occurring at or prior to the Effective Time to the full extent permitted under Michigan law or the Company's Restated Articles of Incorporation, By-Laws or indemnification agreements in effect as of December 23, 1994, for a period of six years after the Effective Time. The Merger Agreement also provides that Parent shall maintain the Company's existing officers' and directors' liability insurance policy ('D&O Insurance') for a period of not less than two years after the Effective Time except that Parent may substitute therefor policies of substantially similar coverage and amounts containing terms no less advantageous to such former directors or officers. Parent has also agreed that if the existing D&O Insurance expires, is terminated or cancelled during such period, Parent will use all reasonable efforts to obtain substantially similar D&O Insurance, but in no event shall it be required to pay aggregate premiums for such insurance in excess of 100% of the aggregate premiums paid by the Company in 1994 ('1994 Premiums'). However, the Merger Agreement provides that if Parent or the Purchaser would be required to expend more than 100% of 1994 Premiums, Parent or the Surviving Corporation shall nonetheless purchase the maximum amount of such insurance obtainable by payment of annual premiums equal to 100% of 1994 Premiums. Compensation and Benefits. Pursuant to the Merger Agreement, Parent has agreed that, effective as of the Effective Time, the Surviving Corporation and its subsidiaries will provide benefits to their employees that are comparable with those provided by Parent to similarly situated employees of Parent or any or its subsidiaries, taking into account all relevant factors, including the businesses in which the Surviving Corporation and its subsidiaries are engaged. In the Merger Agreement, Parent has further agreed that, effective as of the Effective Time, employees of the Surviving Corporation and its subsidiaries shall become participants in the health benefit plans and programs maintained for similarly situated employees of Parent or any of its subsidiaries. Such health benefit plans and programs shall (1) recognize expenses and claims that were incurred by such employees in the year in which the Effective Time occurs and recognize for similar purposes of computing deductible amounts and 17 copayments under the Company's plans as of the Effective Time and (2) provide coverage for pre-existing health conditions to the extent covered under the applicable plans or programs of the Company as of the Effective Time. In addition, Parent has agreed that employees of the Surviving Corporation will receive credit for their prior service with the Company and its subsidiaries for eligibility and vesting purposes and for vacation accrual purposes. In the Merger Agreement, Parent has guaranteed the payment of and has agreed to honor the current severance pay arrangements and split dollar life insurance agreements that the Company has in effect for the benefit of certain executive officers, and Parent has acknowledged that (i) the change in each such executive's responsibilities resulting from the completion of the Offer and the resulting change in the Company from a publicly owned company to a majority or wholly owned subsidiary constitutes circumstances that shall be deemed a 'Termination of Employment' following a 'Change in Control' under such severance agreements or a resignation by the executive following a 'Change of Control' for 'Good Reason' and (ii) any decision on the part of any such executive to terminate his employment for any reason subsequent to completion of the Offer shall not constitue a 'voluntary termination of employment' under such split dollar life insurance agreements. Pursuant to the Merger Agreement, in the case of persons employed by the Company at its central administrative offices at the completion of the Offer other than those executive officers referred to in the preceding sentence, Parent has agreed to cause the Company or the Surviving Corporation, as the case may be, to pay a lump sum severance benefit to each such person whose employment is terminated by the Company or the Surviving Corporation for any reason other than cause, death or disability prior to the first anniversary of the completion of the Offer. Such severance benefit shall be based on the terminated employee's number of whole years (rounded up or down to the nearest whole year) of continuous service with the Company and/or the Surviving Corporation, shall be calculated as follows, and shall be reduced by withholding and employment taxes, if required by law to be withheld: if the length of service (A) is less than 10 years, the amount of severance benefit shall be 1 week's gross pay for each whole year of service, with a minimum severance benefit of 2 weeks' gross pay (or, if greater, gross pay for the number of additional business days remaining until the expiration of the notification period required in connection with the Headquarters Closing Notices (as defined in the Merger Agreement)); or (B) is 10 years or more, the amount of severance benefit shall be 2 weeks' gross pay for each whole year of service, with a maximum severance benefit of 26 weeks' gross pay. WARN Act. In the Merger Agreement, the Company has agreed that it shall, on behalf of Parent, within five calendar days of the date of the Merger Agreement, issue such notices as are required under the Worker Adjustment and Retraining Notification Act of 1988 (the 'WARN Act') and any similarly applicable state or local law, in connection with Parent's intended closing of the Company's current headquarters. The Merger Agreement provides that such notices shall be given sufficiently in advance of the date of the closing of the headquarters so that Parent shall not be liable under the WARN Act or any similarly applicable state or local law for any penalty or payment in lieu of notice to any employee or governmental entity. Options. Pursuant to the Merger Agreement, Parent and the Company have agreed to take all actions necessary to provide that, effective as of the Effective Time, (i) each outstanding employee stock option to purchase Shares (an 'Employee Option') granted under the Company's 1982 Incentive Stock Option Plan (the '1982 Option Plan') or the Company's 1987 Non-Qualified Stock Option Plan (the '1987 Option Plan' and collectively with the 1982 Option Plan, the 'Option Plans') and each outstanding non-employee director option to purchase Shares ('Director Options' and collectively with Employee Options, 'Options') granted under the 1987 Stock Option Plan, whether or not then exercisable or vested, shall become fully exercisable and vested, (ii) each Option that is then outstanding shall be cancelled and (iii) in consideration of such cancellation, and except to the extent that Parent or the Purchaser and the holder of any such Option otherwise agree, the Company (or, at Parent's option, the Purchaser) shall pay to such holders of Options an amount in respect thereof equal to the product of (A) the excess, if any, of the Offer Price over the exercise price thereof and (B) the number of Shares subject thereto (such payment to be net of applicable withholding taxes). In the Merger Agreement, the parties have agreed that if it is determined that compliance with any of the foregoing would cause any individual subject to Section 16 of the Exchange Act ('Section 16') to become subject to the profit recovery provisions thereof, any Options held by such individual will be cancelled or purchased, as the case may be, as promptly as possible so as not to subject such individual to any liability pursuant to Section 16, but no later than May 15, 1995, subject to receiving an agreement from the holder of such Option not to exercise such Option after the 18 Effective Time, and such individual shall be entitled to receive from the Company, for each Share subject to an Option an amount equal to the excess, if any, of the Offer Price over the per Share exercise price of such Option. Notwithstanding the foregoing, any payment to the holders of Options contemplated by the foregoing provisions may be withheld in respect of any Option until any necessary consents or releases are obtained. The Merger Agreement also provides that (i) the Option Plans and the Company's 1986 Restricted Stock Plan shall terminate as of the Effective Time and the provisions in any other plan, program 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 as of the Effective Time and (ii) the Company shall use all reasonable efforts to ensure that following the Effective Time no holder of Options or any participant in the Option Plans or any other plans, programs or arrangements shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof. Convertible Debentures. The Merger Agreement provides that promptly after acceptance by the Purchaser of Shares for payment pursuant to the Offer, if so requested by Parent, the Company shall provide appropriate notice in order to effect a redemption by the Company of the Company's Convertible Debentures. The Company shall cause such redemption of the Convertible Debentures, if so requested by Parent, to occur on the date specified by Parent, which date shall not be less than 30 nor more than 60 days after the date notices of such redemption are mailed to debentureholders of the Company. Representations and Warranties. In the Merger Agreement, the Company has made customary representations and warranties to Parent and the Purchaser with respect to, among other things, its organization, capitalization, financial statements, public filings, labor relations, conduct of business, employee benefit plans, insurance, compliance with laws, litigation, tax matters, real property, consent and approvals, opinions of financial advisors, vote required, undisclosed liabilities and the absence of any undisclosed material adverse changes in the Company since October 31, 1993. Termination; Fees. The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the shareholders of the Company, (a) by mutual consent of the Board of Directors of Parent and the Board of Directors of the Company, (b) by either the Board of Directors of Parent or the Board of Directors of the Company (i) if Shares have not been purchased pursuant to the Offer on or prior to June 1, 1995, provided that such right to terminate shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement was the cause of, or resulted in, the failure of Parent or the Purchaser to purchase the Shares on or before such date; or (ii) if any Governmental Entity (as defined therein) shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties shall use their reasonable efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement and such order, decree, ruling or other action shall have become final and non-appealable, (c) by the Board of Directors of the Company (i) if, prior to the purchase of Shares in the Offer, the Board of Directors of the Company shall have withdrawn (or modified or changed in a manner adverse to Parent) its approval or recommendation of the Offer, the Merger Agreement or the Merger in order to permit the Company to execute a definitive agreement providing for the acquisition of the Company by merger or otherwise, and the failure to take such action would be inconsistent with its fiduciary duties to the Company's shareholders under applicable law; or (ii) if, prior to the purchase of Shares in the Offer, Parent or the Purchaser breaches or fails in any material respect to comply with any of its material covenants and agreements contained in the Merger Agreement or breaches its representations and warranties in any material respect; or (iii) if Parent or the Purchaser shall have terminated the Offer, or the Offer shall have expired, without Parent or the Purchaser, as the case may be, purchasing any Shares pursuant thereto; provided, that the Company may not terminate the Merger Agreement pursuant to this clause (iii) if the Company is in material breach of the Merger Agreement, (d) by the Board of Directors of Parent (i) 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 the Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger, or shall have recommended an Acquisition Proposal or offer, or shall have executed an agreement in principle (or similar agreement) or definitive agreement providing for a tender offer or exchange offer for any shares of capital stock of the Company, or a merger, consolidation or other business combination with a person or entity other than Parent, the Purchaser or their affiliates (or the Board of Directors of the Company resolves to do any of the foregoing), or (B) it shall have been publicly disclosed or Parent or the Purchaser shall have learned that any 19 person, entity or 'group' (as that term is defined in Section 13(d)(3) of the Exchange Act) (an 'Acquiring Person'), other than 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 19.9% 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 19.9% of any class or series of capital stock of the Company (including the Shares), or (ii) if Parent or the Purchaser, as the case may be, shall have terminated the Offer, or the Offer shall have expired without Parent or the Purchaser, as the case may be, purchasing any Shares thereunder, provided that Parent may not terminate the Merger Agreement pursuant to this clause (ii) if it or the Purchaser has failed to purchase Shares in the Offer in violation of the material terms thereof. In accordance with the Merger Agreement, if (1) the Board of Directors of the Company terminates the Merger Agreement pursuant to clause (c)(i) of the immediately preceding paragraph, (2) the Board of Directors of Parent terminates the Merger Agreement pursuant to clause (d)(i)(A) of the immediately preceding paragraph, (3) the Board of Directors of Parent terminates the Merger Agreement pursuant to clause (d)(i)(B) and within one year of such termination, the 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 an Acquisition Proposal or similar business combination or (4) the Board of Directors of Parent terminates the Merger Agreement pursuant to clause (d)(ii) of the immediately preceding paragraph due to a material breach by the Company of any of the representations and warranties set forth in the Agreement (other than as a result of an act of God) or the failure to perform or comply with any material obligation, agreement or covenant contained in the Merger Agreement, then the Company will pay Parent an amount equal to $3 million. The Merger Agreement also provides that upon the termination of the Merger Agreement due to the occurrence of one of the events specified in clauses (1), (2), (3) or (4) of the preceding sentence, the Company will reimburse Parent for all reasonable fees and expenses incurred, or to be incurred, by Parent or the Purchaser and their affiliates, in connection with the Offer, the Merger and the consummation of the transactions contemplated by the Merger Agreement in an amount not to exceed $1 million in the aggregate. Shareholders Agreements. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE SHAREHOLDERS AGREEMENTS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE SHAREHOLDERS AGREEMENTS WHICH ARE INCORPORATED HEREIN BY REFERENCE AND COPIES OF WHICH HAVE BEEN FILED WITH THE COMMISSION AS EXHIBITS TO THE SCHEDULE 14D-1. THE SHAREHOLDERS AGREEMENTS MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE PLACE AND IN THE MANNER AS SET FORTH IN SECTION 7 OF THIS OFFER TO PURCHASE. Tender of Shares. Immediately after the execution of the Merger Agreement, the Purchaser and Selling Shareholders entered into the Shareholders Agreements. Upon the terms and subject to the conditions of such agreements, the Selling Shareholders have severally agreed to validly tender (and not to withdraw) pursuant to and in accordance with the terms of the Offer, not later than the fifth business day after commencement of the Offer, the number of Shares owned beneficially by them (or a total of 1,115,284 Shares, representing 9.02% of the outstanding Shares on a fully diluted basis). The Selling Shareholders further agreed that the transfer by the Selling Shareholders of their Shares to the Purchaser in the Offer will pass to and unconditionally vest in the Purchaser good and valid title to such Shares. Stock Option. In order to induce Parent and the Purchaser to enter into the Merger Agreement, the Selling Shareholders have granted to Parent an irrevocable option (a 'Stock Option') to purchase the Selling Shareholders' Shares (the 'Option Shares') at a purchase price per Share equal to $11.00. Pursuant to the Shareholders Agreements, if (i) the Offer is terminated, abandoned or withdrawn by Parent or the Purchaser (whether due to the failure of any of the conditions set forth in Section 14 or otherwise), or (ii) the Merger Agreement is terminated in accordance with its terms, the Stock Option will, in any such case, become exercisable, in whole but not in part, upon the first to occur of any such event and remain exercisable, in whole but not in part, until the date which is 90 days after the date of the occurrence of such event (the '90 Day Period'), so long as: (i) all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the 'HSR Act') required for the purchase of the Option Shares upon such exercise, shall have expired or been waived, and (ii) there shall not be in effect any preliminary or final injunction or other order issued by any court or governmental, administrative or regulatory agency or authority or legislative body or commission 20 prohibiting the exercise of the Stock Option pursuant to the Shareholders Agreements. The Shareholders Agreements provide that if all HSR Act waiting periods have not expired or been waived, or there shall be in effect any such injunction or order, in each case on the expiration of the 90 Day Period, the 90 Day Period shall be extended until 5 business days after the later of (A) the date of expiration or waiver of all HSR Act waiting periods and (B) the date of removal or lifting of such injunction or order; provided that the Shareholders Agreements shall terminate if, after one year following the commencement of the original 90 Day Period, (1) all HSR Act waiting periods shall not have expired or been waived or (2) there shall be in effect any such injunction or order, and neither Parent nor Purchaser has exercised the Option. In the event that Parent wishes to exercise the Stock Option, Parent shall send a written notice to the Selling Shareholders identifying the place and date (not less than two nor more than 20 business days from the date of such notice) for the closing of such purchase. Certain Price Protection. Parent and the Purchaser have agreed to provide the Selling Shareholders with certain price protection. The Shareholders Agreements provide that if, within 12 months following the exercise of the Stock Option by Parent, Parent shall sell, transfer or otherwise dispose of any or all of the Option Shares to a third party (or realize cash proceeds in respect of such Shares as a result of a distribution to shareholders of the Company following the sale of substantially all of the Company's assets) in connection with a transaction whereby the third party is acquiring the entire equity interest in the Company pursuant to a merger, tender offer, exchange offer, sale of assets, sale of shares or a similar business transaction (a 'Subsequent Sale') at a per Share price in excess of $13.00 (the 'Subsequent Sale Price'), then Parent will promptly pay to the Selling Shareholders an amount equal to 25% of the excess of the Subsequent Sale Price over $13.00 multiplied by the number of Option Shares sold in the Subsequent Sale. In the event that the Subsequent Sale Price is in excess of $14.00, then Parent will promptly pay to the Selling Shareholders (i) 25% of the amount equal to the difference between $13.00 and $14.00 multiplied by the number of Option Shares sold in the Subsequent Sale and (ii) in addition, 50% of the excess of the Subsequent Sale Price over $14.00 multiplied by the number of Option Shares sold in the Subsequent Sale. Provisions Concerning the Shares. The Selling Shareholders have agreed that during the period commencing on the date of the Shareholders Agreement and continuing until the first to occur of the Effective Time or termination of the Merger Agreement in accordance with its terms, at any meeting of the Company's shareholders or in connection with any written consent of the Company's shareholders, the Selling Shareholders will vote (or cause to be voted) the Shares held of record or beneficially owned by such Selling Shareholders, whether issued, heretofore owned or hereinafter acquired, (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and the Shareholders Agreements 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 Shareholders Agreements (after giving effect to any materiality or similar qualifications contained therein); 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 Merger Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Company or its subsidiaries, or a reorganization, recapitalization, dissolution or liquidation of the Company or its subsidiaries; (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 or any amendment of the Company's Restated Articles of Incorporation or Bylaws; (3) any other material change in the Company's corporate structure or business; or (4) any other action which, in the case of each of the matters referred to in clauses (C)(1), (2) or (3), is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or materially adversely affect the Merger and the transactions contemplated by the Shareholders Agreements and the Merger Agreement. The Selling Shareholders further agreed not to 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 above. Other Covenants, Representations, Warranties. In connection with the Shareholders Agreements, the Selling Shareholders have made certain customary representations, warranties and covenants, including with respect to (i) ownership of the Shares, (ii) the Selling Shareholders' authority to enter into and perform their obligations under the Shareholders Agreements, (iii) the receipt of requisite governmental consents and 21 approvals, (iv) the absence of liens and encumbrances on and in respect of the Selling Shareholders' Shares, (v) restrictions on the transfer of the Selling Shareholders' Shares, and (vi) the solicitation of acquisition proposals. The parties to the Shareholders Agreement with Mr. Robinson have acknowledged that 80,705 Shares owned by Mr. Robinson (the 'Pledged Shares') are pledged to Michigan National Bank (the 'Pledge') to secure a loan in the amount of approximately $400,000 made to Mr. Robinson (the 'Loan'). In the Shareholders Agreement, Mr. Robinson has agreed to terminate the Pledge within 10 calendar days after commencement of the Offer and to take all actions necessary to eliminate any pledge, lien, encumbrance or security interest on the Pledged Shares by such tenth calendar day. In the event Parent purchases Shares pursuant to the Offer and the Shareholder has not tendered the Pledged Shares because the Pledge was not terminated as required by the above provision, the parties have agreed that such Shares will be acquired in the Merger. In the event that Mr. Robinson shall have breached the Shareholders Agreement by failing to comply with the foregoing provision, the parties agree that Parent may, in its sole discretion, pay the Loan in order to release the Shares from the Pledge, and Parent shall deduct from the purchase price upon exercise of the Stock Option the sum of (i) the amount paid to satisfy (in whole or in part) the Loan, (ii) interest on such amount at the prime rate of Michigan National Bank calculated from the date of payment of the Loan until receipt of the Pledged Shares by Parent, and (iii) any transaction costs in connection therewith (including attorney's fees and expenses). Consulting Agreement. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE CONSULTING AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE CONSULTING AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE SCHEDULE 14D-1. THE CONSULTING AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE PLACE AND MANNER AS SET FORTH IN SECTION 7 OF THIS OFFER TO PURCHASE. Parent and Jack Robinson (the 'Consultant') have entered into the Consulting Agreement pursuant to which the Consultant has agreed to advise Parent on general business matters and issues, and strategy relating to Parent's business (including issues relating to real estate and community, governmental and industry relations). The term of the Consulting Agreement is ten years commencing on the consummation of the Offer (the 'Term'). For the first year of the Term, the Consultant will also serve as President of Rite Aid of Michigan, Inc. The Consultant will also serve for five years as one of the representatives of the Company at various National Association of Chain Drug Stores conventions. As compensation for the Consultant's services, Parent has agreed to pay consulting fees to the Consultant at the rate of $225,000 per annum. Additionally, Parent will provide the Consultant and his spouse medical, health and life insurance coverage during the Term, and certain perquisites (for up to two years) that the Company currently provides to the Consultant. Parent has agreed to also provide the Consultant with office space and adequate support staff for the performance of his duties for the first two years under the Consulting Agreement, and during the Term Parent will reimburse the Consultant for all reasonable costs incurred in performing those duties rendered pursuant to the Consulting Agreement. In the event that the Offer or the Merger Agreement is terminated, the Consulting Agreement will be cancelled and of no force or effect. If the Consultant should die before the termination of the Consulting Agreement, the consulting relationship with Parent shall end and Parent shall thereafter pay to the beneficiary designated by the Consultant the compensation that the Consultant would have been paid under the Consulting Agreement for the remainder of the Term. If, as a result of the Consultant's incapacity due to physical or mental illness, the Consultant should become unable to perform his duties under the Consulting Agreement, Parent may terminate the consulting relationship with the Consultant. In such event, the Consultant shall be entitled to receive substantially the same compensation that he would have received under the Consulting Agreement for the remainder of the Term. In the Consulting Agreement, the Consultant has agreed not to engage in or be employed by any business which competes with Parent for a period of five years after termination of his services as a consultant under the Consulting Agreement, and has further agreed not to disclose any confidential information acquired while performing his duties under the Consulting Agreement. Confidentiality Agreement. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE CONFIDENTIALITY AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CONFIDENTIALITY AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE SCHEDULE 14D-1. THE CONFIDENTIALITY AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE PLACE AND MANNER AS SET FORTH IN SECTION 7 OF THIS OFFER TO PURCHASE. 22 Parent entered into a Confidentiality Agreement, dated December 14, 1994, 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 for a period of one year 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) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the Company or any subsidiary thereof, or of any successor to or person in control of the Company, or any assets of the Company or any subsidiary or division thereof or of any such successor or controlling person; (b) make, or in any way participate, directly or indirectly, in any 'solicitation' of 'proxies' to vote (as such terms are used in the rules of the Commission), or seek to advise or influence any person or entity with respect to the voting of any voting securities of the Company; (c) make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any extraordinary transaction involving the Company or its securities or assets; (d) seek or propose to influence or control the Company's management or policies (or request permission to do so); or (e) form, join or in any way participate in a 'group' as defined in Section 13(d)(3) of the Exchange Act in connection with any of the foregoing provisions of this paragraph. Rights Agreement. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE RIGHTS AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE COMPANY'S CURRENT REPORT ON FORM 8-K, DATED FEBRUARY 4, 1987, AND THE AMENDMENT TO RIGHTS AGREEMENT, FILED AS AN EXHIBIT TO THE COMPANY'S CURRENT REPORT ON FORM 8-K, DATED JUNE 2, 1989, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 8-KS. THE RIGHTS AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE PLACE AND IN THE MANNER AS SET FORTH IN SECTION 7 OF THIS OFFER TO PURCHASE. On February 4, 1987, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock to shareholders of record on February 20, 1987. Each Right issued pursuant to the Rights Agreement entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a 'Unit') of Series A $5.00 Preferred Stock, no par value (the 'Preferred Stock') at a price of $48.00 per Unit (the 'Purchase Price'), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the 'Rights Agreement') between the Company and State Street Bank & Trust Company, as successor Rights Agent (the 'Rights Agent'). The Rights are evidenced by a Common Stock certificate with a copy of the Summary of Rights (as set forth in an exhibit to the Rights Agreement) attached thereto. The Rights will separate from the Common Stock and a Distribution Date (as defined in the Rights Agreement) will occur upon the earlier of (i) 10 business days (or such later date as may be determined by action of a majority of the Continuing Directors (as defined in the Rights Agreement) then in office) following a public announcement that an Acquiring Person (as defined in the Rights Agreement) has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of the Common Stock or (ii) 10 business days (or such later date as may be determined by action of a majority of the Continuing Directors then in office) following the commencement or announcement of an intention to commence a tender offer or exchange offer by any person if, upon consummation thereof, such person would be an Acquiring Person (the earlier of such dates being called the 'Distribution Date'). The Rights Agreement provides that, until the Distribution Date, (i) the Rights will be transferred with and only with the Common Stock, (ii) new Common Stock certificates issued after February 20, 1987 upon transfer or new issuance of the Common Stock contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any of the Common Stock certificates outstanding as of February 20, 1987, even without a copy of the Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights Agreement provides that as soon as practicable following the Distribution Date, separate certificates evidencing the Rights ('Right Certificates') will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date and the Rights will expire on February 20, 1997, unless earlier redeemed by the Company as described below. 23 The Rights Agreement provides that in the event that (i) the Company were the surviving corporation in a merger and its Common Stock were not changed or exchanged; (ii) an Acquiring Person engages in one of a number of self-dealing transactions specified in the Rights Agreement; or (iii) an Acquiring Person becomes the beneficial owner of 25% or more of the outstanding Shares, except (a) pursuant to an acquisition discussed in the following sentence, or (b) pursuant to a tender offer or exchange offer for all outstanding Shares at a price and on terms determined by at least a majority of the Continuing Directors, after receiving advice from one or more investment banking firms, to be at a price that is fair (as set forth in the Rights Agreement) to shareholders and otherwise in the best interests of the Company and its shareholders (a 'Fair Offer'), then proper provision shall be made so that each holder of a Right, other than Rights that were or are beneficially owned by the Acquiring Person (which will thereafter be void), shall thereafter have the right to receive upon exercise, at the then current market price in accordance with the terms of the Rights Agreement, such number of Shares having a market value of two times the exercise price of the Right. In the event (i) that the Company were acquired in a merger or other business combination transaction in connection with which all or a part of the Common Stock shall be changed into or exchanged for stock or other securities of any other person or cash or any other property, except if such transaction is consummated with a person or persons who acquired Shares pursuant to a tender offer for all outstanding Shares if (A) the price and or terms of the tender offer are determined by at least a majority of the Continuing Directors to be a Fair Offer, (B) the price per Share offered in such transaction is not less than the price per Share paid to all holders of Shares whose Shares were purchased pursuant to such tender offer and (C) the form of consideration being offered to the remaining holders of Shares pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer; or (ii) that 50% or more of the Company's assets or earning power were sold, then proper provision shall be made so that each holder of a Right, other than Rights that were or are beneficially owned by the Acquiring Person (which will thereafter be void), shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the Acquiring Person which at the time of such transaction would have a market value of two times the exercise price of the Right. Each of the events described in this paragraph constitutes a 'Triggering Event' under the Rights Agreement. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of a least 1% in such Purchase Price. Prior to a Triggering Event, fractional shares of the Preferred Stock will not be issued (other than fractions which are integral multiples of one one-hundredths of a share of Preferred Stock) and, in lieu thereof, an adjustment in cash will be made equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock and, in lieu thereof, an adjustment in cash will be made equal to the same fraction of the current market value of one share of Common Stock. At any time prior to 5:00 p.m. Detroit time, on the tenth business day following the public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 20% or more of the outstanding shares of the Common Stock of the Company (the 'Shares Acquisition Date'), the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.05 per Right (the 'Redemption Price'); provided that if such redemption occurs on or after the Shares Acquisition Date the Board shall be entitled to so redeem the Rights only if such redemption is approved by a majority of the Continuing Directors and the Continuing Directors constitute a majority of the Board of Directors. Thereafter, the Company's right of redemption may be reinstated, prior to a Triggering Event, if (i) an Acquiring Person reduces his beneficial ownership to 10% or less of the outstanding shares of Common Stock in a transaction or series of transactions not involving the Company, and (ii) there are no other Persons, immediately following the event described in clause (i), who are Acquiring Persons. Additionally, the Continuing Directors may at any time prior to the occurrence of a Triggering Event, redeem the then outstanding Rights in whole, but not in part, at the Redemption Price; provided that such redemption is in connection with the consummation of a merger or other business combination involving the Company but not involving an Acquiring Person or its Affiliates or Associates which is determined to be in the best interests of the Company and all its shareholders by a majority of the Continuing Directors or by the holders of 80% of the outstanding Common Stock not owned by the Acquiring Person or its Affiliates or Associates. Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights, the Company shall make announcement thereof, and upon such election, 24 the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. The Company has executed the Rights Amendment (i) to prevent the Merger Agreement, the Shareholders Agreements or the consummation of any of the transactions contemplated thereby, including without limitation, the Offer and the consummation of the Offer and the Merger, from resulting in the distribution of separate Rights certificates or the occurrence of a Distribution Date (as defined therein) or being deemed a Triggering Event (as defined therein) and (ii) to provide that neither Parent nor the Purchaser will be deemed to be an Acquiring Person (as defined therein) by reason of the transactions expressly provided for in the Merger Agreement and the Shareholders Agreements. The Rights Amendment will render the Rights inoperative with respect to any acquisition of Shares by Parent, the Purchaser or any of their affiliates pursuant to the Merger Agreement and/or the Shareholders Agreements. Upon consummation of the Merger, all Rights will expire and be of no further force or effect. General. Under Michigan Law, the approval of the Board and the affirmative vote of the holders of a majority of the outstanding Shares is required to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger. The Board of Directors of the Company has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, and, unless the Merger is consummated pursuant to the short-form merger provisions under Michigan Law described below, the only remaining required corporate action of the Company is the approval and adoption of the Merger Agreement and the transactions contemplated thereby by the affirmative vote of the holders of a majority of the Shares. Accordingly, if the Minimum Condition is satisfied, the Purchaser will have sufficient voting power to cause the approval and adoption of the Merger Agreement and the transactions contemplated thereby without the affirmative vote of any other shareholders of the Company. Under Michigan Law, if the Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the outstanding Shares, the Purchaser will be able to approve the Merger without a vote of the Company's shareholders. In such event, Parent, the Purchaser and the Company have agreed in the Merger Agreement to take, at the request of the Purchaser, all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's shareholders. If, however, the Purchaser does not acquire at least 90% of the outstanding Shares pursuant to the Offer or otherwise and a vote of the Company's shareholders is required under Delaware Law, a significantly longer period of time would be required to effect the Merger. Under Article VIII of the Company's Restated Articles of Incorporation (the 'Company's Charter'), the affirmative vote of the holders of not less than 75% of the outstanding Shares is required to, among other things, adopt any agreement for, or to approve, the merger or consolidation of the Company or any subsidiary with or into any person (defined as any individual, corporation, partnership or other entity) if, as of the record date to vote on such transaction, such person is, or at any time within the preceding 12 months has been, the beneficial owner of 5% or more of the Shares. However, the Company's Charter provides that the preceding provision is not applicable to a transaction which meets this criteria if (i) the Board of Directors of the Company has approved a memorandum of understanding with such person setting forth the principal terms of the transaction and such transaction is substantially consistent therewith, and (ii) a majority of the Board of Directors voting in favor of such resolution were duly elected to the Board prior to the time such person became the beneficial owner of 5% or more of the Shares. In the Merger Agreement the parties have agreed that the Merger Agreement shall constitute the memorandum of understanding setting forth the principal terms of the Merger and related transactions. In the Merger Agreement, the Company has represented that the Board of Directors of the Company, by resolution, has approved the memorandum of understanding setting forth the principal terms of the Merger and related transactions prior to the time that Parent or the Purchaser entered into the Shareholders Agreements. Accordingly, the vote of the holders of not less than 75% of the outstanding Shares, as set forth in Article VIII of the Company's Charter, is not applicable to the Offer, the Merger, or the transactions contemplated thereby. 25 The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain 'going private' transactions and which may under certain circumstances be applicable to the Merger or another business combination following the purchase of Shares pursuant to the Offer in which the Purchaser seeks to acquire the remaining Shares not held by it. The Purchaser believes, however, that Rule 13e-3 will not be applicable to the Merger because it is anticipated that the Merger will be effected within one year following consummation of the Offer. Rule 13e-3 requires, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority shareholders in such transaction, be filed with the Commission and disclosed to shareholders prior to consummation of the transaction. Appraisal Rights. No appraisal rights are available in connection with the Offer and the Merger. Michigan Law provides that there shall be no right of dissent in favor of holders of shares of any class or series in connection with a merger in which shareholders receive cash in exchange for their shares, except in certain situations which the Purchaser believes would not be applicable to the Merger. Except as noted in this Offer to Purchase, neither Parent nor the Purchaser has any present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, relocation of operations, or sale or transfer of assets, involving the Company or any material changes in the Company's corporate structure, business or composition of its management or personnel. 12. DIVIDENDS AND DISTRIBUTIONS. As described above, the Merger Agreement provides that, prior to the Effective Time, the Company will not (i) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock, subsidiaries of the Company and dividends paid in respect of directors' qualifying shares which dividends are the property of, and for the benefit of, the Company or its direct or indirect wholly owned subsidiaries, (ii) except as explicitly permitted by the Merger Agreement, issue, sell, 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 or (iii) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock. 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and could reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of record holders of at least 100 Shares should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers, directors and their families and other concentrated holdings of 10% or more ('NYSE Excluded Holdings')) should fall below 600,000 or the aggregate market value of publicly held Shares (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or through the National Association of Securities Dealers Automated Quotation System ('NASDAQ') or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of shareholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer Price. 26 The Shares are currently 'margin securities', as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the 'Federal Reserve Board'), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute 'margin securities' for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. The termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with shareholders' meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under the Exchange Act with respect to 'going private' transactions, no longer applicable to the Shares. In addition, 'affiliates' of the Company and persons holding 'restricted securities' of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be 'margin securities' or be eligible for NASDAQ reporting. 14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) the Purchaser's rights to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Merger Agreement), the Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares, and may terminate the Offer as to any Shares not then paid for, if (i) any applicable waiting period under the HSR Act has not expired or terminated, (ii) the Minimum Condition has not been satisfied, (iii) the Rights Agreement shall not have been amended in a manner which renders the Rights inoperative with respect to any acquisition of Shares by Parent or the Purchaser, or (iv) at any time on or after December 23, 1994 and before the time of payment for any such Shares, any of the following events shall occur or shall be determined by the Purchaser to have occurred: (a) there shall have been any action taken, or any statute, rule, regulation, judgment, order or injunction promulgated, entered, enforced, enacted, issued or applicable to the Offer or the Merger by any domestic or foreign federal or state governmental regulatory or administrative agency or authority or court or legislative body or commission which directly or indirectly (l) prohibits, or imposes any material limitations on, Parent's or the Purchaser's ownership or operation (or that of any of their respective subsidiaries or affiliates) of all or a material portion of their or the Company's businesses or assets, or compels Parent or the Purchaser or their respective subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective subsidiaries, in each case taken as a whole, (2) prohibits, or makes illegal the acceptance for payment, payment for or purchase of Shares or the consummation of the Offer or the Merger, (3) results in the delay in or restricts the ability of the Purchaser, or renders the Purchaser unable, to accept for payment, pay for or purchase some or all of the Shares, (4) imposes material limitations on the ability of the Purchaser or Parent effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's shareholders, or (5) otherwise materially adversely affects the consolidated financial condition, businesses or results of operations of the Company and its subsidiaries, taken as a whole, provided that Parent shall have used all reasonable efforts to cause any such judgment, order or injunction to be vacated or lifted; (b) there shall have occurred (1) 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 (excluding suspensions or 27 limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), (2) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (3) a commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, (4) any limitation (whether or not mandatory) by any foreign or United States governmental authority on the extension of credit by banks or other financial institutions, (5) 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 December 23, 1994, or (6) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; (c) 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 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; (d) the Merger Agreement shall have been terminated in accordance with its terms; (e) (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 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 19.9% 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 19.9% of any class or series of capital stock of the Company (including the Shares); or (ii) any person 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 (f) the Company's Board of Directors shall have withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser (including by amendment of the Schedule 14D-9) its 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; 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 the Purchaser and Parent and may be waived by Parent or the Purchaser, in whole or in part at any time and from time to time in the sole discretion of Parent or the Purchaser. 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 and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 15. REGULATORY APPROVALS; STATE TAKEOVER LAWS. General. Except as otherwise disclosed herein, based on a review of publicly available information by the Company with the Commission, neither the Purchaser nor Parent is aware of (i) any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Shares by the Purchaser pursuant to the Offer or the Merger or (ii) any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required for the acquisition or ownership of Shares by the Purchaser as contemplated herein. Should any such approval or other action be required, the Purchaser currently contemplates that such approval or action would be sought. While the Purchaser does not currently intend to delay the acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no 28 assurance that any such approval or action, if needed, would be obtained or would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, the Purchaser or Parent or that certain parts of the businesses of the Company, the Purchaser or Parent might not have to be disposed of in the event that such approvals were not obtained or any other actions were not taken. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 14. Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ('FTC'), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the 'Antitrust Division') and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by the Purchaser pursuant to the Offer is subject to the HSR Act requirements. Under the provisions of the HSR Act applicable to the purchase of Shares pursuant to the Offer, such purchase may not be made until the expiration of a 15-calendar day waiting period following the required filing under the HSR Act by Parent, which Parent intends to make on December 29, 1994. Accordingly, if such filing is made on December 29, 1994, the waiting period under the HSR Act will expire at 11:59 P.M., New York City time, on January 13, 1995, unless early termination of the waiting period is granted or Parent receives a request for additional information of documentary material prior thereto. Pursuant to the HSR Act, Parent has requested early termination of the waiting period applicable to the Offer. There can be no assurances, however, that the 15-day HSR Act waiting period will be terminated early. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent, the waiting period would expire at 11:59 P.M., New York City time, on the tenth calendar day after the date of substantial compliance by the Parent with such request. Thereafter, the waiting period could be extended only by court order or by consent of Parent. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the purchase of and payment for Shares pursuant to the Offer will be deferred until 10 days after the request is substantially complied with unless the waiting period is terminated sooner by the FTC or the Antitrust Division. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the rules promulgated under the HSR Act, except by court order. Although the Company is required to file certain information and documentary material with the Antitrust Division and the FTC in connection with the Offer, neither the Company's failure to make such filings nor a request to the Company from the Antitrust Division or the FTC for additional information or documentary material will extend the waiting period. No separate HSR Act requirements with respect to the Merger, the Merger Agreement, and the Shareholders Agreements will apply if the 15-day waiting period relating to the Offer (as described above) has expired or been terminated. However, if the Offer is withdrawn or if the filing relating to the Offer is withdrawn prior to the expiration or termination of the 15-day waiting period relating to the Offer, the acquisition of Shares under the Shareholders Agreements and/or the Merger pursuant to the Merger Agreement may not be consummated until 30 calendar days after receipt by the Antitrust Division and the FTC of the Notification and Report Forms of both Parent and the Company unless the 30-day period is earlier terminated by the Antitrust Division and the FTC. Within such 30-day period, the Antitrust Division or the FTC may request additional information or documentary materials from Parent and/or the Company, in which event, the acquisition of Shares pursuant to the Merger or the Shareholders Agreements, as the case may be, may not be consummated until 20 days after such requests are substantially complied with by both Parent and the Company. Thereafter, the waiting periods may be extended only by court order or by consent. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Purchaser pursuant to the Offer. At any time before or after the Purchaser's purchase of Shares, either the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or seeking divestiture of Shares acquired by the Purchaser or divestiture of substantial assets of Parent, the Company or any of their respective subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. Based upon an examination of publicly available information relating to the businesses in which Parent and its subsidiaries and the Company and its subsidiaries are involved, Parent and the Purchaser believe that the Offer will not violate the antitrust laws. Nevertheless, there can be no 29 assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. State Takeover Laws. The Company is incorporated under the laws of the State of Michigan. In general, Sections 775 through 784 of Michigan Law (the 'Business Combination Statute') prevent an 'interested shareholder' (generally a person who owns or has the right to acquire 10% or more of a corporation's outstanding voting stock, or an affiliate or associate thereof) from engaging in a 'business combination' (defined to include mergers and certain other transactions) with a Michigan corporation for a period of five years following the date such person became an interested shareholder unless, among other things, the board of directors of the corporation approved the business combination at any time prior to the time the interested shareholder first became an interested shareholder. On December 23, 1994, prior to the execution of the Merger Agreement and prior to the execution of the Shareholders Agreements, the Board of Directors of the Company, by unanimous vote of all directors present at a meeting held on such date, approved the Merger Agreement and determined that each of the Offer and the Merger is fair to, and in the best interest of, the shareholders of the Company. Accordingly, the Business Combination Statute is inapplicable to the Offer and the Merger. In general, Sections 790 through 799 of Michigan Law (the 'Control Share Acquisition Statute') provide that 'control shares' (defined as shares that, except for this statute, would have voting power that would entitle a person, immediately after acquisition of the shares, to exercise or direct the exercise of the voting power of one-fifth or more of all voting power of the company's shares) acquired in a 'control share acquisition' (defined as an acquisition of ownership or the power to direct the voting power of control shares) have voting rights only to the extent granted by a resolution approved by both a majority of all shares entitled to vote thereon and a majority of the shares entitled to vote thereon excluding all interested shares. This statute does not apply to the acquisition of any shares of a corporation if, among other things, the corporation's articles or by-laws provide, before the control share acquisition, that the provisions do not apply to such acquisition. On December 23, 1994, prior to the execution of the Merger Agreement and the Shareholders Agreements, the Company amended its By-laws to opt out of the Control Share Acquisition Statute. Accordingly, the Control Share Acquisition Statute is not applicable to the Offer or the Merger. 16. FEES AND EXPENSES. Except as set forth below, neither Parent nor the Purchaser will pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. The Purchaser has retained MacKenzie Partners, Inc. to act as the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. In addition, Harris Trust Company of New York has been retained as the Depositary. The Depositary has not been retained to make solicitations or recommendations in its role as Depositary. The Depositary will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding offering material to their customers. 17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, the Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. 30 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Parent and the Purchaser have filed with the Commission the Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 7 (except that they will not be available at the regional offices of the Commission). LAKE ACQUISITION CORPORATION December 29, 1994 31 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER 1. Directors and Executive Officers of Parent. Set forth below is the name, current business address, citizenship and the present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each director and executive officer of Parent. Unless otherwise indicated, each person identified below is employed by Parent. The principal address of Parent and, unless otherwise indicated below, the current business address for each individual listed below is 30 Hunter Lane, Camp Hill, Pennsylvania, 17011. Each such person is a citizen of the United States. Directors are identified by an asterisk.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND CURRENT MATERIAL POSITIONS HELD DURING THE PAST BUSINESS ADDRESS FIVE YEARS - -------------------------------------- --------------------------------------- Alex Grass*........................... Founder, Chairman of the Board and Chief Executive Officer of Parent. Mr. Grass is also a director of Hasbro Inc. and is Chairman of the Board of Directors of Super Rite Corporation. He is the father of Martin Grass. Martin Grass*......................... President and Chief Operating Officer. Mr. Grass was appointed Chief Operating Officer in April 1989. He is the Vice Chairman of the Board of Directors and Treasurer of Super Rite Corporation. He is the son of Alex Grass. Preston Robert Tisch* ................ President and Co-Chief Executive Loews Corporation Officer of Loews Corporation since 667 Madison Avenue March 1988. In addition, since March New York, NY 10021 1991 he has been Chairman of the Board of the N.Y. Football GIANTS, Inc. From August 1986 to March 1988, he was Postmaster General of the United States. Prior thereto, he had been President and Chief Operating Officer of Loews Corporation. Mr. Tisch is also a director of Loews Corporation, CNA Financial Corporation, Bulova Watch Co., and Hasbro, Inc. Franklin Brown*....................... Executive Vice President and Chief Legal Counsel since 1993. Prior thereto, Mr. Brown served as Senior Vice President and General Counsel of Parent. Philip Neivert* ...................... Private investor whose operations are 40 Whitestone Lane based in Rochester, New York. Rochester, NY 14618 Gerald Tsai, Jr.* .................... Chairman, President and Chief Executive Tsai Management, Inc. Officer of Delta Life Corporation, a 200 Park Avenue position he has held since February Suite 3709 1993. He had been Chairman of the New York, NY 10166 Executive Committee of the Board of Directors of Primerica Corporation (formerly American Can Company) from December 1988 until April 1991. Mr. Tsai is also a director of NAC Re Corporation, Sequa Corporation and Zenith National Insurance Corp., and is a trustee of Meditrust. Leonard Stern* ....................... Chairman of the Board of The Hartz Hartz Group, Inc. Group, Inc. and affiliated companies. 667 Madison Avenue 24th Floor New York, NY 10021 Henry Taub* .......................... Honorary Chairman of the Board of 111 DeVriese Court Automatic Data Processing, Inc. since Tenafly, NJ 07670 1986. He is also a director of Hasbro, Inc. Timothy J. Noonan..................... Executive Vice President Alex Schamroth........................ Executive Vice President Frank M. Bergonzi..................... Senior Vice President Kevin J. Mann......................... Senior Vice President
I-1
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND CURRENT MATERIAL POSITIONS HELD DURING THE PAST BUSINESS ADDRESS FIVE YEARS - -------------------------------------- --------------------------------------- Philip D. Markowitz................... Senior Vice President Ronald A. Miller...................... Senior Vice President Robert R. Souder...................... Senior Vice President Joel F. Feldman....................... Senior Vice President Dennis J. Bowman...................... Senior Vice President Charles Slane......................... Vice President and Secretary Thomas R. Coogan...................... Vice President and Treasurer Gerald P. Cardinale................... Vice President Mark E. Fogg.......................... Vice President Allan Goldman......................... Vice President Charles R. Kibler..................... Vice President W. Michael Knievel.................... Vice President James E. Krahulec..................... Vice President James O. Lott......................... Vice President Raymond B. McKeeby.................... Vice President Suzanne Mead.......................... Vice President Gregg W. Montgomery................... Vice President Michael F. Morris..................... Vice President Joseph S. Speaker..................... Vice President
Each of the executive officers listed above has served Parent or its subsidiaries in various executive capacities for the past five years, except for the following individuals: Mr. Bowman has held his present position with Parent for one year. Prior thereto he was a Senior Information Technology Consultant with McKinsey & Company. Mr. Feldman has been Vice President of Managed Care Services for Parent since 1991. From September 1989 until his appointment as Vice President, he held the positions of Assistant Vice President of Third Party Sales and Director of Third Party Sales for Parent. 2. Directors and Executive Officers of the Purchaser. Set forth below is the name and position of each director and officer of the Purchaser. The principal occupation or employment and citizenship of each such person is set forth in Part 1 of this Schedule I. Each person identified below is employed by the Purchaser and has held such position since the formation of the Purchaser in December 1994. The principal address of the Purchaser and the current business address for each individual listed below is 30 Hunter Lane, Camp Hill, Pennsylvania 17011. Directors are identified by an asterisk.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS HELD DURING THE PAST NAME FIVE YEARS - -------------------------------------- --------------------------------------- Alex Grass*........................... President Martin Grass*......................... Vice President Franklin Brown*....................... Secretary Frank M. Bergonzi*.................... Treasurer
I-2 SCHEDULE II TRANSACTIONS IN SHARES DURING THE PAST 60 DAYS BY PARENT
SHARES TRANSACTION DATE ACQUIRED(1) PRICE PER SHARE(2) - ---------------- ----------- ------------------ October 24, 1994 9,200 $ 7.00 October 25, 1994 40,500 7.00 October 26, 1994 15,400 7.00 October 27, 1994 31,800 7.00 October 28, 1994 1,900 7.00 October 31, 1994 9,100 7.25 November 1, 1994 9,000 7.25
- ------------------ (1) Purchased by Parent in open market transactions executed on the NYSE. (2) All prices are exclusive of brokerage commissions. II-1 Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each shareholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Overnight Courier: By Hand: Wall Street Station 77 Water Street, 4th Receive Window P.O. Box 1023 Floor 77 Water Street, 5th New York, NY 10268-1023 New York, NY 10005 Floor New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by telephone: (212) 701-7624 Any questions or requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or other tender offer materials may be directed to the Information Agent at the telephone number and address listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll-Free (800) 322-2885 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL EXHIBIT (a)(2) LETTER OF TRANSMITTAL To Tender Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. PURSUANT TO THE OFFER TO PURCHASE DATED DECEMBER 29, 1994 BY LAKE ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK By Hand: By Overnight Courier: By Mail: Receive Window 77 Water Street, Wall Street Station 77 Water Street, 4th Floor P.O. Box 1023 5th Floor New York, NY 10005 New York, NY 10268-1023 New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by telephone: (212) 701-7624 ------------------ DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by shareholders either if certificates evidencing Shares (as defined below) are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ('DTC'), the Midwest Securities Trust Company ('MSTC') or the Philadelphia Depository Trust Company ('PDTC') (each a 'Book-Entry Transfer Facility' and collectively, the 'Book-Entry Transfer Facilities') pursuant to the book-entry transfer procedure described in Section 3 of the Offer to Purchase (as defined below). Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Shareholders whose certificates evidencing Shares ('Share Certificates') are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section l of the Offer to Purchase) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Shares must do so pursuant to the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. See Instruction 2. / / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution - --------------------------------------------------------------------------- Check Box of Applicable Book-Entry Transfer Facility: (CHECK ONE) / / DTC / / MSTC / / PDTC Account Number - --------------------------- Transaction Code Number - --------------------------------- / / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): _______________________________________________ Window Ticket No. (if any): ____________________________________________________ Date of Execution of Notice of Guaranteed Delivery: ____________________________ Name of Institution which Guaranteed Delivery: _________________________________ If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer Facility: (CHECK ONE) / / DTC / / MSTC / / PDTC Account Number - --------------------------- Transaction Code Number - ---------------------------------
DESCRIPTION OF SHARES TENDERED NAMES(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAMES(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) - ----------------------------------------------------------------- ---------------------------------------------------------------- TOTAL NUMBER OF SHARES SHARE EVIDENCED BY NUMBER OF CERTIFICATE SHARE SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ---------------------------------------------------------------- TOTAL SHARES
* Need not be completed by shareholders delivering Shares by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to Lake Acquisition Corporation, a Delaware corporation ('Purchaser') and a wholly owned subsidiary of Rite Aid Corporation., a Delaware corporation, the above-described shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (together with the Common Stock, the 'Shares'), pursuant to Purchaser's offer to purchase all outstanding Shares, at $11.00 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 29, 1994 (the 'Offer to Purchase'), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'). The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer. Subject to, and effective upon, acceptance for payment of the Shares tendered herewith, in accordance with the terms of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares that are being tendered hereby and all dividends, distributions (including, without limitation, distributions of additional Shares) and rights declared, paid or distributed in respect of such Shares on or after December 23, 1994, (collectively, 'Distributions'), and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Share Certificates evidencing such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by a Book-Entry Transfer Facility, together, in either case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares and all Distributions for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints Martin L. Grass and Franklin Brown, and each of them, as the attorneys and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or his substitute shall, in his sole discretion, deem proper and otherwise act (by written consent or otherwise) with respect to all the Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of such vote or other action and all Shares and other securities issued in Distributions in respect of such Shares, which the undersigned is entitled to vote at any meeting of shareholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or consent in lieu of any such meeting or otherwise. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby, is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke all other proxies and powers of attorney granted by the undersigned at any time with respect to such Shares (and all Shares and other securities issued in Distributions in respect of such Shares), and no subsequent proxy or power of attorney shall be given or written consent executed (and if given or executed, shall not be effective) by the undersigned with respect thereto. The undersigned understands that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance of such Shares for payment, Purchaser must be able to exercise full voting and other rights with respect to such Shares, including, without limitation, voting at any meeting of the Company's shareholders then scheduled. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, and that when such Shares are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby or deduct from such purchase price, the amount or value of such Distribution as determined by Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchaser's acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein in the box entitled 'Special Payment Instructions,' please issue the check for the purchase price of all Shares purchased, and return all Share Certificates evidencing Shares not purchased or not tendered, in the name(s) of the registered holder(s) appearing above under 'Description of Shares Tendered.' Similarly, unless otherwise indicated in the box entitled 'Special Delivery Instructions,' please mail the check for the purchase price of all Shares purchased and all Share Certificates evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under 'Description of Shares Tendered.' In the event that the boxes entitled 'Special Payment Instructions' and 'Special Delivery Instructions' are both completed, please issue the check for the purchase price of all Shares purchased and return all Share Certificates evidencing Shares not purchased or not tendered in the name(s) of, and mail such check and Share Certificates to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled 'Special Payment Instructions,' please credit any Shares tendered hereby and delivered by book-entry transfer, but which are not purchased, by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not purchase any of the Shares tendered hereby. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned, or if Shares tendered hereby and delivered by book-entry transfer which are not purchased are to be returned by credit to an account at one of the Book-Entry Transfer Facilities other than that designated above. Issue / / check / / Share Certificate(s) to: Name: __________________________________________________________________________ (PRINT PRINT) Address: _______________________________________________________________________ (INCLUDE ZIP CODE) ________________________________________________________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) / / Credit Shares delivered by book-entry transfer and not purchased to the account set forth below: Check appropriate box: / / DTC / / MSTC / / PDTC Account Number _________________________________________________________________ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under 'Description of Shares Tendered.' Mail / / check / / Share Certificate(s) to: Name: __________________________________________________________________________ (PRINT PRINT) Address: _______________________________________________________________________ (INCLUDE ZIP CODE) IMPORTANT SHAREHOLDERS: SIGN HERE (Please Complete Substitute Form W-9 on Reverse) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature(s) of Holder(s) Dated: ------------------------------, 199 -- (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates or on a security position listing or by a person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Print) Capacity (full title): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (include Zip Code) Area Code and Telephone No.: - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security No.: - -------------------------------------------------------------------------------- (See Substitute Form W-9 on reverse side) GUARANTEE OF SIGNATURE(S) (If Required--See Instructions 1 and 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized Signature: - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- (Please Print) Name of Firm: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No: - -------------------------------------------------------------------------------- Dated: __________________________________________________ , 199__ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loans associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each an 'Eligible Institution'). No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed either the box entitled 'Special Delivery Instructions' or the box entitled 'Special Payment Instructions' on the reverse hereof, or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Share Certificates. This Letter of Transmittal is to be used either if Share Certificates are to be forwarded herewith or if Shares are to be delivered by book-entry transfer pursuant to the procedure set forth in Section 3 of the Offer to Purchase. Share Certificates evidencing all physically tendered Shares, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered by book-entry transfer as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the reverse hereof prior to the Expiration Date (as defined in Section l of the Offer to Purchase). If Share Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Shareholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares pursuant to the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates evidencing all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, in each case together with a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Depositary within five New York Stock Exchange, Inc. ('NYSE') trading days after the date of execution of such Notice of Guaranteed Delivery, all as described in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. By execution of this Letter of Transmittal (or a facsimile hereof), all tendering shareholders waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein under 'Description of Shares Tendered' is inadequate, the Share Certificate numbers, the number of Shares evidenced by such Share Certificates and the number of Shares tendered should be listed on a separate schedule and attached hereto. 4. Partial Tenders (not applicable to shareholders who tender by book-entry transfer). If fewer than all the Shares evidenced by any Share Certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares which are to be tendered in the box entitled 'Number of Shares Tendered.' In such cases, new Share Certificate(s) evidencing the remainder of the Shares that were evidenced by the Share Certificates delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled 'Special Delivery Instructions' on the reverse hereof, as soon as practicable after the expiration or termination of the Offer. All Shares evidenced by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificates evidencing such Shares without alteration, enlargement or any other change whatsoever. If any Share tendered hereby is owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in the names of different holders, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Shares. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of Share Certificates or separate stock powers are required, unless payment is to be made to, or Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), in which case, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the Share Certificate(s) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of such person's authority so to act must be submitted. 6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased, unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share Certificates evidencing the Shares tendered hereby. 7. Special Payment and Delivery Instructions. If a check for the purchase price of any Shares tendered hereby is to be issued, or Share Certificate(s) evidencing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate is to be sent to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled 'Description of Shares Tendered' on the reverse hereof, the appropriate boxes on the reverse of this Letter of Transmittal must be completed. Shareholders delivering Shares tendered hereby by book-entry transfer may request that Shares not purchased be credited to such account maintained at a Book-Entry Transfer Facility as such shareholder may designate in the box entitled 'Special Payment Instructions' on the reverse hereof. If no such instructions are given, all such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated on the reverse hereof as the account from which such Shares were delivered. 8. Questions and Requests for Assistance or Additional Copies. Questions and requests for assistance may be directed to the Information Agent at its address or telephone number set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 9. Substitute Form W-9. Each tendering shareholder is required to provide the Depositary with a correct Taxpayer Identification Number ('TIN') on the Substitute Form W-9 which is provided under 'Important Tax Information' below, and to certify, under penalties of perjury, that such number is correct and that such shareholder is not subject to backup withholding of federal income tax. If a tendering shareholder has been notified by the Internal Revenue Service that such shareholder is subject to backup withholding, such shareholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such shareholder has since been notified by the Internal Revenue Service that such shareholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering shareholder to 31% federal income tax withholding on the payment of the purchase price of all Shares purchased from such shareholder. If the tendering shareholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such shareholder should write 'Applied For' in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If 'Applied For' is written in Part l and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price to such shareholder until a TIN is provided to the Depositary. 10. Lost, Destroyed or Stolen Certificates. If any certificate(s) representing Shares has been lost, destroyed or stolen, the Shareholder should promptly notify the Depositary. The Shareholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certifcates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a shareholder whose tendered Shares are accepted for payment is required by law to provide the Depositary (as payer) with such shareholder's correct TIN on Substitute Form W-9 below. If such shareholder is an individual, the TIN is such shareholder's social security number. If the Depositary is not provided with the correct TIN, the shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such shareholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain shareholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the shareholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a shareholder with respect to Shares purchased pursuant to the Offer, the shareholder is required to notify the Depositary of such shareholder's correct TIN by completing the form below certifying (a) that the TIN provided on Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN), and (b) that (i) such shareholder has not been notified by the Internal Revenue Service that such shareholder is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such shareholder that such shareholder is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The shareholder is required to give the Depositary the social security number or employer identification number of the record holder of the Shares tendered hereby. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the shareholder should write 'Applied For' in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9. If 'Applied For' is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price to such shareholder until a TIN is provided to the Depositary. PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PART I--Taxpayer Identification Number--For all accounts, enter taxpayer identification number in the box at right. (For most individuals, this is your social security number. If you do not have a number, see Obtaining a Number in the enclosed Guidelines.) Certify by signing and dating below. Note: If the account is in more than one name, see the chart in the enclosed Guidelines to determine which number to give the payer. ------------------------ Social Security Number OR ------------------------ Employer Identification Number (If awaiting TIN write 'Applied For') Payer's Request for Taxpayer Identification Number (TIN) PART II--For Payees Exempt From Backup Withholding, see the enclosed Guidelines and complete as instructed therein. CERTIFICATION--Under penalties of perjury, I certify that: (l) The number shown on this form is my correct Taxpayer Identification Number (or a Taxpayer Identification Number has not been issued to me and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service ('IRS') or Social Security Administration office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number), and (2) I am not subject to backup withholding either because I have not been notified by the IRS that I am subject to backup withholding as a result of failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) SIGNATURE DATE , 199 -- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 December 29, 1994 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY EXHIBIT (a)(3) NOTICE OF GUARANTEED DELIVERY for Tender of Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. (Not To Be Used For Signature Guarantees) This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) (i) if certificates ('Shares Certificates') evidencing shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (together with the Common Stock, the 'Shares'), are not immediately available, (ii) if Share Certificates and all other required documents cannot be delivered to Harris Trust Company of New York, as Depositary (the 'Depositary'), prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase (as defined below)) or (iii) if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Hand: By Overnight Courier By Mail: Receive Window 77 Water Street, 4th Wall Street Station 77 Water Street, 5th Floor P.O. Box 1023 Floor New York, NY 10005 New York, NY 10268-1023 New York, NY 10005 By Facsimile: (212) 701-7636 (212) 701-7640 Confirm by Telephone: (212) 701-7624 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an 'Eligible Institution' under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 1 Ladies and Gentlemen: The undersigned hereby tenders to Lake Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 29, 1994 (the 'Offer to Purchase'), and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedures described in Section 3 of the Offer to Purchase. Number of Shares: ----------------- Certificate Nos. (if available):-------------------- - ---------------------------------------------------- Name(s) of Record Holder(s): - ---------------------------------------------------- - ---------------------------------------------------- (Please Print) Address(es): --------------------------------------- - ---------------------------------------------------- (Zip Code) Area Code and Tel. No: ----------------------------- Signature(s): -------------------------------------- - ---------------------------------------------------- Check ONE box if Shares will be tendered by book-entry transfer: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number: ---------------------------------------------------- Dated: ---------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program or the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase) of a transfer of such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal, or a manually signed facsimile thereof, with any required signature guarantees, and any other documents required by the Letter of Transmittal within five New York Stock Exchange, Inc. trading days after the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in financial loss to such Eligible Institution. Name of Firm: ---------------------- --------------------------- (Authorized Signature) Address: --------------------------- Title: --------------------------- (Zip Code) Area Code and Tel. No.: ------------ Date: --------------------------- NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.(A)(4) 5 LETTER TO BROKERS, DEALERS, AND OTHER NOMINEES EXHIBIT (a)(4) MACKENZIE PARTNERS, INC. Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. at $11.00 NET PER SHARE by LAKE ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees We have been appointed by Lake Acquisition Corporation, a Delaware corporation ('Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to act as Information Agent in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (together with the Common Stock, the 'Shares'), at a price of $11.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase, dated December 29, 1994 (the 'Offer to Purchase'), and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer') enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares which, when added to the Shares owned by Purchaser and its affiliates, constitutes at least a majority of the Shares outstanding on a fully diluted basis. Enclosed for your information and use are copies of the following documents: 1. Offer to Purchase, dated December 29, 1994; 2. Letter of Transmittal to be used by holders of Shares in accepting the Offer and tendering Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents are not immediately available or cannot be delivered to Harris Trust Company of New York (the 'Depositary') by the Expiration Date (as defined in the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 4. A letter to shareholders of the Company from Mr. Jack Robinson, Chairman of the Board and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; 5. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates evidencing such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or facsimile thereof) properly completed and duly executed and any other required documents in accordance with the instructions contained in the Letter of Transmittal. If a holder of Shares wishes to tender Shares, but cannot deliver such holder's certificates or other required documents, or cannot comply with the procedure for book-entry transfer, prior to the expiration of the Offer, a tender of Shares may be effected by following the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Depositary and the Information Agent as described in the Offer) in connection with the solicitation of tenders of Shares pursuant to the Offer. However, Purchaser will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer and requests for additional copies of the enclosed material should be addressed to the Information Agent at our address and telephone number set forth on the back cover page of the Offer to Purchase. Very truly yours, MACKENZIE PARTNERS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(5) 6 LETTER TO CLIENTS EXHIBIT (a)(5) Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. at $11.00 NET PER SHARE by LAKE ACQUISITION CORPORATION a wholly owned subsidiary of RITE AID CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. December 29, 1994 To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated December 29, 1994 (the 'Offer to Purchase') and a related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer') in connection with the Offer by Lake Acquisition Corporation, a Delaware corporation ('Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to purchase all outstanding shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (together with the Common Stock, the 'Shares'), at a price of $11.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. We are the holder of record of Shares held by us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $11.00 per Share, net to the seller in cash. 2. The Offer is being made for all outstanding Shares. 3. The Board of Directors of the Company unanimously has determined that each of the Offer and the Merger (as defined in the Offer to Purchase) is fair to, and in the best interests of, the shareholders of the Company, and recommends that shareholders accept the Offer and tender their Shares pursuant to the Offer. 4. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, January 27, 1995, unless the Offer is extended. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares which, when added to the Shares owned by Purchaser and its affiliates, constitutes at least a majority of the Shares outstanding on a fully diluted basis. 6. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 Instructions with Respect to the Offer to Purchase for Cash all Outstanding Shares of Common Stock (Including the Associated Rights) of PERRY DRUG STORES, INC. by LAKE ACQUISITION CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated December 29, 1994, and the related Letter of Transmittal (which, as amended from time to time, together constitute the 'Offer'), in connection with the offer by Lake Acquisition Corporation, a Delaware corporation ('Purchaser') and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ('Parent'), to purchase all outstanding shares of common stock, par value $.05 per share (the 'Common Stock'), of Perry Drug Stores, Inc., a Michigan corporation (the 'Company'), and the associated preferred stock purchase rights (together with the Common Stock, the 'Shares'). This will instruct you to instruct your nominee to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. SIGN HERE Number of Shares to be Tendered: - --------------------------- Shares* ---------------------------------------- ---------------------------------------- Signature(s) ---------------------------------------- Dated: , 199 ---------------------------------------- Please type or print name(s) ---------------------------------------- ---------------------------------------- Please type or print address ---------------------------------------- Area Code and Telephone Number ---------------------------------------- Taxpayer Identification or Social Security Number - ------------------ * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.(A)(6) 7 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID NUMBER EXHIBIT (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ---------------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ---------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife The actual owner of the (joint account) account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if the minor is (joint account) the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 8. Sole proprietorship account The owner(4)
- ----------------------------------------------------------------
- ---------------------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ---------------------------------------------------------------- 9. A valid trust, estate, or The legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ---------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a), or an individual retirement plan. - - The United States or any agency or instumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency, or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a). - - An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1). - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to non-resident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE 'EXEMPT' ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1984, payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 FORM OF SUMMARY ADVERTISEMENT This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated December 29, 1994 and the related Letter of Transmittal, and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of theOffer orthe acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Rights) of Perry Drug Stores, Inc. at $11.00 Net Per Share by Lake Acquisition Corporation A Wholly Owned Subsidiary of Rite Aid Corporation Lake Acquisition Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Rite Aid Corporation, a Delaware corporation ("Parent"), is offering to purchase all outstanding shares of common stock, par value $.05 per share (the "Common Stock"), of Perry Drug Stores, Inc., a Michigan corporation (the "Company"), and the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and State Street Bank & Trust Company, as successor Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), at a price of $11.00 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 29, 1994 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Following the Offer, Purchaser intends to effect the Merger described below. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 27, 1995, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares (and the associated Rights) which, when added to the Shares owned by Purchaser and its affiliates, constitutes at least a majority of the Shares outstanding on a fully diluted basis, excluding Shares reserved for issuance upon conver- sion of the Convertible Debentures (as defined in the Offer to Purchase) (the "Minimum Condition"). The Offer is also subject to other terms and conditions. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 23, 1994 (the "Merger Agreement"), by and among Parent, Purchaser and the Compa- ny. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware and the Michigan Business Corporation Act, Purchaser will be merged with and into the Company (the "Merger"). Following consum- mation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsid- iary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company or owned by Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent) will be cancelled and converted automatically into the right to receive $11.00 in cash, or any higher price that may be paid per Share in the Offer, without interest. In connection with the Merger Agreement, Parent and Purchaser have entered into Shareholders Agreements with Mr. Jack Robinson, the Chairman and Chief Executive Officer of the Company, and Mrs. Aviva Robinson (together with Mr. Robinson, the "Selling Shareholders") pursuant to which, among other things, the Selling Shareholders have agreed to tender in the Offer, and have granted Parent an option to acquire at $11.00 per Share, upon the terms and subject to the conditions thereof, all Shares owned by the Selling Shareholders (representing approximately 9.02% of the Company's outstanding Shares calculated on a fully diluted basis). The Board of Directors of the Company unanimously has determined that each of the Offer and the Merger is fair to, and in best interests of, the shareholders of the Company, and unanimously recommends that shareholders accept the Offer and tender their Shares pursuant to the Offer. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to Harris Trust Company of New York (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will inter- est on the purchase price for Shares be paid, regardless of any delay in making such payment. In all cases, pay- ment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in Section 2 of the Offer to Purchase) pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees and (iii) any other docu- ments required under the Letter of Transmittal. Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the conditions specified in Section 14 of the Offer to Pur- chase, by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m., New York City time, on the next business day after the previ- ously scheduled expiration date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering shareholder to withdraw such share holder's Shares. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to 12:00 Midnight, New York City time, on Friday, January 27, 1995 (or the latest time and date at which the Offer, if extended by Purchaser, shall expire) and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after February 27, 1995. For the withdrawal to be effec- tive, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depos- itary at one of its addresses set forth on the back cover page of the Offer to Purchase. Any such notice of with- drawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Insti- tution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book- Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (in- cluding the time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. The information required to be disclosed by Rule 14d- 6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is con- tained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmit- tal will be mailed to record holders of Shares whose names appear on the Company's shareholder list and will be fur- nished to brokers, dealers, commercial banks, trust compa- nies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent trans- mittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read before any decision is made with respect to the Offer. Questions and requests for assistance or for addi- tional copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: MacKenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 December 29, 1994 EX-99.(A)(8) 9 TEXT OF PRESS RELEASE [LOGO OF RITE AID] MAILING ADDRESS P.O. BOX 3165 HARRISBURG, PA 17105 PRESS RELEASE GENERAL OFFICE FOR FURTHER INFORMATION CONTACT: 30 HUNTER LANE CAMP HILL, PA 17011 Frank Bergonzi Vice President, Finance 717-975-5750 For Perry Drug Stores Jack Seamonds 810-334-1300 FOR IMMEDIATE RELEASE RITE AID CORPORATION AGREES TO ACQUIRE PERRY DRUG STORES, INC. FOR $11.00 PER SHARE CAMP HILL, PA (December 27, 1994)--Rite Aid Corporation (RAD-NYSE, PSE) and Perry Drug Stores, Inc. (PDS-NYSE) today announced that they have entered into an agreement pursuant to which Rite Aid would purchase all the outstanding shares of Perry Drug Stores, Inc. for $11.00 per share, or approximately $132 million in cash. A definitive merger agreement was entered into by the parties following unanimous approval by Perry's board of directors. Perry Drug Stores, which is the largest drugstore chain in Michigan with annual sales of approxi- mately $735 million and 224 stores, has approximately 12 million shares outstanding. The merger agreement provides for a subsidiary of Rite Aid to make a cash tender offer promptly for all outstanding shares of common stock of Perry Drug Stores at a price of $11.00 per share. The tender offer will be followed as soon as possible by a second-step cash merger in which each share of Perry not acquired in the tender offer or otherwise will be converted into the right to receive $11.00 in cash. Rite Aid also stated that it has entered into shareholders agreements with Mr. Jack Robinson, Chairman, Chief Executive Officer and founder of Perry, and Mrs. Jack Robinson pursuant to which Mr. and Mrs. Robinson have agreed to tender their Perry Drug Stores shares (representing approximately 9% of Perry's outstanding shares on a fully diluted basis) into Rite Aid's offer and have granted Rite Aid an option to purchase such shares under certain circumstances. The tender offer is conditioned on, among other things, the valid tender of a majority of the outstanding shares on a fully diluted basis (including those shares owned by Mr. and Mrs. Robinson) and the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The tender offer is scheduled to commence later this week. The merger is expected to be completed as early in 1995 as feasible. Mr. Robinson stated, "Perry Drug Stores has a long and proud history in Michigan, commencing with my first store on Perry Street in Pontiac, Michigan in 1957. The Company now has 224 stores in 136 communities. The Board of Directors believes this transaction is in the best interests of Perry's shareholders and employees." Rite Aid Corporation operates over 2,600 drug- stores in 23 Eastern states and the District of Columbia. # # # # EX-99.(B)(1) 10 CREDIT AGREEMENT Exhibit 99.(b)(1) CONFORMED COPY $350,000,000 CREDIT AGREEMENT dated as of February 7, 1994 among Rite Aid Corporation, The Banks from time to time parties hereto and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS* Page ARTICLE I DEFINITIONS SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Accounting Terms and Determinations. . . . . . . . . . . . 17 SECTION 1.3. Types of Borrowings. . . . . . . . . . . . . . . . . . . . 17 SECTION 1.4. Basis for Ratings. . . . . . . . . . . . . . . . . . . . . 17 ARTICLE II THE CREDITS SECTION 2.1. Commitments to Lend. . . . . . . . . . . . . . . . . . . . 18 SECTION 2.2. Notice of Committed Borrowings.. . . . . . . . . . . . . . 18 SECTION 2.3. Money Market Borrowings. . . . . . . . . . . . . . . . . . 19 SECTION 2.4. Notice to Banks: Funding of Loans. . . . . . . . . . . . . 23 SECTION 2.5. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.6. Maturity of Loans. . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.7. Interest Rates. . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.8. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.9. Optional Termination or Reduction of Commitments . . . . . 32 SECTION 2.10. Mandatory Termination of Commitments.. . . . . . . . . . . 32 SECTION 2.11. Optional Prepayments . . . . . . . . . . . . . . . . . . . 32 SECTION 2.12. General Provisions as to Payments. . . . . . . . . . . . . 33 SECTION 2.13. Funding Losses.. . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.14. Computation of Interest and Fees.. . . . . . . . . . . . . 34 ARTICLE III CONDITIONS SECTION 3.1. Effectiveness. . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 3.2. Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Corporate Existence and Power. . . . . . . . . . . . . . . 36 SECTION 4.2. Corporate and Governmental Authorization; to Contravention. . . . . . . . . . . . . . . . . . . . 36 SECTION 4.3. Binding Effect. . . . . . . . . . . . . . . . . . . . . . 37 SECTION 4.4. Financial Information. . . . . . . . . . . . . . . . . . . 37 SECTION 4.5. Full Disclosure. . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.6. Litigation. . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.7. Compliance with ERISA. . . . . . . . . . . . . . . . . . . 38 SECTION 4.8. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.9. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.10. Environmental Matters. . . . . . . . . . . . . . . . . . . 39 - ------------- * The Table of Contents is not part of this Agreement. ARTICLE V COVENANTS SECTION 5.1. Information. . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 5.2. Payment of Obligations. . . . . . . . . . . . . . . . . . 43 SECTION 5.3. Maintenance of Property; Insurance . . . . . . . . . . . . 43 SECTION 5.4. Conduct of Business and Maintenance of Existence. . . . . 43 SECTION 5.5. Compliance with Laws. . . . . . . . . . . . . . . . . . . 44 SECTION 5.6. Inspection of Property Books and Records.. . . . . . . . . 44 SECTION 5.7. Restriction on Debt of Subsidiaries. . . . . . . . . . . . 44 SECTION 5.8. Restriction on Sales with Leases. . . . . . . . . . . . . 45 SECTION 5.9. Restriction on Liens . . . . . . . . . . . . . . . . . . . 45 SECTION 5.10. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 5.11. Interest Coverage. . . . . . . . . . . . . . . . . . . . . 48 SECTION 5.12. Limitation on Minority Investments . . . . . . . . . . . . 48 SECTION 5.13. Consolidations, Mergers and Sales Assets . . . . . . . . . 49 SECTION 5.14. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE VI DEFAULTS SECTION 6.1. Events of Default. . . . . . . . . . . . . . . . . . . . . 49 SECTION 6.2. Notice of Default. . . . . . . . . . . . . . . . . . . . . 52 ARTICLE VII THE AGENT SECTION 7.1. Appointment and Authorization. . . . . . . . . . . . . . . . 53 SECTION 7.2. Agent and Affiliates . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.3. Action by Agent. . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.4. Consultation with Experts. . . . . . . . . . . . . . . . . . 53 SECTION 7.5. Liability of Agent . . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 7.7. Credit Decision. . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 7.8. Successor Agent. . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 7.9. Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair. . . . . . . . . . . . . . . . . . 55 SECTION 8.2. Illegality . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 8.3. Increased Cost and Reduced Return. . . . . . . . . . . . . 57 SECTION 8.4. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . . . . . . . . . . . . . . 60 ARTICLE IX MISCELLANEOUS SECTION 9.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 9.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 9.3. Expenses; Indemnification. . . . . . . . . . . . . . . . . 62 SECTION 9.4. Sharing of Set-Offs. . . . . . . . . . . . . . . . . . . . 62 SECTION 9.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . 63 SECTION 9.6. Successors and Assigns . . . . . . . . . . . . . . . . . . 63 SECTION 9.7. Collateral . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 9.8. Governing Law: Submission to Jurisdiction. . . . . . . . . 65 SECTION 9.9. Counterparts; Integration. . . . . . . . . . . . . . . . . 66 SECTION 9.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . 66 Exhibit A - Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B - Form of Money Market Quote Request . . . . . . . . . . . . . . . . . . . . . . . Exhibit C - Form of Invitation for Money Market Quotes . . . . . . . . . . . . . . . . . . . . Exhibit D - Form of Money Market Quote. . . . . . . . . . . . . . . . . . Exhibit E - Opinion of Counsel for the Borrower . . . . . . . . . . . . . Exhibit F - Opinion of Davis Polk & Wardwell, Special Counsel for the Agent . . . . . . . . . . . . . . . Exhibit G - Assignment and Assumption Agreement . . . . . . . . . . . . . CREDIT AGREEMENT AGREEMENT dated as of February 7, 1994 among RITE AID CORPORATION, the BANKS from time to time parties hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3. "Adjusted CD Rate" has the meaning set forth in Section 2.7(b). "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereun- der, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" has the meaning set forth in Section 2.7(h). "Assessment Rate" has the meaning set forth in Section 2.7(b). "Assignee" has the meaning set forth in Section 9.6(c). "Attributable Debt" means, as to any particular Sale and Leaseback Transaction under which the Borrower or any Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (i) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (ii) in the case of any other Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Lease- back Transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the respective rental payments at the actual interest factor included in such payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges. "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article VIII. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means Rite Aid Corporation, a Dela- ware corporation, and its successors. "Borrower's 1993 Form l0-K" means the Bor- rower's annual report on Form l0-K for 1993, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Sec- tion l.03. "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet; and "Capital Lease Obligation" means the amount of the liability so capitalized in respect of a Capital Lease. "CD Base Rate" has the meaning set forth in Section 2.7(b). "CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing. "CD Reference Banks" means Morgan Guaranty Trust Company of New York and such other Banks, if any, as the Agent and the Borrower shall mutually agree. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Sections 2.9 and 2.10. "Committed Loan" means a loan made by a Bank pursuant to Section 2.1. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, deter- mined on a consolidated basis as of such date. "Consolidated EBIT" means, for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Charges and (ii) provision for income taxes. "Consolidated Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries during such period. "Consolidated Net Income" means, for any peri- od, the net income (or loss) of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period. "Consolidated Net Tangible Assets" means the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted accounting principles would be included on a consolidated balance sheet of the Borrower and its Con- solidated Subsidiaries after deducting therefrom (i) all liabilities and liability items, including amounts in respect of obligations or guarantees of obligations under leases, which under generally accepted accounting princi- ples would be included on such balance sheet, except Funded Debt, capital stock and surplus, surplus reserves and provisions for deferred income taxes, and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under generally accepted accounting principles would be included on such consolidated balance sheet. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consoli- dated financial statements if such statements were pre- pared as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with gener- ally accepted accounting principles, (v) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vi) all Debt of others Guaranteed by such Person. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Admin- istrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.7(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.1. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environ- ment or to emissions, discharges or releases of pollut- ants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limita- tion, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, trans- port or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor stat- ute. "ERISA Group" means the Borrower, any Subsid- iary and all members of a controlled group of corpora- tions and all trades or businesses (whether or not incor- porated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its officer, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Bor- rower and the Agent. "Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing. "Euro-Dollar Reference Banks" means the princi- pal London offices of Morgan Guaranty Trust Company of New York and of such other Banks, if any, as the Agent and the Borrower shall mutually agree. "Euro-Dollar Reserve Percentage" has the mean- ing set forth in Section 2.7(c). "Event of Default" has the meaning set forth in Section 6.1. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transac- tions as determined by the Agent. "Fixed Rate Borrowing" means a Borrowing com- prised of Fixed Rate Loans. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1(a)) or any combination of the foregoing. "Funded Debt" means any Debt maturing more than one year after the date of determination thereof and any Debt, regardless of its term, renewable pursuant to the terms thereof or of a revolving credit or similar agree- ment effective for more than one year after the date of the creation of such Debt, which would, in accordance with generally accepted accounting practice, be classi- fied as funded debt but shall not include: (a) any Debt for the payment, redemption or satisfaction of which money (or evidences of indebt- edness, if permitted under the instrument creating such indebtedness) in the necessary amount shall have been deposited in trust with a trustee or proper depository either at or before maturity or redemption date thereof; or (b) guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chat- tel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or condition- al sales to or by, or transactions involving title retention with, distributors, dealers or other customers of merchandise, equipment or services or guarantees other than guarantees of indebtedness for borrowed money. "FYE" and "FQE" mean fiscal year end and fiscal quarter end, respectively, and when used in conjunction with a particular month mean the date of ending of the relevant fiscal period nearest the last day of such month. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include en- dorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Indemnitee" has the meaning set forth in Section 9.3(b). "Interest Coverage Ratio" means, at any date, the ratio of Consolidated EBIT to Consolidated Interest Charges, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "Interest Period" means: (l) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Borrowing, the period com- mencing on the date of such Borrowing and ending (subject to Section 2.7(b)) 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Bor- rowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.3; pro- vided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (5) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 14 days) as the Borrower may elect in accordance with Section 2.3; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor stat- ute. "Investment" means any investment in any Per- son, whether by means of share purchase, capital contri- bution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not con- stitute an Investment for purposes of this Agreement. "Level I Status" exists at any date if, at such date, the Borrower's long-term debt is rated A+ or higher by S&P and Al or higher by Moody's. "Level II Status" exists at any date if, at such date, (i) the Borrower's long-term debt is rated A or higher by S&P and A2 or higher by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) the Borrower's long-term debt is rated A- or higher by S&P and A3 or higher by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, (i) the Borrower's long-term debt is rated BBB+ or higher by S&P and Baal or higher by Moody's and (ii) none of Level I Status, Level II Status or Level III Status exists. "Level V Status" exists at any date if, at such date, (i) the Borrower's long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and (ii) none of Level I Status, Level II Status, Level III Status or Level IV Status exists. Level V Status also exists at any date if, at such date, the rating of the Borrower's long-term debt by either S&P or Moody's in effect as of December 31, 1993 has been neither changed nor confirmed by S&P or Moody's, as the case may be, subsequent to such date. "Level VI Status" exists at any date if, at such date, no other Status Level exists. Level VI Status also exists at any date if, at such date, either S&P or Moody's does not rate the Borrower's long-term debt. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.3. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsid- iary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsid- iaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $25,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auc- tion. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.1(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.3(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Moody's" means Moody's Investor Service, Inc. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "1993 Credit Agreements" means the $300,000,000 Credit Agreement and the $100,000,000 Credit Agreement, each dated as of November 19, 1993 among Rite Aid Corpo- ration, the banks listed therein and Morgan Guaranty Trust Company of New York, as agent thereunder. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Commit- ted Borrowing (as defined in Section 2.2) or a Notice of Money Market Borrowing (as defined in Section 2.3(f)). "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Prime Rate" means the rate of interest public- ly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Quarterly Date" means the last day of each Quarterly Period. "Quarterly Period" means a three-month period consisting of (i) February, March and April, (ii) May, June and July, (iii) August, September and October or (iv) November, December and January. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Committed Borrow- ing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commit- ments or, if the Commitments shall have been terminated, holding Notes evidencing at least 66 2/3% of the aggre- gate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to and including the Termination Date. "Sale and Leaseback Transaction" has the mean- ing set forth in Section 5.8. "Secured Debt" means Debt which is secured by a Lien on property of the Borrower or any Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other papers arising, in the ordinary course of business, out of instalment or conditional sales to or by, or transactions involving title retention with, dis- tributors, dealers or other customers, of merchandise, equipment or services. "Significant Subsidiary" means at any time any Subsidiary or any group of Subsidiaries having consoli- dated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Borrower and its Consolidated Subsidiaries at such time. "S&P" means Standard & Poor's Corporation. "Specialty Retailing Assets" means the assets of ADAP, Inc., Concord Custom Cleaners, Pen Encore Inc., and Sera-Tec Biologicals, Inc. "Status Level" means Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status, whichever is in effect at the end of the applicable day (New York City time). "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Temporary Cash Investment" means any Invest- ment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and has capi- tal, surplus and undivided profits aggregating at least $500,000,000 or (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such Investment matures within one year from the date of acquisition thereof by the Borrower or a Subsidiary. "Termination Date" means February 7, 1999, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "Total Capital" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each deter- mined as of such date. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assump- tions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Colum- bia, but excluding its territories and possessions. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determi- nations hereunder shall be made, and all financial state- ments required to be delivered hereunder shall be pre- pared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in gener- ally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such cove- nant shall be determined on the basis of generally ac- cepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satis- factory to the Borrower and the Required Banks. SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under 2.1 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.3 in which the Bank participants are determined on the basis of their bids in accordance therewith). SECTION 1.4. Basis for Ratings. The credit rat- ings to be utilized for purposes of determining rates of interest and fees hereunder are those assigned to the senior unsecured long-term debt securities of the Borrow- er without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. ARTICLE II THE CREDITS SECTION 2.1. Commitments to Lend. During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts requested by the Borrower in accordance with the terms of this Agreement, provided that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.2(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.2. Notice of Committed Borrowings. The Borrower shall give the Agent notice (a "Notice of Com- mitted Borrowing") not later than 10:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the Domestic Business Day next preceding each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrow- ing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (d) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.3. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.1, the Bor- rower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Bor- rower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:00 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) speci- fying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii)the duration of the Interest Period appli- cable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes sub- stantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices re- ferred to in Section 9.1 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affil- iate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 1:00 P.M. (New York City time), in the case of a LIBOR Auction or (y) 9:00 A.M. (New York City time), in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in sub- stantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the princi- pal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percent- age (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Abso- lute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disre- garded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or simi- lar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in sub- section (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is sub- mitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limi- tations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:00 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d) (iii) or that other- wise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate princi- pal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.4. Notice to Banks: Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrow- ing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank partici- pating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately avail- able in New York City, to the Agent at its address re- ferred to in Section 9.1. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Borrow- er to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.4 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corre- sponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to re- flect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(b), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropri- ate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.6. Maturity of Loans. Each Loan in- cluded in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the applicable Adjusted CD Rate for such Inter- est Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the defi- nition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period; and provided further that so long as there is only one Bank party to this Agreement, such Bank and the Borrower may agree to fix the interest rate on CD Loans at such rates and for such Interest Periods not to exceed 30 days as they may mutu- ally agree from time to time. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Applicable Margin for such day plus the Adjusted CD Rate applicable to such Loan and (ii) the rate applicable to Base Rate Loans for such day. The "Adjusted CD Rate" applicable to any Inter- est Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [------------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate -------------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Gover- nors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automat- ically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as ade- quately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classifica- tion) within the meaning of 12 C.F.R. 327.3(d) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the applicable Adjusted London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if neces- sary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro Dollar Business Days before the first day of such Interest Period in an amount approxi- mately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Gover- nors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by refer- ence to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Applicable Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the Applicable Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount ap- proximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.1 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.1(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period appli- cable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.7(c) as if the related Money Market LIBOR Borrowing were a Com- mitted Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.3. Each Money Market Absolute Rate Loan shall bear interest on the outstanding princi- pal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.3. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplat- ed by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.1 shall apply. (h) The "Applicable Margin" with respect to any CD Loan or Euro-Dollar Loan at any date is the appli- cable percentage amount set forth in the table below based on the Status Level for such date: Level I Level II Level III Level IV Level V Level VI Status Status Status Status Status Status Euro-Dollar .2500% .2500% .3000% .3750% .4250% .5500% Loans CD Loans .3750% .3750% .4250% .5000% .5500% .6750% SECTION 2.8. Fees. (a) Commitment Fee. During the Revolving Credit Period, the Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments a commitment fee at the Commitment Fee Rate on the daily amount by which the aggregate amount of the Commitments exceeds the aggregate outstanding principal amount of the Loans. Such commitment fee shall accrue from and including the Effective Date to but excluding the Termination Date. For this purpose, the "Commitment Fee Rate" is a rate per annum equal to (i) 0.0250% for any day on which Level I Status, Level II Status or Level III Status exists and (ii) 0.0500% for any other day. (b) Facility Fee. The Borrower shall pay to the Agent for the account of the Banks ratably in propor- tion to their respective Commitments a facility fee at the Facility Fee Rate. Such facility fee shall accrue (i) from and including the Effective Date to but exclud- ing the Termination Date, on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date to but excluding the date the Loans shall be repaid in their entirety, on the daily average aggregate outstanding principal amount of the Loans. For this purpose, the "Facility Fee Rate" is a rate per annum equal to (i) 0.1000% for any day on which Level I Status exists, (ii) 0.1250% for any day on which Level II Status or Level III Status exists, (iii) 0.1500% for any day on which Level IV Status exists, (iv) 0.1750% for any day on which Level V Status exists and (v) 0.2000% for any other day. (c) Excess Utilization Fee. The Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments a fee at the rate of .0625% per annum on the daily average amount by which the aggregate outstanding principal amount of the Loans exceeds 50% of the aggregate amount of the Commitments. (d) Payments. Accrued fees under this Section shall be payable quarterly on each Quarterly Date and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.9. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple thereof, the aggre- gate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. SECTION 2.10. Mandatory Termination of Commit- ments. The Commitments shall terminate on the Termina- tion Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. Optional Prepayments. (a) The Borrower may (i) upon at least three Domestic Business Days' notice to the Agent, prepay any Domestic Borrowing (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.1(a)) or (ii) upon at least three Euro-Business Days' notice to the Agent, prepay any Euro-Dollar Borrowing, in whole at any time, or from time to time in part in amounts aggre- gating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Except as provided in clause (i) of Section 2.11(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immedi- ately available in New York City, to the Agent at its address referred to in Section 9.1. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next suc- ceeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such as- sumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Article II, VI or VIII or other- wise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.7(d), or if the Bor- rower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.4(a) or 2.11(c), the Borrower shall reim- burse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an exist- ing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of clearly demonstrable error. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). ARTICLE III CONDITIONS SECTION 3.1. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accor- dance with Section 9.5): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.5; (c) receipt by the Agent of an opinion of Franklin C. Brown, Esq., Senior Vice President of and Chief Counsel for the Borrower, substantially in the form of Exhibit E hereto; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and cover- ing such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; (f) receipt by the Agent of evidence satisfac- tory to it of the payment of all amounts payable under the 1993 Credit Agreements and the termination of the commitments thereunder; provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than Febru- ary 18, 1994. The Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to thesatisfaction of the following conditions: (a) receipt by the Agent of a Notice of Bor- rowing as required by Section 2.2 or 2.3, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately after such Borrowing, no Default shall have occurred and be continu- ing; and (d) the fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the repre- sentations and warranties set forth in Sections 4.4(c) and 4.6 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a repre- sentation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.1. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all materi- al governmental licenses, authorizations, consents and approvals required to carry on its business as now con- ducted. SECTION 4.2. Corporate and Governmental Autho- rization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any govern- mental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instru- ment evidencing or governing Debt of the Borrower or any subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instru- ment, judgment, injunction, order or decree. SECTION 4.3. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower. SECTION 4.4. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 27, 1993 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick and set forth in the Borrower's 1993 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in con- formity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of November 27, 1993 and the related unaudited consolidated statements of income and cash flows for the nine months then ended, set forth in the Borrower's quarterly report for the fiscal quarter ended November 27, 1993 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine-month period (subject to normal year-end adjustments). (c) Since November 27, 1993, there has been no material adverse change in the business, financial posi- tion, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.5. Full Disclosure. All financial Statements and other documents furnished by the Borrower to the Banks in connection with this Agreement do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect the business, operations or condition, financial or other- wise, of the Borrower and its Subsidiaries or the Bor- rower's ability to perform obligations under this Agree- ment. SECTION 4.6. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any government body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidat- ed Subsidiaries or which in any manner draws into ques- tion the validity of this Agreement or the Notes. SECTION 4.7. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligation under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compli- ance in all material respects with the presently applica- ble provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Reve- nue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.8. Taxes. United States Federal income tax returns of the Borrower and its Subsidiaries have been examined and closed through the fiscal year ended February 28, 1987. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Significant Subsidiary except where the payment of any such taxes is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Consol- idated Subsidiaries in respect of taxes or other govern- mental charges are, in the opinion of the Borrower, adequate. SECTION 4.9. Subsidiaries. Each of the Bor- rower's corporate Significant Subsidiaries is a corpo- ration duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorpora- tion, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now con- ducted. SECTION 4.10. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (includ- ing, without limitation, any capital or operating expen- ditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Envi- ronmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consoli- dated Subsidiaries, considered as a whole. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.1. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner accept- able to the Securities and Exchange Commission by KPMG Peat Marwick or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consoli- dated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the relat- ed consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corre- sponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presen- tation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compli- ance with the requirements of Sections 5.7 to 5.12, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Bor- rower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such De- fault is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission; (h) promptly upon any change in Status Level, notice thereof; (i) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liabil- ity under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) re- ceives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) or appoint a trust- ee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrange- ment or makes any amendment to any Plan or Benefit Ar- rangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (j) from time to time such additional informa- tion regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the re- quest of any Bank, may reasonably request. SECTION 5.2. Payment of Obligations. The Bor- rower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of material- men, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accor- dance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordi- nary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with finan- cially sound and responsible insurance companies, insur- ance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Agent, infor- mation presented in reasonable detail as to the insurance so carried. SECTION 5.4. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Borrower or any other Subsidiary) to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises neces- sary or desirable in the normal conduct of business. SECTION 5.5. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consoli- dated Subsidiaries, considered as a whole. SECTION 5.6. Inspection of Property Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsid- iary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respec- tive properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affair, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.7. Restriction on Debt of Subsidiaries. The Borrower will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Borrower would be entitled under subsection (d) of Section 5.9 to create Secured Debt not specifically permitted under Section 5.9 but for subsection (d) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsid- iary from becoming liable to the Borrower or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Sub- sidiary so long as Consolidated Debt is not thereby increased. SECTION 5.8. Restriction on Sales with Leases. Except for a sale or transfer by a Subsidiary to the Borrower or a Wholly-Owned Consolidated Subsidiary, the Borrower will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Borrower or a Subsidiary, with the inten- tion that the Borrower or any Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued (any such transaction being herein referred to as a "Sale and Leaseback Transaction"); provided that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if the Borrower or a Subsidiary would be entitled under subsection (d) of Section 5.9 to create Secured Debt not specifically permitted under Section 5.9 but for subsection (d) there- of in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transac- tion if entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transac- tion if the Borrower, within 120 days before or after the sale or transfer shall have been made by the Borrower or by any Subsidiary, applied or applies an amount equal to the greater of (i) the net proceeds of the sale of the property sold and leased back pursuant to such arrange- ment or (ii) the fair market value of the property so sold and leased back at the time of entering into such arrangement (as determined by any two of the following: the Chairman of the Board of the Borrower, its Chief Executive Officer, its President, any Vice President of the Borrower, its Treasurer and its Controller) to the retirement of Secured Debt of the Borrower other than at maturity or pursuant to any mandatory sinking fund pay- ment or any mandatory prepayment provision. SECTION 5.9. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt with out making effective provision (and the Borrower cove nants that in such case it will make or cause to be made effective provision) whereby the Loans (and any other Debt of the Borrower or such Subsidiary then entitled thereto) shall be secured by the same Lien equally and ratably with (or prior to) any and all other obligations and Debt thereby secured for so long as any such other obligations and Debt shall be so secured; provided that the foregoing covenant shall not apply to the following: (a)(i) Any Lien on any property acquired or constructed by the Borrower or a Subsidiary and created contemporaneously with, or within 24 months after, such acquisition or the com- pletion of such construction and commencement of full operation of such property, whichever is later, to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) the acquisition by the Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Borrower or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not spread to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.09 or any Lien securing the Debt of the Bor- rower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a subsidiary, or any exten- sions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same proper- ty which secured the Debt so extended, renewed or refunded; (c) Any Secured Debt of a Subsidiary owing to the Borrower or a Wholly-Owned Consol- idated Subsidiary; (d) Secured Debt of the Borrower and its Subsidiaries which would otherwise be prohibit- ed by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (c) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus At- tributable Debt of the Borrower and any Subsid- iaries in respect of Sale and Leaseback Trans- actions hereafter entered into and outstanding at the time (excluding Attributable Debt in- curred in respect of any Sale and Leaseback Transaction entered into in respect of property acquired by the Borrower or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby in- creased and excluding any Debt owed to the Borrower or a Wholly-Owned Consolidated Subsid- iary) does not at the time exceed 5% of Consol- idated Net Tangible Assets. SECTION 5.10. Leverage Ratio. Consolidated Debt will not, at any time during any of the periods set forth below, exceed the percentage of Total Capital indicated opposite such period: Period Percentage Effective Date to but not including FQE August 1995 66% FQE August 1995 to but not including FYE February 1996 58% FYE February 1996 to but not including FYE February 1997 54% FYE February 1997 to but not including FYE February 1998 50% FYE February 1998 to but not including FQE August 1998 45% FQE August 1998 and thereafter 42% SECTION 5.11. Interest Coverage. The Interest Coverage Ratio will not, for any period of four consecu- tive fiscal quarters ending during any period set forth below, be less than the percentage indicated opposite such latter period: Four Consecutive Fiscal Quarters Ending On or Between Percentage FYE February 1994 and FQE November 1994 340% FYE February 1995 and FQE November 1995 340% FYE February 1996 and FQE November 1996 425% FYE February 1997 and FQE November 1997 475% FYE February 1998 and FQE November 1998 500% FYE February 1999 and FQE November 1999 500% SECTION 5.12. Limitation on Minority Investments. Neither the Borrower nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (a) Investments in Consolidated Subsidiaries; (b) Temporary Cash Investments; (c) investments constituting consideration for sales of Specialty Retailing Assets; and (d) any Investment not otherwise permitted by the foregoing clauses of this Section if, immediate- ly after such Investment is made or acquired, the aggregate net book value of all Investments permit- ted by this clause (d) does not exceed 15% of Con- solidated Net Worth. SECTION 5.13. Consolidations, Mergers and Sales Assets. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part (other than Specialty Retailing Assets) of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person; provided that the Bor- rower may merge with another Person if (A) the Borrower is the corporation surviving such merger and (B) immedi- ately after giving effect to such merger, no Default shall have occurred and be continuing. SECTION 5.14. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower (i) to refinance certain indebtedness, (ii) to finance the repurchase by the Borrower of up to 22 mil- lion shares of the Borrower's common stock and related transaction expenses and (iii) for general corporate purposes. No such use of the proceeds for general corpo- rate purposes will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. ARTICLE VI DEFAULTS SECTION 6.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.07 to 5.14, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any material representation, warran- ty, certification or statement made by the Borrower in this Agreement or in any certifi- cate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the matu- rity of any Material Debt or enables (or, if such event or condition does not otherwise give rise to a Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Significant Sub- sidiary shall commence a voluntary case or other proceeding seeking liquidation, reorgani- zation or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, re- ceiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the fore- going; (h) an involuntary case or other proceed- ing shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolven- cy or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other simi- lar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 day; or an order for relief shall be entered against the Borrow- er or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts ag- gregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceed- ings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Mate- rial Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4 219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue un- satisfied and unstayed for a period of 30 days; or (k) any person or group of persons (with- in the meaning of Section 13 or 14 of the Secu- rities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Secu- rities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, indi- viduals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Agent shall (i) if requested by the Required Banks, by notice to the Borrow- er terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 66 2/3% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Bor- rower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.2. Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably inciden- tal thereto. SECTION 7.2. Agent and Affiliates. Morgan Guar- anty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of busi- ness with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.3. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the forego- ing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.4. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respec- tive directors, officers, agents or employees shall be liable for any action taken or not taken by it or any of them in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its or their own gross negligence or willful miscon- duct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the perfor- mance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items re- quired to be delivered to the Agent; or (iv) the validi- ty, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reim- bursed by the Borrower) against any cost, expense (in- cluding counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.7. Credit Decision. Each Bank acknow- ledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and infor- mation as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.8. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Re- quired Banks shall have the right, with the consent of the Borrower, to appoint a successor Agent. If no suc- cessor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resigna- tion, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a com- mercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resig- nation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.9. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applica- ble amounts) are not being offered to the Ref- erence Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of fund- ing their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent noti- fies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period appli- cable thereto at the Base Rate for such day. SECTION 8.2. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the inter- pretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circum- stances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designa- tion will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvan- tageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued inter- est thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contempora- neously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loans. SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration there- of by any governmental authority, central bank or compa- rable agency charged with the interpretation or adminis- tration thereof, or compliance by any Bank (or its Appli- cable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall im- pose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such re- quirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insur- ance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assess- ment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition af- fecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduc- tion. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be materi- al, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrow- er and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of clearly demonstrable error. In determin- ing such amount, such Bank may use any reasonable averag- ing and attribution methods. SECTION 8.4. Taxes. (a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charg- es or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the juris- diction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deduc- tions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have re- ceived had no such deductions been made, (ii) the Borrow- er shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applica- ble law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts pay- able under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States; on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it be- comes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Ser- vice, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income re- ceivable pursuant to this Agreement is effectively con- nected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be pro- vided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspen- sion or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans (on which inter- est and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. ARTICLE IX MISCELLANEOUS SECTION 9.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is depos- ited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. SECTION 9.2. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insol- vency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any adminis- trative or judicial proceeding (whether or not such Indemni- tee shall be designated a party thereto) brought or threat- ened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; pro- vided that no Indemnitee shall have the right to be indemni- fied hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or coun- terclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note acquired pursuant to the foregoing arrangements may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.5. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any addi- tional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for or termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.6. Successors and Assigns. (a) The provi- sions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective suc- cessors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") partici- pating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a partic- ipating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain respon- sible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modifica- tion, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Partici- pant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agree- ment only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) notice to, and the subscribed consent of, the Borrower and the Agent (such consent of the Borrower and the Agent not to be unreasonably withheld); provided that (i) if an Assignee is an affiliate of such transferor Bank, such notice shall be given but no such consent shall be required, (ii) such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans, (iii) unless the assignment covers all rights and obligations of such assignor Bank, the assignment shall cover the equivalent of a Commitment of not less than $10,000,000 and (iv) the remaining Commitment (if any) of the assignor Bank after any such assignment is at least $10,000,000. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such trans- feror Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursu- ant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In con- nection with `any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior writ- ten consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.7. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. Governing Law: Submission to Juris- diction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive juris- diction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings aris- ing out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.9. Counterparts; Integration. This Agree- ment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and under- standing among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relat- ing to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSAC- TIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective autho- rized officers as of the day and year first above written. RITE AID CORPORATION By: /s/ Frank Bergonzi Title: Senior Vice President-Finance 30 Hunter Lane Camp Hill, PA 17011 Attention: Martin Grass Frank Bergonzi Telephone No.: (717) 761-2633 Telecopier No.: (717) 975-5952 Telex No.: 705954 Commitments $350,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ P. Kenneally Title: Vice President Total Commitments $350,000,000 ===================== MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ P. Kenneally Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Loan Department Telex number: 177615 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of February 16, 1994 among RITE AID CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan"), as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower, Morgan and the Agent have hereto- fore entered into the $350,000,000 Credit Agreement dated as of February 7, 1994 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agree- ment to add the New Banks as parties to the Agreement, to provide for the Commitments of the Banks and to modify certain other Sections of the Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. Amendment of Section 1.01 of the Agreement. Section 1.01 of the Agreement is amended as follows: (a) The definition of "CD Reference Banks" is amended to read in its entirety as follows: "CD Reference Banks" means PNC Bank, National Associa- tion, Citibank, N.A. and Morgan Guaranty Trust Company of New York. (b) The definition of "Euro-Dollar Reference Banks" is amended to read in its entirety as follows: "Euro-Dollar Reference Banks" means the principal London offices of PNC Bank, National Association, Citibank, N.A. and Morgan Guaranty Trust Company of New York. SECTION 3. Amendment to Section 9.06 of the Agreement. Section 9.06(c) of the Agreement is amended by the insertion following the phrase "with (and subject to) notice to, and the subscribed consent of, the Borrower" of the following: ", so long as no Default shall have occurred and be continuing,". SECTION 4. New Banks; Changes in Commitments. With effect from and including the date this Amendment becomes effec- tive in accordance with Section 7 hereof, (i) each Person listed on the signature pages hereof which is not a party to the Agree- ment (a "New Bank") shall become a Bank party to the Agreement and (ii) the Commitment of each Bank (including Morgan) shall be the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09 of the Agreement. SECTION 5. Deletion of Single Bank Pricing Option. The further proviso to Section 2.07(b), and the reference thereto in the definition of "Interest Period", are deleted. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts; Conditions to Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof, and simultaneously with the effectiveness of the Agreement, when the Agent shall have received: (a) duly executed counterparts hereof signed by the Borrower and each of the Banks (or, in the case of any, party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex, or telecopy or other written confirmation from such party of execution of a counterpart hereof by such party); (b) a duly executed Note for each of the New Banks (a "New Note"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.05 of the Agreement; and (c) evidence satisfactory to it that all conditions to effectiveness of the Agreement under Section 3.01 thereof have been satisfied. SECTION 8. Termination of 1993 Credit Agreements. The parties hereto which are also parties to the 1993 Credit Agree- ments agree that the commitments of the Banks under the 1993 Credit Agreements shall terminate simultaneously with the effec- tiveness of this Amendment and the Agreement as amended hereby, without further action by any party hereto or thereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. RITE AID CORPORATION By: /s/ Frank Bergonzi Title: Senior Vice President- Finance Commitments: $14,285,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ P. Kenneally Title: Vice President $14,285,000 J.P. MORGAN DELAWARE By: /s/ David S. Morris Title: Vice President $26,250,000 CIBC, INC. By: /s/ Cynthia J. Prectors Title: Authorized Signatory $26,250,000 CITIBANK N.A. By: /s/ Theodore J. Beck Title: Vice President $26,250,000 CONTINENTAL BANK N.A. By: /s/ T.H. Peak Title: Vice President $26,250,000 MELLON BANK, N.A. By: /s/ Gary S. Gegan Title: Vice President and Manager $26,250,000 NATIONSBANK By: /s/ R.B. Na Title: Vice President $26,250,000 PNC BANK, NATIONAL ASSOCIATION By: /s/ Scott Reilly Title: Vice President $26,250,000 SWISS BANK CORPORATION NEW YORK BRANCH By: /s/ E. Gossens Title: Associate Director By: /s/ George W. Lamueltson Title: Associate Director $16,330,000 SOCIETY NATIONAL BANK By: /s/ Laurence J. Mack Title: Vice President $15,750,000 BANK OF MONTREAL By: /s/ Kanu Modi Title: Director $15,750,000 CREDIT SUISSE By: /s/ P. Bessid Title: Associate By: /s/ Jay Chall Title: Member Senior Management $15,750,000 ROYAL BANK OF CANADA By: /s/ Peter D. Styff Title: Senior Manager $15,750,000 WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Tina P. Hayer Title: A.V.P. $11,670,000 THE BANK OF NEW YORK By: /s/ E. Massery Title: Vice President $11,670,000 THE BANK OF NOVA SCOTIA By: /s/ Title: $11,670,000 NBD, N.A. By: /s/ Title: $11,670,000 THE SANWA BANK, LIMITED By: /s/ Joseph E. Leo Title: Vice President $11,670,000 SUNBANK, N.A. By: /s/ Lorraine L. McCullen Title: Vice President Total Commitments $350,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ P. Kenneally Title: Vice President EX-99.(C)(1) 11 AGREEMENT AND PLAN OF MERGER Exhibit 99.(c)(1) CONFORMED COPY ================================================================================ AGREEMENT AND PLAN OF MERGER by and among RITE AID CORPORATION, LAKE ACQUISITION CORPORATION, and PERRY DRUG STORES, INC. dated as of December 23, 1994 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I THE OFFER AND MERGER. . . . . . . . . . . . . . . . . . 1 Section 1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . 3 Section 1.3 Directors . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1.4 The Merger. . . . . . . . . . . . . . . . . . . . . . . 8 Section 1.5 Effective Time. . . . . . . . . . . . . . . . . . . . . 9 Section 1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 1.7 Directors and Officers of the Surviving Corporation. . . . . . . . . . . . . . . . 9 Section 1.8 Shareholders' Meeting . . . . . . . . . . . . . . . . . 10 Section 1.9 Merger Without Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . 11 Section 2.1 Conversion of Capital Stock . . . . . . . . . . . . . . 11 Section 2.2 Exchange of Certificates. . . . . . . . . . . . . . . . 12 Section 2.3 Company Option Plans. . . . . . . . . . . . . . . . . . 14 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . 15 Section 3.1 Organization. . . . . . . . . . . . . . . . . . . . . . 15 Section 3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . 16 Section 3.3 Authorization; Validity of Agreement; Company Action. . . . . . . . . . . . . . 18 Section 3.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . 19 Section 3.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . 20 Section 3.6 Absence of Certain Changes. . . . . . . . . . . . . . . 21 Section 3.7 No Undisclosed Liabilities. . . . . . . . . . . . . . . 21 Section 3.8 Information in Proxy Statement. . . . . . . . . . . . . 22 Section 3.9 Employee Benefit Plans; ERISA . . . . . . . . . . . . . 22 Section 3.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.11 Conduct of Business . . . . . . . . . . . . . . . . . . 24 Section 3.12 Reimbursement . . . . . . . . . . . . . . . . . . . . . 25 Section 3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.14 Labor Relations . . . . . . . . . . . . . . . . . . . . 28 Section 3.15 Compliance with Laws. . . . . . . . . . . . . . . . . . 28 Section 3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . 28 Section 3.17 Contracts . . . . . . . . . . . . . . . . . . . . . . . 29 Section 3.18 Real Property . . . . . . . . . . . . . . . . . . . . . 29 Section 3.19 Opinions of Financial Advisors. . . . . . . . . . . . . 29 Section 3.20 Vote Required . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. . . . . . . . . . . . . 30 Section 4.1 Organization. . . . . . . . . . . . . . . . . . . . . . 30 Section 4.2 Authorization; Validity of Agreement; Necessary Action. . . . . . . . . . . . . 30 Section 4.3 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . 31 Section 4.4 Information in Proxy Statement; Schedule 14D-9 . . . . . . . . . . . . . . . . . . . 32 Section 4.5 Financing . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.6 Purchaser's Operations. . . . . . . . . . . . . . . . . 32 ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 32 Section 5.1 Interim Operations of the Company. . . . . . . . . . . . . . . . . . . . . . . 32 Section 5.2 Rights Agreement. . . . . . . . . . . . . . . . . . . . 35 Section 5.3 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 5.4 Access to Information . . . . . . . . . . . . . . . . . 36 Section 5.5 Consents and Approvals. . . . . . . . . . . . . . . . . 36 Section 5.6 Employee Benefits . . . . . . . . . . . . . . . . . . . 37 Section 5.7 No Solicitation . . . . . . . . . . . . . . . . . . . . 39 Section 5.8 Brokers or Finders. . . . . . . . . . . . . . . . . . . 40 Section 5.9 Additional Agreements . . . . . . . . . . . . . . . . . 40 Section 5.10 Convertible Debentures. . . . . . . . . . . . . . . . . 40 Section 5.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . 41 Section 5.12 Notification of Certain Matters . . . . . . . . . . . . 41 Section 5.13 Directors' and Officers' Insurance and Indemnification. . . . . . . . . . . . 41 Section 5.14 WARN Act. . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE VI CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . 43 Section 6.1 Conditions to Each Party's Obligation To Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . 47 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 47 Section 8.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . 47 Section 8.2 Amendment and Modification. . . . . . . . . . . . . . . 48 Section 8.3 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . 48 Section 8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 8.5 Interpretation. . . . . . . . . . . . . . . . . . . . . 49 Section 8.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . 50 Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership. . . . . . . . . . . . . . . . . . . . . . 50 Section 8.8 Severability. . . . . . . . . . . . . . . . . . . . . . 50 Section 8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . 50 Section 8.10 Assignment. . . . . . . . . . . . . . . . . . . . . . . 50 CONDITIONS TO THE TENDER OFFER . . . . . . . . . . . . . . . . . . .Annex A Index of Defined Terms Defined Term Section No. Acquiring Person. . . . . . . . . . . . 7.1(d)(ii) Appointment Date. . . . . . . . . . . . 5.1 BCA . . . . . . . . . . . . . . . . . . 1.2(a) Benefit Plans . . . . . . . . . . . . . 3.9(a) Certificate of Merger . . . . . . . . . 1.5(a) Certificates. . . . . . . . . . . . . . 2.2(b) Closing . . . . . . . . . . . . . . . . 1.6 Closing Date. . . . . . . . . . . . . . 1.6 Code. . . . . . . . . . . . . . . . . . 3.9(b) Company . . . . . . . . . . . . . . . . Recitals Company Common Stock. . . . . . . . . . 1.1(a) Company SEC Documents . . . . . . . . . 3.5 Confidentiality Agreement . . . . . . . 5.4 Convertible Debentures. . . . . . . . . 3.2(a) Credit Agreement. . . . . . . . . . . . 3.2(b) DGCL. . . . . . . . . . . . . . . . . . 1.4 Director Options. . . . . . . . . . . . 2.3(a) D&O Insurance . . . . . . . . . . . . . 5.13 Effective Time. . . . . . . . . . . . . 1.5(a) Employee Option . . . . . . . . . . . . 2.3(a) ERISA . . . . . . . . . . . . . . . . . 3.9(a) ERISA Affiliate . . . . . . . . . . . . 3.9(a) Exchange Act. . . . . . . . . . . . . . 1.1(a) GAAP. . . . . . . . . . . . . . . . . . 3.5 Governmental Entity . . . . . . . . . . 3.4 Headquarters Closing. . . . . . . . . . 5.15 Headquarters Closing Date . . . . . . . 5.15 Headquarters Closing Notices. . . . . . 5.15 HSR Act . . . . . . . . . . . . . . . . 3.4 Indemnified Party . . . . . . . . . . . 5.13 Indenture . . . . . . . . . . . . . . . 3.2(a) Material Agreements . . . . . . . . . . 3.17 Merger. . . . . . . . . . . . . . . . . 1.4 Merger Consideration. . . . . . . . . . 2.1(c) Michigan Bureau . . . . . . . . . . . . 1.5(a) Minimum Condition . . . . . . . . . . . 1.1(a) 1982 Option Plan. . . . . . . . . . . . 2.3(a) 1987 Option Plan. . . . . . . . . . . . 2.3(a) 1993 Financial Statements . . . . . . . 3.5 NLRB. . . . . . . . . . . . . . . . . . 3.14 Offer . . . . . . . . . . . . . . . . . 1.1(a) Offer Documents . . . . . . . . . . . . 1.1(b) Offer Price . . . . . . . . . . . . . . 1.1(a) Offer to Purchase . . . . . . . . . . . 1.1(a) Option Plans. . . . . . . . . . . . . . 2.3(a) Options . . . . . . . . . . . . . . . . 2.3(a) Parent. . . . . . . . . . . . . . . . . Recitals Paying Agent. . . . . . . . . . . . . . 2.2(a) Preferred Stock . . . . . . . . . . . . 3.2(a) Proxy Statement . . . . . . . . . . . . 1.8(a) Purchaser . . . . . . . . . . . . . . . Recitals Purchaser Common Stock. . . . . . . . . 2.1 Restricted Stock Plan . . . . . . . . . 2.3(b) Rights. . . . . . . . . . . . . . . . . 1.1(a) Rights Agreement. . . . . . . . . . . . 1.1(a) Rights Amendment. . . . . . . . . . . . 1.2(d) Schedule 14D-1. . . . . . . . . . . . . 1.1(b) Schedule 14D-9. . . . . . . . . . . . . 1.2(b) SEC . . . . . . . . . . . . . . . . . . 1.1(b) Secretary of State. . . . . . . . . . . 1.5(a) Securities Act. . . . . . . . . . . . . 3.4 Section 16. . . . . . . . . . . . . . . 2.3(a) Service . . . . . . . . . . . . . . . . 3.9(h) Shares. . . . . . . . . . . . . . . . . 1.1(a) Special Meeting . . . . . . . . . . . . 1.8(a) Shareholders Agreements . . . . . . . . 1.2(a) Subsidiary. . . . . . . . . . . . . . . 3.1 Surviving Corporation . . . . . . . . . 1.4 Taxes . . . . . . . . . . . . . . . . . 3.13(b) Tax Return. . . . . . . . . . . . . . . 3.13(b) Transactions. . . . . . . . . . . . . . 1.2(a) Trigger Event . . . . . . . . . . . . . 8.1(b) Voting Debt . . . . . . . . . . . . . . 3.2(a) WARN Act. . . . . . . . . . . . . . . . 5.14 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of December 23, 1994, by and among Rite Aid Corporation, a Delaware corporation ("Parent"), Lake Acquisition Corpo- ration, a Delaware corporation and a direct, wholly owned subsidiary of Parent (the "Purchaser"), and Perry Drug Stores, Inc., a Michigan corporation (the "Company"). WHEREAS, the Boards of Directors of Parent, the Purchaser and the Company have approved, and deem it advisable and in the best interests of their respective shareholders to consummate, the acquisition of the Compa- ny by Parent upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the forego- ing and the respective representations, warranties, covenants and agreements set forth herein, 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), the Purchaser 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 all shares of the issued and out- standing Common Shares, par value $.05 per share (re- ferred to herein as either the "Shares" or "Company Common Stock"), of the Company (including the associated Preferred Stock Purchase Rights (the "Rights") issued pursuant to the Rights Agreement between the Company and National Bank of Detroit, dated as of February 4, 1987, as amended (the "Rights Agreement")), at a price of $11.00 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"), subject to there being validly tendered and not withdrawn prior to the expiration of the Offer, that number of Shares which, together with the Shares beneficially owned by Parent or the Purchaser, represent at least a majority of the Shares outstanding on a fully diluted basis (the "Minimum Condition") and to the other conditions set forth in Annex A hereto. The Purchaser shall, on the terms and subject to the prior satisfaction or waiver (except that the Minimum Condition may not be waived) of the conditions of the Offer, accept for payment and pay for Shares tendered as soon as it is legally permitted to do so under applicable law. The obligations of the Purchaser to commence the Offer and to accept for payment and to pay for any Shares validly tendered on or prior to the expiration of the Offer and not withdrawn shall be subject only to the Minimum Condition and the other 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 Agree- ment, the Minimum Condition and the other conditions set forth in Annex A hereto. The Purchaser shall not amend or waive the Minimum Condition and shall not decrease the Offer Price or decrease the number of Shares sought, or amend any other condition of the Offer in any manner adverse to the holders of the Shares (other than with re- spect to insignificant changes or amendments) without the written consent of the Company (such consent to be autho- rized by the Board of Directors of the Company or a duly authorized committee thereof), provided, however, that if on the initial scheduled expiration date of the Offer (as it may be extended), all conditions to the Offer shall not have been satisfied or waived, the Offer may be extended from the time to time until June 1, 1995. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law in connec- tion with such increase in each case without the consent of the Company. (b) As soon as practicable on the date the Offer is commenced, Parent and the Purchaser shall file with the United States Securities and Exchange Com- mission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer (together with all amend- ments and supplements thereto and including the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as exhibits, the Offer to Purchase and a form of letter of transmittal and summary advertisement (collec- tively, together with any amendments and supplements thereto, the "Offer Documents"). 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 shareholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or neces- sary in order to make the statements therein, in light of the circumstances under which they were made, not mis- leading, except that no representation is made by Parent or the Purchaser with respect to information supplied by the Company in writing for inclusion in the Offer Docu- ments. Each of Parent and the Purchaser further agrees to take all steps necessary to cause the Offer Documents to be filed with the SEC and to be disseminated to hold- ers of Shares, in each case as and to the extent required by applicable federal securities laws. Each of Parent and the Purchaser, on the one hand, and the Company, on the other hand, agrees promptly to correct any informa- tion provided by it for use in the Offer Documents if and to the extent that it shall have become false and mis- leading in any material respect and the Purchaser further agrees 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 before it is filed with the SEC. In addition, Parent and the Purchas- er agree to provide the Company and its counsel in writ- ing with any comments Parent, the Purchaser 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. 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, sub- ject to the terms and conditions set forth herein, (i) approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger (collectively, the "Transactions"), and such approvals, together with the approval solely for the purposes of the BCA (as de- fined) of the Shareholders Agreements, to be entered into immediately after this Agreement on the date hereof, between Parent, the Purchaser and Mr. Jack Robinson, individually and as trustee, and Mrs. Aviva Robinson, individually and as trustee, (the "Shareholders Agree- ments"), constitute all requisite approvals for purposes of Sections 775 through 784 of the Business Corporation Act of the State of Michigan (the "BCA"), (ii) approved a memorandum of understanding with Parent and the Purchaser pursuant to Article VIII of the Restated Articles of Incorporation of the Company, (iii) resolved to recommend that the shareholders of the Company accept the Offer, tender their Shares thereunder to the Purchaser and ap- prove and adopt this Agreement and the Merger; provided, that such recommendation may be withdrawn, modified or amended if, in the opinion of the Board of Directors, after consultation with independent legal counsel, such recommendation would be inconsistent with its fiduciary duties to the Company's shareholders under applicable law and (iv) adopted an amendment to the Company's By-laws, pursuant to Section 794 of the BCA (providing that Chap- ter 7B of the BCA will not apply to any purchase of Shares pursuant to the Offer, the Merger or the Share- holders Agreements). The Company represents that the ac- tions set forth in this Section 1.2(a) and all other actions it has taken in connection therewith are, assum- ing the accuracy of, and in reliance upon, the informa- tion received in writing from Parent as to the ownership of Shares by Parent and their affiliates, sufficient to render (i) the relevant provisions of such Chapters 7A and 7B of the BCA inapplicable to the Offer, the Merger and the Shareholders Agreements and (ii) the s upermajority voting requirements set forth in the Com pany's Restated Articles of Incorporation inapplicable to this Agreement and the Transactions. The parties agree that this Agreement shall constitute the memorandum of understanding contemplated by Article VIII of the Com pany's Restated Articles of Incorporation setting forth the principal terms of the Merger and related transac tions. The Company represents that the Board of Direc- tors of the Company, by resolution, has approved the memorandum of understanding setting forth the principal terms of the Merger and related transactions prior to the time that Parent or the Purchaser entered into the Share- holders Agreements (as defined). (b) Concurrently with the commencement of the Offer, the Company shall file with the SEC a Solici- tation/Recommendation Statement on Schedule 14D-9 (to- gether with all amendments and supplements thereto and including the exhibits thereto, the "Schedule 14D-9") which shall, subject to the fiduciary duties of the Company's directors under applicable law and to the provisions of this Agreement, contain the recommendation referred to in clause (iii) of Section 1.2(a) hereof. 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 shareholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information sup- plied by Parent or the Purchaser in writing for inclusion in the Offer Documents. 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 the Purchaser, 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 dissemi- nated to holders of the Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given the opportu- nity to review the Schedule 14D-9 before it is filed with the SEC. In addition, the Company agrees to provide Parent, the Purchaser 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. Notwithstanding anything to the contrary contained herein, if the members of the Board of Direc- tors of the Company determine in the exercise of their fiduciary duties to withdraw, modify or amend the recom- mendation referred to in clause (iii) of Section 1.2(a) hereof, such withdrawal, modification or amendment shall not constitute a breach of this Agreement. (c) In connection with the Offer, the Company will promptly furnish or cause to be furnished to the Purchaser 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 the Purchaser with such information and assistance as the Purchaser or its agents may reasonably request in communicating the Offer to the shareholders of the Company. Except for such steps as are necessary to disseminate the Offer Docu- ments, Parent and the Purchaser shall hold in confidence the information contained in any of such labels and lists and the additional information referred to in the preced- ing sentence, will use such information only in connec- tion with the Offer, and, if this Agreement is terminat- ed, will upon request of the Company deliver or cause to be delivered to the Company all copies of such informa- tion then in its possession or the possession of its agents or representatives. (d) As promptly as practicable on or after the date hereof, but in no event later than five days following announcement of the Offer, the Company will amend the Rights Agreement, as necessary (the " Rights Amendment"), (i) to prevent this Agreement, the Shareholders Agreements or the consummation of any of the transactions contemplated hereby or thereby, including without limitation, the publication or other announcement of the Offer and the consummation of the Offer and the Merger, from resulting in the distribution of separate rights certificates or the occurrence of a Distribution Date (as defined therein) or being deemed a Triggering Event (as defined therein) and (ii) to provide that neither Parent nor the Purchaser shall be deemed to be an Acquiring Person (as defined therein) by reason of the transactions expressly provided for in this Agreement and the Shareholders Agreements. The Company represents that the Rights Amendment will be sufficient to render the Rights inoperative with respect to any acquisition of Shares by Parent, the Purchaser or any of their affili- ates pursuant to this Agreement and/or the Shareholders Agreements. As a result of the Rights Amendment, the Rights shall not be exercisable upon or at any time after, the acceptance for payment of Shares pursuant to the Offer and/or the purchase of Shares pursuant to the Shareholders Agreements. Section 1.3 Directors. (a) Promptly upon the purchase of and payment for any Shares by Parent or any of its subsidiar- ies which represents at least a majority of the outstand- ing shares of Company Common Stock (on a fully diluted basis) Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product of the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by the Purchaser, Parent and any of their affiliates bears to the total number of shares of Company Common Stock then outstanding. The Company shall, upon request of the Purchaser, use its best efforts promptly either to in- crease 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 Com- pany's Board, and shall cause Parent's designees to be so elected. At such time, the Company shall also cause persons designated by Parent to constitute the same percentage (rounded up to the next whole number) as is on the Company's Board of Directors of (i) each committee of the Company's Board of Directors, (ii) each board of directors (or similar body) of each Subsidiary (as de- fined in Section 3.1) 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 (as defined in Section 1.5 hereof), the Company shall use all reasonable efforts to retain as a member of its Board of Directors at least two directors who are directors of the Company on the date hereof; 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. The Company's obliga- tions under this Section 1.3(a) shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promul- gated 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 1.3(a), including mailing to shareholders the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elect- ed to the Company's Board of Directors. Parent or the Purchaser 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 1.3(a) are in addition to and shall not limit any rights which the Purchaser, 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 other- wise. (b) From and after the time, if any, that Parent's designees constitute a majority of the Company's Board of Directors, any amendment of this Agreement, any termination of this Agreement by the Company, any exten- sion of time for performance of any of the obligations of Parent or the Purchaser hereunder, any waiver of any condition or any of the Company's rights hereunder or other action by the Company hereunder may be effected only by the action of a majority of the directors of the Company then in office who were directors of the Company on the date hereof, which action shall be deemed to constitute the action of the full Committee and the full Board of Directors; provided, that if there shall be no such directors, such actions may be effected by majority vote of the entire Board of Directors of the Company. Section 1.4 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.5 hereof), the Company and the Purchaser shall consummate a merger (the "Merger") pursu- ant to which (a) the Purchaser shall be merged with and into the Company and the separate corporate existence of the Purchaser shall thereupon cease, (b) the Company shall be the successor or surviving corporation in the Merger and shall continue to be governed by the laws of the State of Michigan, and (c) the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaf- fected by the Merger. Pursuant to the Merger, (x) the Restated Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corpora- tion until thereafter amended as provided by law and such Restated Articles 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 Restated Articles of Incorporation and such By-laws. The corporation surviving the Merger is sometimes here- inafter referred to as the "Surviving Corporation." The Merger shall have the effects set forth in the BCA and the Delaware General Corporation Law (the "DGCL"). Section 1.5 Effective Time. (a) Parent, the Purchaser and the Company will cause an appropriate Certificate of Merger (the "Certificate of Merger") to be executed and filed on the date of the Closing (as defined in Section 1.6) (or on such other date as Parent and the Company may agree) with the Michigan Department of Com- merce, Corporation and Securities Bureau, Corporation Division (the "Michigan Bureau") as provided in the BCA and the Secretary of State of the State of Delaware (the "Secretary of State") 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 Michi- gan Bureau and the Secretary of State or such time as is agreed upon by the parties and specified in the Certifi- cate of Merger, and such time is hereinafter referred to as the "Effective Time." (b) The Merger shall have the effects set forth in the DGCL and the BCA. Section 1.6 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of all of the conditions set forth in Article VI hereof (the "Closing Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, unless another date or place is agreed to in writing by the parties hereto. Section 1.7 Directors and Officers of the Surviving Corporation. The directors and officers of the Purchaser at the Effective Time shall, from and after the Effective Time, be the directors and officers, respec- tively, of the Surviving Corporation until their succes- sors shall have been duly elected or appointed or quali- fied or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and By-laws. Section 1.8 Shareholders' Meeting. (a) If required by applicable law in order to consummate the Merger, the Company, acting through its Board of Directors, shall, in accordance with applicable law: (i) duly call, give notice of, convene and hold a special meeting of its shareholders (the "Special Meeting") as soon as practicable following the acceptance for payment and purchase of Shares by the Purchaser pursuant to the Offer for the purpose of considering and taking action upon this Agree- ment; (ii) prepare and file with the SEC a pre- liminary proxy or information statement relating to the Merger and this Agreement and use its reasonable efforts (x) to obtain and furnish the information required to be included by the SEC in the Proxy Statement (as hereinafter defined) and, after con- sultation with Parent, to respond promptly to any comments made by the SEC with respect to the prelim- inary proxy or information statement and cause a definitive proxy or information statement (the "Proxy Statement") to be mailed to its shareholders and (y) to obtain the necessary approvals of the Merger and this Agreement by its shareholders; and (iii) subject to the fiduciary obliga- tions of the Board under applicable law as advised by independent counsel, include in the Proxy State- ment the recommendation of the Board that sharehold- ers of the Company vote in favor of the approval of the Merger and the adoption of this Agreement. (b) Parent agrees that it will vote, or cause to be voted, all of the Shares then owned by it, the Purchaser or any of its other subsidiaries and affil- iates in favor of the approval of the Merger and the adoption of this Agreement. Section 1.9 Merger Without Meeting of Shareholders. Notwithstanding Section 1.8 hereof, in the event that Parent, the Purchaser or any other subsidiary of Parent shall acquire at least 90% of the outstanding shares of each class of capital stock of the Company, pursuant to the Offer or otherwise, the parties hereto agree, at the request of Parent and subject to Article VI hereof, to take all necessary and appropriate action to cause the Merger to become effective as soon as practica- ble after such acquisition, without a meeting of share- holders of the Company, in accordance with Section 253 of the DGCL and Section 711 of the BCA. ARTICLE II CONVERSION OF SECURITIES Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and with- out any action on the part of the holders of any shares of Company Common Stock or common stock, par value $.01 per share, of the Purchaser (the "Purchaser Common Stock"): (a) Purchaser Common Stock. Each issued and outstanding share of the Purchaser Common Stock shall be converted into and become one fully paid and nonas- sessable share of common stock of the Surviving Corpora- tion. (b) Cancellation of Treasury Stock and Parent-Owned Stock. 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, the Purchaser or any other wholly owned Subsidiary (as de- fined in Section 3.1 hereof) of Parent shall be cancelled and retired and shall cease to exist and no stock of Parent or other consideration shall be delivered in exchange therefor. (c) Exchange of Shares. Each issued and outstanding share of Company Common Stock, including the associated Rights (other than shares to be cancelled in accordance with Section 2.1(b)) shall be converted into the right to receive the Offer Price, payable to the holder thereof, without interest (the "Merger Consider- ation"), upon surrender of the certificate formerly representing such share of Company Common Stock in the manner provided in Section 2.2. All such shares of Company Common Stock, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon the sur- render of such certificate in accordance with Section 2.2, without interest. Section 2.2 Exchange of Certificates. (a) Paying Agent. 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 "Paying Agent") to receive the funds to which holders of shares of Company Common Stock shall become entitled pursuant to Section 2.1(c). Such funds shall be invested by the Paying Agent as directed by Parent or the Surviving Corporation. (b) Exchange Procedures. As soon as rea- sonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certifi- cate or certificates, which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "Certificates"), whose shares were con- verted pursuant to Section 2.1 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 Paying Agent and shall be in such form and have such other provisions as Parent and the Company may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment of the Merger Consideration. Upon surrender of a Certifi- cate for cancellation to the Paying 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 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 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 pay- ment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviv- ing Corporation that such tax either has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration in cash as contem- plated by this Section 2.2. (c) Transfer Books; No Further Ownership Rights in Company Common Stock. At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the re- cords of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares, except as otherwise provided for herein or by applicable law. If, after the Effective Time, Certificates are presented to the Surviv- ing Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II. (d) Termination of Fund; No Liability. At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates, without any interest thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consid- eration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 2.3 Company Option Plans. (a) Parent and the Company shall take all actions necessary to provide that, effective as of the Effective Time, (i) each outstanding employee stock option to purchase Shares (an "Employee Option") granted under the Company's 1982 Incentive Stock Option Plan (the "1982 Option Plan") or the Company's 1987 Non-Qualified Stock Option Plan (the "1987 Option Plan" and collective- ly with the 1982 Option Plan, the "Option Plans") and each outstanding non-employee director option to purchase Shares ("Director Options" and collectively with Employee Options, "Options") granted under the 1987 Stock Option Plan, whether or not then exercisable or vested, shall become fully exercisable and vested, (ii) each Option that is then outstanding shall be cancelled and (iii) in consideration of such cancellation, and except to the extent that Parent or the Purchaser and the holder of any such Option otherwise agree, the Company (or, at Parent's option, the Purchaser) shall pay to such holders of Options an amount in respect thereof equal to the product of (A) the excess, if any, of the Offer Price over the exercise price thereof and (B) the number of Shares subject thereto (such payment to be net of applicable withholding taxes); provided that the foregoing (x) shall be subject to the obtaining of any necessary consents of holders of Options and the making of any necessary amend- ments to the Option Plans, it being agreed that the Company and Parent will use all reasonable efforts to obtain any such consents and make any such amendments, and (y) shall not require any action that violates the Option Plans; provided, further, that if it is determined that compliance with any of the foregoing would cause any individual subject to Section 16 of the Exchange Act ("Section 16") to become subject to the profit recovery provisions thereof, any Options held by such individual will be cancelled or purchased, as the case may be, as promptly as possible so as not to subject such individual to any liability pursuant to Section 16, but no later than May 15, 1995, subject to receiving an agreement from the holder of such Option not to exercise such Option after the Effective Time, and such individual shall be entitled to receive from the Company, for each Share subject to an Option an amount equal to the excess, if any, of the Offer Price over the per Share exercise price of such Option. Notwithstanding the foregoing, any payment to the holders of Options contemplated by this Section 2.3 may be withheld in respect of any Option until any necessary consents or releases are obtained. (b) Except as provided herein or as otherwise agreed to by the parties and to the extent permitted by the Option Plans and the Company's 1986 Re- stricted Stock Plan (the "Restricted Stock Plan"), (i) the Option Plans and the Restricted Stock Plan shall terminate as of the Effective Time and the provisions in any other plan, program 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 as of the Effective Time and (ii) the Company shall use all reasonable efforts to ensure that following the Effective Time no holder of Options or any participant in the Option Plans or any other plans, programs or arrangements shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and the Purchaser 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 incor- poration or organization and has all requisite corporate or other power and authority and all necessary governmen- tal 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. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporat- ed, of which (i) such party or any other Subsidiary of such party is a general partner (excluding such partner- ships where such party or any Subsidiary of such party do not have a majority of the voting interest in such part- nership) 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 indi- rectly 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 being material or 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 is materially adverse to the consolidated financial condition, businesses or results of operations of such entity (or, if used with respect thereto, of such group of entities taken as a whole). The Company and each of its Subsidiaries is duly quali- fied 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. Exhibit 22 to the Com- pany's Report on Form 10-K for the fiscal year ended October 31, 1993 sets forth a complete list of the Com- pany's active Subsidiaries. The Company's inactive subsidiaries have no operations or liabilities. Section 3.2 Capitalization. (a) The authorized capital stock of the Company consists of 30,000,000 shares of Company Common Stock and 5,000,000 preferred shares, without par value (the "Preferred Stock"). As of the date hereof, (i) 12,027,382 shares of Company Common Stock are issued and outstanding, (ii) no shares of Company Common Stock are issued and held in the treasury of the Company, (iii) 341,050 shares of Company Common Stock are reserved for issuance upon exercise of then outstanding Options granted under the Option Plans or rights granted under the Restricted Stock Plan, and (iv) 2,758,400 shares of Company Common Stock are reserved for issuance upon conversion of the 8-1/2% Convertible Subor- dinated Debentures of the Company due 2010 (the "Con- vertible Debentures"). As of the date hereof, there are no shares of Preferred Stock issued and outstanding and 150,000 shares of Preferred Stock were reserved for issu- ance upon exercise of the Rights. All the outstanding shares of the Company's capital stock are, and all shares which may be issued pursuant to the exercise of outstand- ing Options or Rights or upon conversion of Convertible Debentures will be, when issued in accordance with the respective terms thereof, duly authorized, validly is- sued, fully paid and non-assessable. Except for the Convertible Debentures, there are no bonds, debentures, notes or other indebtedness having general 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 Agree- ment, as of the date hereof, (i) there are no shares of capital stock of the Company authorized, issued or out- standing and (ii) there are no existing options, war- rants, calls, pre-emptive rights, subscriptions or other rights, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or any of its Subsidiaries, obligat- ing 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 exchange- able 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, agreement, arrangement or commitment. Except as contemplated by this Agreement and except for the Company's obligation under the Indenture, dated as of September 1, 1985 (the "Indenture"), between the Company and National Bank of Detroit, to redeem the Convertible Debentures on the terms set forth in the Indenture, there are no outstanding contractual obliga- tions of the Company or any of its Subsidiaries to repur- chase, redeem or otherwise acquire any Shares, Convert- ible Debentures 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. (b) All of the outstanding shares of capital stock of each of the Subsidiaries are beneficial- ly owned by the Company, directly or indirectly, and all such shares have been validly issued and are fully paid and nonassessable and, except for security interests arising under the Credit Agreement, dated as of July 15, 1994, as amended, among the Company, National City Bank, as agent, and the banks named therein (the "Credit Agree- ment"), are owned by either the Company or one of its Subsidiaries free and clear of all liens, charges, claims or encumbrances. (c) 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 Subsid- iaries. 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 transac- tions contemplated by this Agreement. Section 3.3 Authorization; Validity of Agreement; Company Action. (a) The Company has full corporate power and authority to execute and deliver this Agreement and, subject to obtaining the necessary approv- al of its shareholders, to consummate the transactions contemplated hereby. The execution, delivery and perfor- mance by the Company of this Agreement, and the consumma- tion by it of the transactions contemplated hereby, have been duly authorized by its Board of Directors and, except for those actions contemplated by Section 1.2(a) hereof and obtaining the approval of its shareholders as contemplated by Section 1.8 hereof, no other corporate action on the part of the Company is necessary to autho- rize the execution and delivery by the Company of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly exe- cuted and delivered by the Company and is 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 equita- ble 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 the Offer, the acquisition of Shares pursuant to the Offer, the Merger and the Shareholders Agreements, including, but not limited to, all actions required to render the provisions of Section 775 through Section 784 of the BCA restricting business combinations with "interested shareholders" and Article VIII of the Company's Restated Articles of Incorporation inapplicable to such transactions. The Company has taken all action necessary to opt out of Sections 790 through 799 of the BCA in order to render the provisions of such statutes restricting voting rights of "control shares" inapplica- ble to Shares acquired by Parent, the Purchaser or their affiliates pursuant to this Offer, the Merger or the Shareholders Agreements. Section 3.4 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 Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), state securities or blue sky laws, state and federal laws with respect to the sale of alcoholic beverages, prescription drugs and lottery tickets, the BCA and the DGCL, neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby nor compliance by the Company with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the articles of incorporation or by-laws or similar organizational docu- ments of the Company or of any of its Subsidiaries, (ii) require any filing with, or permit, authorization, con- sent or approval of, any court, arbitral tribunal, admin- istrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity"), except where the failure to obtain such per- mits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Company and its Subsidiaries taken as a whole, (iii) except for the Credit Agreement, 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 acceler- ation) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, 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 has been filed as an exhib- it to the Company SEC Documents (the "Material Agree- ments") or (iv) violate any order, writ, injunction, de- cree, statute, rule or regulation applicable to the Company, any of its Subsidiaries or any of their proper- ties or assets, except in the case of (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 taken as a whole, and which will not materially impair the ability of the Company to consummate the transactions contemplat- ed hereby. 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 since November 1, 1991 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 appli- cable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. None of the Subsid- iaries is required to file any forms, reports or other documents with the SEC pursuant to Section 12 or 15 of the Exchange Act. The financial statements of the Compa- ny (the "1993 Financial Statements") included in the Company's annual report on Form 10-K for the fiscal year ended October 31, 1993, as amended and subsequently restated (including the related notes thereto) (the "1993 Form 10-K")and in the quarterly reports on Form 10-Q for the three fiscal quarters filed since the 1993 Form 10-K have been prepared from, and are in accordance with, the books and records of the Company and its consolidated subsidiaries, comply in all material respects with appli- cable 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 subject, in the case of quarterly financial statements, to normal and recurring year-end adjustments) and fairly present 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 con- solidated subsidiaries as at the dates thereof or for the periods presented therein. Section 3.6 Absence of Certain Changes. Except as disclosed in the Company SEC Documents and except for a change in fiscal year end from October 31 to the last Saturday in October of each year, since October 31, 1993, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course and there has not occurred (i) any events, chang- es, or effects (including the incurrence of any liabili- ties of any nature, whether or not accrued, contingent or otherwise) having, individually or in the aggregate, a material adverse effect on the Company and its Subsidiar- ies, taken as a whole; (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 Subsid- iaries; or (iii) any 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. Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the Company's SEC Documents and (b) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice, since October 31, 1993, neither the Company nor any of its Subsidiaries has incurred any liabilities or obliga- tions 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 taken as a whole or would be required by GAAP to be reflected on a consolidated balance sheet of the Company and its Subsidiaries (including the notes thereto). As of the date hereof, the total amounts of principal and unpaid interest outstanding under the Credit Agreement and with respect to the Convertible Debentures do not exceed $62,000,000 and $51,500,000, re- spectively, in the aggregate, and the long-term principal portions thereof (including such amounts as are required to be classified as current debt under GAAP) do not exceed $60,000,000 and $49,996,000, respectively. Section 3.8 Information in Proxy Statement. The Proxy Statement (or any amendment thereof or supplement thereto) will, at the date mailed to Company shareholders and at the time of the meeting of Company shareholders to be held in connection with the Merger, 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, except that no representation is made by the Company with respect to statements made therein based on information supplied by Parent or the Purchaser in writing for inclu- sion in the Proxy Statement. The Proxy Statement will comply in all material respects with the provisions of the Exchange Act and the rules and regulations there- under. Section 3.9 Employee Benefit Plans; ERISA. (a) There are no material employee bene- fit plans, arrangements, contracts or agreements (includ- ing employment agreements and severance agreements) of any type (including but not limited to plans described in section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by the Company, any of its Subsidiaries or any trade or busi- ness, whether or not incorporated (an "ERISA Affiliate"), that together with the Company would be deemed a "single employer" within the meaning of section 4001(b)(15) 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 Schedule 3.9 ("Benefit Plans"). 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 Subsidiary. (b) With respect to each Benefit Plan: (i) if intended to qualify under section 401(a), 401(k) or 403(a) of the Internal Revenue Code of 1986, as amend- ed, and the rules and regulations promulgated thereunder (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 all material respects in accordance with its terms and applicable law; (iii) no breaches of fiduciary duty have occurred which might reasonably be expected to give rise to material liability on the part of the Company; (iv) no disputes are pending, or, to the knowledge of the Company, threat- ened that might reasonably be expected to give rise to material liability on the part of the Company; (v) no prohibited transaction (within the meaning of Section 406 of ERISA) has occurred that might reasonably be expected to give rise to material liability on the part of the Company; and (vi) all contributions and premiums due as of the date hereof (including any extensions for such contributions and premiums) have been made in full. (c) Neither the Company nor any ERISA Affiliate maintains or has maintained within the last six years, any employee benefit plan that is subject to Title IV of ERISA. (d) With respect to each Benefit Plan that is a "welfare plan" (as defined in section 3(1) of ERISA): except as disclosed in Schedule 3.9, no such plan provides medical or death benefits with respect to cur- rent or former employees of the Company or any of its Subsidiaries beyond their termination of employment, other than on an employee-pay-all basis. (e) Except as set forth on Schedule 3.9, the consummation of the transactions contemplated by this Agreement will not (i) entitle any individual to sever- ance pay or accelerate the time of payment or vesting, or increase the amount, of compensation or benefits due to any individual (other than as disclosed in writing), (ii) constitute or result in a prohibited transaction under section 4975 of the Code or section 406 or 407 of ERISA or (iii) subject the Company, any of its Subsidiaries, any ERISA Affiliate, any of the Benefit Plans, any relat- ed trust, any trustee or administrator thereof, or any party dealing with the Benefit Plans or any such trust to either a civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant to section 4976 or 4980B of the Code. (f) There is no Benefit Plan that is a "multiemployer plan," as such term is defined in section 3(37) of ERISA. (g) The maximum amount that could be pay- able under all Benefit Plans (excluding Options and restricted stock) and any other plan, policy, agreement or arrangement to which the Company or any Subsidiary is a party, as a result (in whole or in part) of the trans- actions contemplated hereby shall not exceed $7,500,000. (h) With respect to each Benefit Plan, the Company has delivered to Parent accurate and complete copies of all plan texts, summary plan descriptions, summary of material modifications, trust agreements and other related agreements including all amendments to the foregoing; the most recent annual report; 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 most recent actuarial valuation, to the extent any of the foregoing may be applicable to a particular Benefit Plan. Section 3.10 Litigation. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement, 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, in the reasonable judg- ment of the Company, to have, individually or in the aggregate, a material adverse effect on the Company and its Subsidiaries, taken as a whole, or a material adverse effect on the ability of the Company to consummate the transactions contemplated by this Agreement. Section 3.11 Conduct of Business. 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 (i) its respective articles of incorpora- tion or by-laws or similar organizational documents, (ii) any Material Agreement or (iii) any federal, state, local or foreign statute, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company or any of its Subsid- iaries, excluding from the foregoing clauses (ii) and (iii), defaults or violations that would not, individu- ally or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Except as previously disclosed to Parent in writing, as of the date of this Agreement, no investigation or review by any Governmental Entity or other entity with respect to the Company or any of its Subsidiaries is pending or, to the best knowledge of the Company, threatened, nor has any Governmental Entity or other entity indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, in the future will not, individually or in the aggregate have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Section 3.12 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. Section 3.13 Taxes. (a) The Company and its Subsidiaries have (i) duly filed (or there has been filed on their behalf) with the appropriate governmental au- thorities all Tax Returns (as hereinafter defined) re- quired to be filed by them on or prior to the date here- of, 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 generally accepted accounting principles (or there has been paid or provi- sion has been made on their behalf) for the payment of all Taxes (as hereinafter defined) for all periods ending through the date hereof. (b) There are no material liens for Taxes upon any property or assets of the Company or any Subsid- iary thereof, except for liens for Taxes not yet due and liens for Taxes the assessment of which is being contest- ed in good faith. (c) Except as described in Section 3.6, neither the Company nor any of its Subsidiaries has made any change in accounting methods, received a ruling from any taxing authority or signed an agreement likely to have a material adverse effect on the Company and its Subsidiaries taken as a whole. (d) 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 (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign laws) and have, within the time and the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws. (e) Other than the assessment by the State of Michigan of additional Michigan Single Business Tax for the fiscal years ended October 31, 1990, 1991 and 1992 (which the Company is contesting), and disputed claims for refunds of Michigan Single Business Tax paid for the fiscal years ended October 31, 1986, 1987, 1988 and 1989, 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 the Company or its Subsidiaries wherein an adverse determination or ruling in any one such proceeding or in all such proceedings in the aggregate could have a mate- rial adverse effect on the Company and its Subsidiaries, taken as a whole, and neither the Company nor its subsid- iaries has received a written notice of any pending audits or proceedings. (f) 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 through and including October 31, 1992, and no material deficiencies were asserted as a result of such examinations which have not been resolved and fully said. (g) There are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against the Company or any of its Subsidiaries, and no power of attorney granted by either the Company or any of its Subsidiaries with respect to any Taxes is currently in force. (h) Neither the Company nor any of its Subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes. (i) Except for certain agreements dis- closed to Parent on Schedule 3.9, neither the Company nor its Subsidiaries is a party to any agreement, contract or arrangement that could result, separately or in the aggregate, in the payment of any "excess parachute pay- ments" within the meaning of Section 280G of the Code. (j) Neither the Company nor any of its Subsidiaries has, with regard to any assets or property held, acquired or to be 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. (k) The deductibility of compensation paid by the Company and/or its Subsidiaries will not be limited by Section 162(m) of the Code. (l) "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 securi- ty, 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 govern- ment or any subdivision or taxing agency thereof (includ- ing 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 3.14 Labor Relations. 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 repre- sentation exists with respect to the employees of the Company or its Subsidiaries. Section 3.15 Compliance with Laws. The Compa- ny and its Subsidiaries have complied in a timely manner with all laws and governmental regulations and orders 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, antitrust laws, warehousing, storage and/or sale of food and/or drugs and/or alcoholic beverages, except where the fail- ure to so comply would not, individually or in the aggre- gate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Section 3.16 Insurance. As of the date here- of, 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 custom- ary in the businesses in which they are engaged. All material policies of insurance and fidelity or surety bonds are in full force and effect. The Company is self insured for its basic medical program. Stop loss insur- ance coverage is maintained. The Company is self insured for general liability and workers' compensation claims and maintains liability coverage in excess of certain self insurance limits from various carriers. Descrip- tions of these plans and related liability coverage have been previously provided to Parent. Schedule 3.16 con- tains a listing of all open workers compensation and general liability claims as of October 31, 1994. These claims, individually or in the aggregate, would not have a material adverse effect on the Company and its Subsid- iaries, 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. Section 3.17 Contracts. Each Material Agree- ment is legally valid and binding and in full force and effect, except where failure to be legally valid and binding and in full force and effect would not have a material adverse effect on the Company and its Subsidiar- ies taken as a whole, and there are no defaults thereun- der, except those defaults that would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. The Company has previously made available for inspection by Parent or the Purchaser all Material Agreements. Section 3.18 Real Property. The Company and the Subsidiaries, as the case may be, have sufficient title or leaseholds to real property to conduct their respective businesses as currently conducted with only such exceptions as individually or in the aggregate would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole. Section 3.19 Opinions of Financial Advisors. The Company has received opinions from Peter J. Solomon Company Limited and from Wasserstein, Perella & Co., Inc. to the effect that the consideration to be received by the shareholders of the Company pursuant to the Offer and the Merger is fair to such shareholders from a financial point of view, a copy of which opinions will be delivered to Parent. Section 3.20 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 THE PURCHASER Parent and the Purchaser represent and warrant to the Company as follows: Section 4.1 Organization. Each of Parent and the Purchaser 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 au- thority 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 Parent and its Subsidiaries taken as a whole. 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 quali- fication 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 Parent and its Subsidiaries, taken as a whole. Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each of Parent and the Purchaser has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, deliv- ery and performance of this Agreement and the consumma- tion of the Merger and of the other transactions contem- plated hereby have been duly authorized by all necessary corporate action on the part of Parent and the Purchaser and no other corporate proceedings on the part of Parent and the Purchaser are necessary to authorize this Agree- ment or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by Parent and the Purchaser, as the case may be, and, assum- ing this Agreement constitutes a valid and binding obli- gation of the Company, constitutes a valid and binding obligation of each of Parent and the Purchaser, as the case may be, enforceable against them in accordance with its respective 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 proceed- ing therefor may be brought. Section 4.3 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, the HSR Act, the BCA, the DGCL, state securities or blue sky laws and, the laws of other states in which Parent or the Purchaser is qualified to do or is doing business and applicable state takeover laws, nei- ther the execution, delivery or performance of this Agreement by Parent and the Purchaser nor the consumma- tion by Parent and the Purchaser of the transactions contemplated hereby nor compliance by Parent and the Purchaser with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the respective certificate of incorporation or by-laws of Parent and the Purchaser, (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 taken as a whole), (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, can- cellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, 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 (iii) and (iv) for violations, breaches or defaults which would not, individually or in the aggregate, have a material adverse effect on Parent and its Subsidiaries taken as a whole. Section 4.4 Information in Proxy Statement; Schedule 14D-9. None of the information supplied by Parent or the Purchaser for inclusion or incorporation by reference in the Proxy Statement or the Schedule 14D-9 will, at the date mailed to shareholders and at the time of the meeting of shareholders to be held in connection with the Merger, contain any untrue statement of a mate- rial 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. Section 4.5 Financing. Either Parent or the Purchaser has sufficient funds available (through exist- ing credit arrangements or otherwise) to purchase all of the Shares outstanding on a fully diluted basis and to pay all fees and expenses related to the transactions contemplated by this Agreement. Section 4.6 Purchaser's Operations. The Pur- chaser was formed solely for the purpose of engaging in the transactions contemplated hereby and has not engaged in any business activities or conducted any operations other than in connection with the transactions con- templated hereby. ARTICLE V COVENANTS Section 5.1 Interim Operations of the Company. The Company covenants and agrees that, except (i) as ex- pressly contemplated by this Agreement, or (ii) as agreed in writing by Parent, after the date hereof, and prior to the time the directors of the Purchaser have been elected to, and shall constitute a majority of, the Board of Directors of the Company pursuant to Section 1.3 (the "Appointment Date"): (a) the business of the Company and its Subsidiaries shall be conducted only in the ordinary and usual course 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, (i) sell, transfer or pledge or agree to sell, transfer or pledge any Company Common Stock, Pre- ferred Stock or capital stock of any of its Subsidiaries beneficially owned by it, either directly or indirectly; or (ii) split, combine or reclassify the outstanding Company Common Stock or any outstanding capital stock of any of the Subsidiaries of the Company; (c) except for those actions contemplated in Section 1.2, neither the Company nor any of its Sub- sidiaries shall: (i) amend its articles of incorporation or by-laws or similar organizational documents; (ii) de- clare, set aside or pay any dividend or other distribu- tion payable in cash, stock or property with respect to its capital stock; (iii) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, war- rants, calls, commitments or rights of any kind to ac- quire, any shares of capital stock of any class of the Company or its Subsidiaries, other than shares of Pre- ferred Stock reserved for issuance on the date hereof upon exercise of outstanding Rights pursuant to the Rights Agreement or issuances pursuant to the exercise of Options outstanding on the date hereof; (iv) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any material assets other than in the ordinary and usual course of business and consistent with past practice, or incur or modify any material indebtedness or other liability, other than in the ordinary and usual course of business and consistent with past practice; or (v) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (d) neither the Company nor any of its Subsidiaries shall: (i) grant any increase in the com- pensation payable or to become payable by the Company or any of its Subsidiaries to any of its executive officers or key employees or (A) adopt any new, or (B) 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 compen- sation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employ- ee benefit plan agreement or arrangement; or (ii) enter into any employment or severance agreement with or, except in accordance with the existing written policies of the Company, grant any severance or termination pay to any officer, director or employee of the Company or any its Subsidiaries; (e) neither the Company nor any of its Subsidiaries shall modify, amend or terminate any of its material contracts or waive, release or assign any mate- rial rights or claims, except in the ordinary course of business and 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 and consistent with past practice; (g) neither the Company nor any of its Subsidiaries shall: (i) incur or assume any long-term debt, or except in the ordinary course of business, incur or assume any short-term indebtedness in amounts not consistent with past practice; (ii) assume, guarantee, endorse or otherwise become liable or responsible (wheth- er directly, contingently or otherwise) for the obliga- tions of any other person, except in the ordinary course of business and consistent with past practice; (iii) make any loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned Subsidiaries of the Company or customary loans or advances to employees in accordance with past practice); or (iv) enter into any material commitment or transaction (including, but not limited to, any borrowing, capital expenditure or purchase, sale or lease of assets); (h) neither the Company nor any of its Subsidiaries shall change any of the accounting princi- ples 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) in the ordinary course of business and consistent with past practice, of claims, liabilities or obligations reflected or reserved against in, or contemplated by, the consolidated financial state- ments (or the notes thereto) of the Company and its consolidated Subsidiaries, (y) incurred in the ordinary course of business and consistent with past practice or (z) which are legally required to be paid, discharged or satisfied (provided that if such claims, liabilities or obligations referred to in this clause (z) are legally required to be paid and are also not otherwise payable in accordance with clauses (x) or (y) above, the Company will notify Parent in writing if such claims, liabilities or obligations exceed, individually or in the aggregate, $100,000 in value, reasonably in advance of their pay- ment); (j) neither the Company nor any of its Subsidiaries will adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restruc- turing, recapitalization or other reorganization of the Company or any of its Subsidiaries (other than the Merg- er); (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; or (l) neither the Company nor any of its Subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. Section 5.2 Rights Agreement. Except for the amendments contemplated by Section 1.2(d) hereof or amendments approved in writing by Parent or the Purchas- er, the Company will not, following the date hereof, amend the Rights Agreement in any manner. In addition the Company covenants and agrees that it will not redeem the Rights unless such redemption is consented to in writing by Parent prior to such redemption. Section 5.3 HSR Act. 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 addition- al information or documentation and to respond as prompt- ly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Entity in connection with antitrust matters. Section 5.4 Access to Information. Upon reason- able notice, the Company shall (and shall cause each of its Subsidiaries to) afford to the officers, employees, accountants, counsel, financing sources and other repre- sentatives of Parent, access, during normal business hours during the period prior to the Appointment Date, to all its properties, books, contracts, commitments and records and, during such period, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to the Parent (a) a copy of each report, schedule, regis- tration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws and (b) all other information concerning its business, properties and personnel as Parent may reasonably request. After the Appointment Date the Company shall provide Parent and such persons as Parent shall designate with all such information, at such time, as Parent shall request. Unless otherwise required by law and until the Appointment Date, Parent will hold any such information which is nonpublic in confidence in accordance with the provisions of the letter agreement between the Company and the Parent (the "Confidentiality Agreement"). Section 5.5 Consents and Approvals. Each of the Company, Parent and the Purchaser will take all reason- able actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to this Agreement and the transactions contemplated hereby (which actions shall include, without limitation, fur- nishing all information required under the HSR Act and in connection with approvals of or filings with any other Governmental Entity) 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 Compa- ny, Parent and the Purchaser will, and will cause its Subsidiaries to, take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) 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, the Purchaser, the Company or any of their Sub- sidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement. Section 5.6 Employee Benefits. (a) Parent agrees that, effective as of the Effective Time, the Surviving Corporation and its Subsidiaries shall provide benefits to their employees that are comparable with those provided by Parent to similarly situated employees of Parent or any of its Sub- sidiaries, taking into account all relevant factors, including, without limitation, the businesses in which the Surviving Corporation and its Subsidiaries are en- gaged. Parent further agrees that, effective as of the Effective Time, employees of the Surviving Corporation and its Subsidiaries shall become participants in the health benefit plans and programs maintained for similar- ly situated employees of Parent or any of its Subsidiar- ies. Such health benefit plans and programs shall (1) recognize expenses and claims that were incurred by such employees in the year in which the Effective Time occurs and recognized for similar purposes of computing deduct- ible amounts and copayments under the Company's plans as of the Effective Time and (2) provide coverage for pre- existing health conditions to the extent covered under the applicable plans or programs of the Company as of the Effective Time. In addition, employees of the Surviving Corporation will receive credit for their prior service with the Company and its Subsidiaries for eligibility and vesting purposes and for vacation accrual purposes. (b) Parent guarantees the payment of, and agrees to honor, the current severance pay arrangements and split dollar life insurance agreements, which agree- ments and arrangements are listed on Schedule 5.6(b) hereto, that the Company has in effect for the benefit of certain executive officers, copies of whose written severance pay arrangements and split dollar insurance agreements have been provided to Parent. Parent acknowl- edges that (i) the change in each such executive's re- sponsibilities resulting from the completion of the Offer and the resulting change in the Company from a publicly owned company to a majority or wholly owned subsidiary constitutes circumstances that shall be deemed a "Termi- nation of Employment" following a "Change in Control" under such severance agreements or a "Resignation by the Executive following a Change in Control for Good Reason" and (ii) any decision on the part of any such executive to terminate his employment for any reason subsequent to completion of the Offer shall not constitute a "voluntary termination of employment" under such split dollar life insurance agreements. (c) In the case of persons employed by the Company at its central administrative offices at the completion of the Offer other than those executive offi- cers referred to in (b) above, Parent agrees to cause the Company or the Surviving Corporation, as the case may be, to pay a lump sum severance benefit to each such person whose employment is terminated by the Company or the Surviving Corporation for any reason other than cause, death or disability prior to the first anniversary of the completion of the Offer. Such severance benefit shall be based on the terminated employee's number of whole years (rounded up or down to the nearest whole year) of contin- uous service with the Company and/or the Surviving Corpo- ration, shall be calculated as follows, and shall be re- duced by withholding and employment taxes, if required by law to be withheld: Length of Service Amount of Severance Benefit less than 10 years 1 week's gross pay for each whole year of service, with a minimum severance benefit of 2 weeks' gross pay (or, if great- er, gross pay for the number of additional business days re- maining until the expiration of the notification period re- quired in connection with the Headquarters Closing Notices (as defined in Section 5.15 hereof)). 10 years or more 2 weeks' gross pay for each whole year of service, with a maximum severance benefit of 26 weeks' gross pay The term "gross pay" shall mean the employees' average weekly gross wages or salary, before deductions or withholdings of any kind whatsoever, received from the Company and/or the Surviving Corporation during the last full calendar month immediately prior to the date of termination. The severance benefit described above will be provided, if applicable, upon the giving by the severed employee of a full release of claims in form and substance satisfactory to Parent. Any severance payment shall be applied first to any pay or bene- fits in lieu of notice that may become due pursuant to the WARN Act. Section 5.7 No Solicitation. Neither the Company 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 accoun- tants, 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 merger, tender offer, exchange offer, sale of assets, sale of shares of capital stock or debt securities or similar transactions involving the Company or any Subsidiary, division or operat- ing or principal business unit of the Company (an "Acquisi- tion Proposal"). The Company further agrees 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 forego- ing, the Company may, directly or indirectly, provide access and furnish information concerning its business, properties or assets to any corporation, partnership, person or other entity or group pursuant to appropriate confidentiality agreements, and may negotiate and participate in discussions and negotiations with such entity or group concerning an Acquisition Proposal (x) if such entity or group has submit- ted a bona fide written proposal to the Board of Directors of the Company relating to any such transaction and (y) if, in the opinion of the Board of Directors of the Company, after consultation with independent legal counsel to the Company, the failure to provide such information or access or to engage in such discussions or negotiations would be inconsis- tent with their fiduciary duties to the Company's sharehold- ers under applicable law. Furthermore, nothing contained in this Section 5.7 shall prohibit the Company or its Board of Directors from taking and disclosing to the Company's share- holders a position with respect to a tender offer by a third party pursuant to Rules l4d-9 and l4e-2(a) promulgated under the Exchange Act or from making such disclosure to the Com- pany's shareholders which, in the judgment of the Board of Directors with the advice of outside counsel, may be required under applicable law. The Company will immediately notify Parent of any such proposal, or if an inquiry is made, and will keep Parent fully apprised of all developments with respect to any such Acquisition Proposal. Section 5.8 Brokers or Finders. Each of Parent and the Company represents, as to itself, its Subsidiaries and its affiliates, that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any brokers' or finder's fee or any other commis- sion or similar fee in connection with any of the transac- tions contemplated by this Agreement except Peter J. Solomon Company Limited and Wasserstein Perella, whose fees and ex- penses will be paid by the Company in accordance with the Company's agreements with such firms (copies of which have been delivered by the Company to Parent prior to the date of this Agreement), and each of Parent and the Company agrees to indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other fees, commissions or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or its affiliates. Section 5.9 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all 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 under applicable laws and regulations, or to remove any injunctions or other imped- iments 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 all reasonable efforts to take, or cause to be taken, all such necessary actions. Section 5.10 Convertible Debentures. Promptly after acceptance by the Purchaser of Shares for payment pursuant to the Offer, if so requested by Parent, the Company shall provide any notice required pursuant to Article 3 of the Indenture in order to effect a redemption by the Company of the Convertible Debentures. The Company shall cause such redemption of the Convertible Debentures, if so requested by Parent, to occur on the date specified by Parent, which date shall not be less than 30 nor more than 60 days after the date notices of such redemption are mailed to debenture- holders of the Company. In addition, if so requested by Parent, the Company shall take all actions prescribed under Article 10 of the Indenture required to terminate the Com- pany's obligations under the Indenture. Section 5.11 Publicity. The initial press release with respect to the execution of this Agreement shall be a joint press release acceptable to Parent and the Company. Thereafter, so long as this Agreement is in effect, neither the Company, Parent nor any of their respective affiliates shall issue or cause the publication of any press release or other announcement with respect to the Merger, this Agreement or the other transactions contemplated hereby without the prior consultation of the other party, except as may be required by law or by any listing agreement with a national securities exchange. Section 5.12 Notification of Certain Matters. The Company shall give prompt notice to Parent and Parent shall give prompt notice to the Company, of (i) 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 untrue or inaccurate in any material respect at or prior to the Effective Time and (ii) any mate- rial 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 5.12 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.13 Directors' and Officers' Insurance and Indemnification. For six years after the Effective Time, Parent shall, or shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former officers, directors, employees and agents of the Company and its Subsidiaries (each an "Indemnified Party") against all losses, claims, damages, liabilities, fees and expenses (including reasonable fees and disbursements of counsel and judgments, fines, losses, claims, liabilities and amounts paid in settlement (provided that any such settlement is effected with the written consent of the Parent or the Sur- viving Corporation)) arising out of actions or omissions occurring at or prior to the Effective Time to the full extent permitted under Michigan law or the Company's Restated Articles of Incorporation, By-Laws or indemnification agree- ments in effect at the date hereof, including provisions relating to advancement of expenses incurred in the defense of any action or suit; provided that, in the event any claim or claims are asserted or made within such six year period, all rights to indemnification in respect of any such claim or claims shall continue until disposition of any and all such claims; provided further, that any determination required to be made with respect to whether an Indemnified Party's con- duct complies with the standards set forth under Michigan law, the Company's Restated Articles of Incorporation or By- Laws or such agreements, as the case may be, shall be made by independent counsel mutually acceptable to Parent and the Indemnified Party and; provided further, that nothing herein shall impair any rights or obligations of any present or former directors or officers of the Company. Parent or the Surviving Corporation shall maintain the Company's existing officers' and directors' liability insurance policy ("D&O Insurance") for a period of not less than two years after the Effective Date; provided, that the Parent may substitute therefor policies of substantially similar coverage and amounts containing terms no less advantageous to such former directors or officers; provided, further, if the existing D&O Insurance expires, is terminated or cancelled during such period, Parent or the Surviving Corporation will use all reasonable efforts to obtain substantially similar D&O Insur- ance; provided further, however, that in no event shall the Company be required to pay aggregate premiums for insurance under this Section in excess of 100% of the aggregate premi- ums paid by the Company in 1994 (on an annualized basis for such purpose) ("1994 Premiums"). In the event that, but for the last proviso of the immediately preceding sentence, Parent or the Surviving Corporation would be required to expend more than 100% of 1994 Premiums, Parent or the Sur- viving Corporation shall nonetheless purchase the maximum amount of such insurance obtainable by payment of annual premiums equal to 100% of 1994 Premiums. Section 5.14 WARN Act. The Company agrees that it shall, on behalf of Parent, within five calendar days of the date hereof, issue such notices (the "Headquarters Closing Notices") as are required under the Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act") or any similarly applicable state or local law, in connection with Parent's intended closing of the Company's current headquar- ters (the "Headquarters Closing") located at 5400 Perry Drive, Pontiac, Michigan 48343-6021, on or about the Effec- tive Time (the "Headquarters Closing Date"). The Headquar- ters Closing Notices shall comply in form and substance with the WARN Act and any similarly applicable state or local law, as well as such regulations as have been promulgated there- under. The Headquarters Closing Notices shall be given sufficiently in advance of the Headquarters Closing Date so that Parent shall not be liable under the WARN Act or any similarly applicable state or local law for any penalty or payment in lieu of notice to any employee or governmental entity. Parent and the Company shall cooperate in the prepa- ration and giving of such notices, and no such notices shall be given until they have been approved by Parent. ARTICLE VI CONDITIONS Section 6.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following condi- tions: (a) Shareholder Approval. This Agreement shall have been approved and adopted by the requisite vote of the holders of Company Common Stock, if required by applica- ble law and the Restated Articles of Incorporation, in order to consummate the Merger; (b) Statutes; Consents. No statute, rule, order, decree or regulation shall have been enacted or pro- mulgated by any foreign or domestic government or any govern- mental agency or authority of competent jurisdiction which prohibits the consummation of the Merger and all foreign or domestic governmental consents, orders and approvals required for the consummation of the Merger and the transactions contemplated hereby shall have been obtained and shall be in effect at the Effective Time; (c) Injunctions. There shall be no order or injunction of a foreign or United States federal or state court or other governmental authority of competent juris- diction in effect precluding, restraining, enjoining or prohibiting consummation of the Merger; and (d) Purchase of Shares in Offer. Parent, the Purchaser or their affiliates shall have purchased shares of Company Common Stock pursuant to the Offer. ARTICLE VII TERMINATION Section 7.1 Termination. Anything herein or else- where to the contrary notwithstanding, this Agreement may be terminated and the Merger contemplated herein may be aban- doned at any time prior to the Effective Time, whether before or after shareholder approval thereof: (a) By the mutual consent of the Board of Directors of Parent and the Board of Directors of the Compa- ny. (b) By either of the Board of Directors of the Company or the Board of Directors of Parent: (i) if shares of Company Common Stock shall not have been purchased pursuant to the Offer on or prior to June 1, 1995; 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 obligation under this Agreement has been the cause of, or resulted in, the failure of Parent or the Purchaser, as the case may be, to purchase shares of Company Common Stock pursuant to the Offer on or prior to such date; 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 reasonable 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 of Company Common Stock 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 the Purchaser 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 providing for the acquisition of the Company, by merger, consolidation or otherwise, and (B) determined, after consultation with independent legal counsel to the Company, that the failure to take such action as set forth in the preceding clause (A) would be inconsistent with its fiduciary duties to the Company's shareholders under applicable law; or (ii) if, prior to the purchase of Company Common Stock pursuant to the Offer, Parent or the Pur- chaser breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or breaches its representa- tions and warranties in any material respect; or (iii) if Parent or the Purchaser shall have terminated the Offer, or the Offer shall have expired, without Parent or the Purchaser, as the case may be, purchasing any shares 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 occur- ring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Annex A hereto, Parent, the Purchaser or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided, that the Company may not terminate 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 occur- ring after the commencement of the Offer would result in a failure to satisfy any of the conditions set forth in Annex A hereto, Parent, the Purchaser, or any of their affiliates shall have failed to commence the Offer on or prior to five business days following the date of the initial public announcement of the Offer; provided that Parent may not terminate this Agreement pursuant to this Section 7.1(d)(i) if Parent is in material breach of this Agreement; or (ii) if (A) prior to the purchase of shares of Company Common Stock 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 the Purchaser its approval or recommendation of the Offer, this Agreement or the Merger or shall have recommended an Acquisition Proposal or offer, or shall have executed an agreement in principle (or similar agreement) or definitive agreement providing for a tender offer or exchange offer for any shares of capital stock of the Company, or a merger, consolidation or other business combination with a person or entity other than Parent, the Purchaser or their affiliates (or the Board of Directors of the Company resolves to do any of the foregoing), or (B) it shall have been publicly disclosed or Parent or the Purchaser shall have learned that any person, entity or "group" (as that term is defined in Section 13(d)(3) of the Exchange Act) (an "Acquiring Person"), other than Parent or its affiliates or any group of which any of them is a member, shall have ac- quired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 19.9% 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 owner- ship of more than 19.9% of any class or series of capi- tal stock of the Company (including the Shares); or (iii) if Parent or the Purchaser, as the case may be, shall have terminated the Offer, or the Offer shall have expired without Parent or the Purchaser, as the case may be, purchasing any shares of Company Common Stock thereunder, provided that Parent may not terminate this Agreement pursuant to this Section 7.1(d)(iii) if it or the Purchaser has failed to purchase shares of Company Common Stock in the Offer in violation of the material terms thereof. 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 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 liabil- ity on the part of the Parent or the Company except (A) for fraud or for material breach of this Agreement and (B) as set forth in this Section 7.2 and Section 8.1. ARTICLE VIII MISCELLANEOUS Section 8.1 Fees and Expenses. (a) Except as contemplated by this Agreement, including Sections 8.1(b) and 8.1(c) hereof, all costs and expenses incurred to connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such expenses. (b) 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 one (1) year of such termination, the Acquiring Person shall acquire or beneficially own a majority of the then outstand- ing shares of Company Common Stock 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 an Acquisition Proposal or similar business combi- nation or (z) the Board of Directors of Parent shall termi- nate this Agreement pursuant to Section 7.1(d)(i) or Section 7.1(d)(iii) hereof, in each case due to a (I) a material breach of the representations and warranties of the Company set forth in this Agreement other than as the result of an act of God or (II) a material breach of, or failure to per- form or comply with, any material obligation, agreement or covenant contained in this Agreement, including but not limited to the covenants contained in Section 5.1 hereof, by the Company, 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 two business days after termination of this Agreement) an amount equal to $3 million. (c) Upon the termination of this Agreement due to the occurrence of a Trigger Event, the Company agrees that it shall promptly assume and pay, or reimburse Parent for, all reasonable fees and expenses incurred, or to be incurred by Parent, the Purchaser and their affiliates (in- cluding the fees and expenses of legal counsel, accountants, financial advisors, other consultants, financial printers and financing sources) in connection with the Offer, the Merger and the consummation of the transactions contemplated by this Agreement, in an amount not to exceed $1 million in the aggregate. Section 8.2 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 shareholders of the Company contemplated hereby, by written agreement of the parties hereto, by action taken by their respective Boards of Directors (which in the case of the Company shall include approvals as contemplated in Section 1.3(b)), 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 shareholders of the Company, no such amendment, modification or supplement shall reduce or change the Merger Consider ation. Section 8.3 Nonsurvival of Representations and War- ranties. None of the representations and warranties in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement shall survive the Effec- tive Time. Section 8.4 Notices. All notices and other commu- nications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is con- firmed) or sent by an overnight courier service, such as Federal Express, 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 the Purchaser, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5952 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) 735-2001 and (b) if to the Company, to: Perry Drug Stores, Inc. 5400 Perry Drive P.O. Box 436021 Pontiac, Michigan 48343-6021 Attention: General Counsel Telephone No.: (810) 334-1300 Telecopy No.: (810) 647-7753 with a copy to: Frank K. Zinn, Esq. Dykema Gossett PLLC 400 Renaissance Center Detroit, Michigan 48243 Telephone No.: (312) 568-6969 Telecopy No.: (313) 568-6915 Section 8.5 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 phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. 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 December 23, 1994. As used in this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule l2b-2 of the Exchange Act. Section 8.6 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 effec- tive 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 counter- part. Section 8.7 Entire Agreement; No Third Party Benefi ciaries; Rights of Ownership. This Agreement and the Confi- dentiality Agreement (including the documents and the instru- ments referred to herein and therein): (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Sections 5.6 and 5.13 are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 8.8 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 restric- tions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 8.9 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 8.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by opera- tion of law or otherwise) without the prior written consent of the other parties, except that the Purchaser may assign, in its sole discretion, any or all of its rights, interest and obligations hereunder to Parent or to any direct or indirect wholly owned Subsidiary of Parent. 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. IN WITNESS WHEREOF, Parent, the Purchaser 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: President and Chief Operating Officer LAKE ACQUISITION CORPORATION By:/s/ Martin L. Grass Name: Martin L. Grass Title: Vice President PERRY DRUG STORES, INC. By:/s/ Jack A. Robinson Name: Jack A. Robinson Title: Chairman and Chief Executive Officer ANNEX A CONDITIONS TO THE TENDER OFFER Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) the Purchaser's rights to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Merger Agree- ment), the Purchaser 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 the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares, and may terminate the Offer as to any Shares not then paid for, if (i) any applicable waiting period under the HSR Act has not expired or terminat- ed, (ii) the Minimum Condition has not been satisfied, (iii) the Rights Agreement shall not have been amended in a manner which renders the Rights inoperative with respect to any acquisition of Shares by Parent or the Purchaser, or (iv) at any time on or after December 23, 1994 and before the time of payment for any such Shares, any of the following events shall occur or shall be determined by the Purchaser to have occurred: (a) there shall have been any action taken, or any statute, rule, regulation, judgment, order or injunc- tion promulgated, entered, enforced, enacted, issued or applicable to the Offer or the Merger by any domestic or foreign federal or state governmental regulatory or adminis- trative agency or authority or court or legislative body or commission which directly or indirectly (l) prohibits, or imposes any material limitations on, Parent's or the Pur- chaser's ownership or operation (or that of any of their respective Subsidiaries or affiliates) of all or a material portion of their or the Company's businesses or assets, or compels Parent or the Purchaser or their respective Subsid- iaries and affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective Subsidiaries, in each case taken as a whole, (2) prohibits, or makes illegal the acceptance for payment, payment for or purchase of Shares or the consum- mation of the Offer or the Merger, (3) results in the delay in or restricts the ability of the Purchaser, or renders the Purchaser unable, to accept for payment, pay for or purchase some or all of the Shares, (4) imposes material limitations on the ability of the Purchaser or Parent effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's share- holders, or (5) otherwise materially adversely affects the consolidated financial condition, businesses or results of operations of the Company and its Subsidiaries, taken as a whole, provided that Parent shall have used all reasonable efforts to cause any such judgment, order or injunction to be vacated or lifted; (b) there shall have occurred (1) any general suspension of trading in, or limitation on prices for, secu- rities on the New York Stock Exchange for a period in excess of three hours (excluding suspensions or limitations result- ing solely from physical damage or interference with such exchanges not related to market conditions), (2) a decla- ration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (3) a commencement of a war, armed hostilities or other international or national calamity directly or indi- rectly involving the United States, (4) any limitation (whether or not mandatory) by any foreign or United States governmental authority on the extension of credit by banks or other financial institutions, (5) 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 December 23, 1994 or (6) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; (c) 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 consum- mation 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 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; (d) the Merger Agreement shall have been terminated in accordance with its terms; (e) (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 Parent or its affiliates or any group of which any of them is a member, shall have ac- quired beneficial ownership (determined pursuant to Rule 13d- 3 promulgated under the Exchange Act) of more than 19.9% of any class or series of capital stock of the Company (includ- ing the Shares), through the acquisition of stock, the forma- tion of a group or otherwise, or shall have been granted an option, right or warrant, conditional or otherwise, to ac- quire beneficial ownership of more than 19.9% of any class or series of capital stock of the Company (including the Shares); or (ii) any person 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 (f) the Company's Board of Directors shall have withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser (including by amendment of the Sched- ule 14D-9) its recommendation of the Offer, the Merger Agree- ment, or the Merger, or recommended another proposal or offer, or shall have resolved to do any of the foregoing; 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 the Purchaser and Parent and may be waived by Parent or the Purchaser, in whole or in part at any time and from time to time in the sole discretion of Parent or the Purchaser. The failure by Parent or the Purchaser at any time to exer- cise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. EX-99.(C)(2) 12 SHAREHOLDERS AGREEMENT Exhibit 99.(c)(2) CONFORMED COPY SHAREHOLDERS AGREEMENT AGREEMENT, dated as of December 23, 1994 and reexecuted as of December 29, 1994, among Rite Aid Corpo- ration, a Delaware corporation ("Parent"), Lake Acqui- sition Corporation, a Delaware corporation and a direct wholly owned subsidiary of Parent ("Purchaser"), Mr. Jack A. Robinson ("Mr. Robinson") and Mr. Jack A. Robinson, the co-trustee, agent, nominee, grantor and beneficiary (respectively, the "Trustee", "Agent", "Nominee", "Grant- or" and "Beneficiary") under The Jack A. and Aviva Robin- son Charitable Remainder Unitrust Agreement (the "Trust"), dated December 23, 1994, by and between Jack A. Robinson, as grantor, and Jack A. Robinson and three other individuals, as trustees (Mr. Robinson and the Trustee are collectively referred to herein as the "Shareholder"). W I T N E S S E T H: WHEREAS, immediately prior to the execution of this Agreement, Parent, Purchaser and Perry Drug Stores, Inc., a Michigan corporation (the "Company"), have en- tered into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not de- fined herein have the respective meanings ascribed to them in the Merger Agreement), pursuant to which Purchas- er will be merged with and into the Company (the "Merg- er"); WHEREAS, in furtherance of the Merger, Parent and the Company desire that as soon as practicable (and not later than five business days) after the execution and delivery of the Merger Agreement, Purchaser shall commence a cash tender offer (the "Offer") to purchase at a price of $11.00 per share all outstanding shares of Company Common Stock (as defined in Section 1 hereof) in- cluding all of the Shares (as defined in Section 2 here- of) owned beneficially by the Shareholder; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent has required that the Shareholder agree, and the Shareholder has agreed, to enter into this Agreement; NOW, THEREFORE, in consideration of the forego- ing and the mutual premises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definitions. For purposes of this Agree- ment: (a) "Beneficially Own" or "Beneficial Owner- ship" 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" as within the meanings of Section 13(d)(3) of the Exchange Act. Notwithstanding the foregoing, for the purposes of this Agreement, the Shareholder will not be deemed to Beneficially Own those securities owned by or in trust for the Shareholder's children or grandchildren (other than Shares held in the Trust). (b) "Company Common Stock" shall mean at any time the common stock, $.05 par value, of the Company, including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and National Bank of Detroit, as Rights Agent. (c) "Person" shall mean an individual, corpo- ration, partnership, joint venture, association, trust, unincorporated organization or other entity. 2. Tender of Shares. (a) The Shareholder hereby agrees to validly tender (or cause the record owner of such shares to tender), and not to withdraw, pursuant to and in accor- dance with the terms of the Offer, not later than the fifth business day after commencement of the Offer pursu- ant to Section 1.1 of the Merger Agreement and Rule 14d-2 under the Exchange Act, 1,072,998 shares of Company Common Stock (of which 982,090 are held by the Trustee) (the "Existing Shares", and together with any shares of Company Common Stock acquired by the Shareholder in any capacity after the date hereof and prior to the termi- nation 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, inheri- tance or as successor in interest in any capacity (in- cluding a fiduciary capacity) or otherwise, the "Shares"), Beneficially Owned by the Shareholder. The Shareholder hereby acknowledges and agrees that the Parent's and the Purchaser's obligation to accept for payment and pay for Shares in the Offer, including the Shares Beneficially Owned by such Shareholder, is subject to the terms and conditions of the Offer. The parties agree that the Shareholder will, for all Shares tendered by Shareholder in the Offer and accepted for payment and paid for by Purchaser, receive the same per Share consid- eration paid to other shareholders who have tendered into the Offer. (b) The transfer by the Shareholder of the Shares to Purchaser in the Offer shall pass to and uncon- ditionally vest in Purchaser good and valid title to the Shares, free and clear of all claims, liens, restric- tions, security interests, pledges, limitations and encumbrances whatsoever. (c) The Shareholder hereby agrees to permit Parent and Purchaser to publish and disclose in the Offer Documents and, if approval of the Company's shareholders is required under applicable law, the Proxy Statement (including all documents and schedules filed with the SEC) their identity and ownership of Company Common Stock and the nature of their commitments, arrangements and understandings under this Agreement. 3. Provisions Concerning Company Common Stock. The Shareholder hereby agrees that during the period commencing on the date hereof and continuing until the first to occur of the Effective Time or termination of the Merger Agreement in accordance with its terms, at any 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 Shareholder shall vote (or cause to be voted) the Shares held of record or Beneficially Owned by the Shareholder, whether issued, heretofore owned or hereafter acquired, (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms there- of 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 (after giving effect to any materiality or similar qualifications contained therein); 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 Merger Agreement): (A) any extraor- dinary corporate transaction, such as a merger, consoli- dation or other business combination involving the Compa- ny or its Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Company or its Subsid- iaries, or a reorganization, recapitalization, dissolu- tion or liquidation of the Company or its Subsidiaries; (C)(1) any change in a majority of the persons who con- stitute the board of directors of the Company; (2) any change in the present capitalization of the Company or any amendment of the Company's Restated Articles of Incorporation or By-laws; (3) any other material change in the Company's corporate structure or business; or (4) any other action which, in the case of each of the mat- ters 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 Merger and the transactions contemplated by this Agreement and the Merger Agreement. The Shareholder shall not enter into any agreement or understanding with any person or entity the effect of which would be incon- sistent or violative of the provisions and agreements contained in this Section 3. Notwithstanding anything to the contrary contained in this Agreement, Mr. Robinson shall be free to act in his capacity as a director of the Company and discharge his fiduciary duties as a director. 4. Option. In order to induce Parent and Pur- chaser to enter into the Merger Agreement, the Share- holder hereby grants to Parent an irrevocable option (a "Stock Option") to purchase the Shares from the Share- holder (the "Option Shares") at a purchase price per share equal to $11.00 (the "Purchase Price"). If (i) the Offer is terminated, abandoned or withdrawn by Parent or Purchaser (whether due to the failure of any of the conditions thereto or otherwise), or (ii) the Merger Agreement is terminated in accordance with its terms, the Stock Option shall, in any such case, become exercisable, in whole but not in part, upon the first to occur of any such event and remain exercisable in whole but not in part until the date which is 90 days after the date of the occurrence of such event (the "90 Day Period"), so long as: (i) all waiting periods under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase of the Option Shares upon such exercise shall have expired or been waived, and (ii) there shall not be in effect any prelim- inary or final injunction or other order issued by any court or governmental, administrative or regulatory agency or authority or legislative body or commission prohibiting the exercise of the Stock Option pursuant to this Agreement; provided that if all HSR Act waiting periods shall not have expired or been waived or there shall be in effect any such injunction or order, in each case on the expiration of the 90 Day Period, the 90 Day Period shall be extended until 5 business days after the later of (A) the date of expiration or waiver of all HSR Act waiting periods and (B) the date of removal or lift- ing of such injunction or order; provided that this Agreement shall terminate if, after one year following the commencement of the original 90 Day Period, (A) all HSR Act waiting periods shall not have expired or been waived or (B) there shall be in effect any such injunc- tion or order, and neither Parent nor Purchaser has exercised the Option. In the event that Parent wishes to exercise the Stock Option, Parent shall send a written notice (the "Notice") to the Shareholder identifying the place and date (not less than two nor more than 20 busi- ness days from the date of the Notice) for the closing of such purchase. If within 12 months following the exer- cise of the Stock Option by Parent, Parent shall sell, transfer or otherwise dispose of any or all of the Option Shares to a third party (or realize cash proceeds in respect of such Shares as a result of a distribution to shareholders of the Company following the sale of sub- stantially all of the Company's assets) in connection with a transaction whereby the third party is acquiring the entire equity interest in the Company pursuant to a merger, tender offer, exchange offer, sale of substan- tially all of the Company's assets or a similar business combination (a "Subsequent Sale") at a per share price (or equivalent per Share cash proceeds, in the case of a sale of substantially all assets) in excess of $13.00 (the "Subsequent Sale Price"), then Parent shall promptly pay to the Shareholder an amount equal to (A) 25% of the excess of the Subsequent Sale Price over $13.00 multi- plied by the number of Option Shares sold in the Subse- quent Sale, plus (B) an additional 25% of the excess (which together with the percentage set forth in the preceding clause (A) aggregates 50% of the excess) (if any) of the Subsequent Sale Price over $14.00 multiplied by the number of Option Shares sold in the Subsequent Sale. 5. Other Covenants, Representations and War- ranties. The Shareholder hereby represents and warrants to Parent as follows: (a) Ownership of Shares. The Shareholder is the record and Beneficial Owner of the Shares (except for 77,500 of the Shares held in the Shareholder's brokerage account, as to which the Shareholder is the Beneficial Owner only). On the date hereof, the Existing Shares constitute all of the Shares owned of record or Benefi- cially Owned by the Shareholder. The Shareholder 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 conver- sion, 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 Exist- ing Shares with no limitations, qualifications or re- strictions on such rights, subject to applicable securi- ties laws and the terms of this Agreement, except that 80,705 Shares are pledged to Michigan National Bank (the "Bank") to secure a loan (the "Loan") in the amount of approximately $400,000 made to Mr. Robinson. (b) Power; Binding Agreement. The Trustee is a trustee of a valid charitable remainder trust created under the laws of the State of Michigan. The Shareholder has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by the Shareholder will not violate any other agreement to which the Shareholder is a party including, without limitation, any voting agreement, proxy arrangement, pledge agreement, shareholders agreement or voting trust. This Agreement has been duly and validly executed and delivered by the Shareholder and constitutes a valid and binding agreement of the Shareholder, enforceable against the Shareholder in accordance with its terms except to the extent such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting credi- tors rights. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which the Shareholder is a trustee whose consent is required for the execution and delivery of this Agreement or the consummation by such Shareholder of the transac- tions contemplated hereby. No action has been taken with respect to the Shares since the funding of the Trust and no other action will be taken with respect to the Shares except as contemplated herein. (c) No Conflicts. Except for (i) filings under the HSR Act and the Exchange Act, (A) 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 Shareholder and the consummation by the Shareholder of the transactions contemplated hereby and (B) none of the execution and delivery of this Agreement by the Share- holder, the consummation by the Shareholder of the trans- actions contemplated hereby or compliance by the Share- holder with any of the provisions hereof shall (1) con- flict with or result in any breach of any applicable organizational documents applicable to the Shareholder, (2) 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 termi- nation, cancellation, material modification or accelera- tion) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, li- cense, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Shareholder is a party or by which the Shareholder or any of its properties or assets may be bound, or (3) violate any order, writ, injunction, de- cree, judgment, order, statute, rule or regulation appli- cable to the Shareholder or any of its properties or assets. (d) No Encumbrances. Except as applicable in connection with the transactions contemplated by Sections 2 and 5(g) hereof, the Shares and the certificates repre- senting such Shares are now, and at all times during the term hereof will be, held by the Shareholder, or by a nominee or custodian for the benefit of such Shareholder, 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. Other than existing financial advisory and investment banking arrangements and agreements with Peter J. Solomon Company Limited, 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 connec- tion with the transactions contemplated hereby based upon arrangements made by or on behalf of the Shareholder. (f) No Solicitation. The Shareholder shall not, in the capacity as a shareholder or otherwise (in- cluding in the case of Mr. Robinson as an officer and/or director of the Company), directly or indirectly, solicit (including by way of furnishing information) or respond to any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) concerning any merger, tender offer, exchange offer, sale of assets, sale of shares of capital stock or debt securities or similar transactions involving the Company or any Subsidiary, division or operating or principal business unit of the Company, except as permit- ted by Sections 1.2(a) and 5.7 of the Merger Agreement. If the Shareholder receives any such inquiry or proposal, then the Shareholder shall promptly inform Parent of the existence thereof in the same manner set forth in Section 5.7 of the Merger Agreement. The Shareholder will imme- diately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the forego- ing. (g) Restriction on Transfer, Proxies and Non- Interference. Except as applicable in connection with the transactions contemplated by Section 2 hereof, the Shareholder shall not, directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any con- tract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, trans- fer, 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 agree- ment with respect to the Shares; or (iii) take any action that would make any representation or warranty of the Shareholder contained herein untrue or incorrect or have the effect of preventing or disabling the Shareholder from performing its obligations under this Agreement. Notwithstanding the foregoing, the Shareholder may (be- fore or after tendering Shares in the Offer) transfer all or part of its interests in all or some of the Shares to a charitable organization, grantor retained annuity trust, charitable remainder trust or similar entity, as long as such recipient agrees in writing to be bound by the terms of this Agreement. (h) Reliance by Parent. The Shareholder understands and acknowledges that Parent is entering into, and causing Purchaser to enter into, the Merger Agreement in reliance upon the Shareholder's execution and delivery of this Agreement. (i) Further Assurances. From time to time, at the other party's request and without further consider- ation, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be neces- sary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 1. Stop Transfer. The Shareholder agrees with, and covenants to, Parent that the Shareholder 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 (in- cluding 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 divi- dend, 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. 2. Termination. Except as otherwise provided herein, including, but not limited to, Section 4 hereof, the covenants and agreements contained herein with re- spect to the Shares shall terminate upon the termination of the Merger Agreement in accordance with its terms. 3. Confidentiality. The Shareholder recog- nizes 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 Shareholder hereby agrees not to disclose or 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 Share- holder 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. 4. Termination of Pledge. (a) The parties hereto acknowledge that 80,705 of the Shares (the "Pledged Shares") are pledged to the Bank (the "Pledge") to secure the Loan and the represen- tations and warranties contained herein, to the extent inconsistent with such Pledge, are qualified by reference to such Pledge. The Shareholder agrees to terminate the Pledge within 10 calendar days after commencement of the Offer and to take all actions necessary to eliminate any pledge, lien, encumbrance or security interest on the Pledged Shares by such tenth calendar day. (b) In the event Parent purchases Shares pursuant to the Offer and the Shareholder has not ten- dered the Pledged Shares because the Pledge was not terminated as required by Section 9(a) above, the parties agree that such Shares will be acquired in the Merger. (c) In the event that the Shareholder shall have breached this Agreement by failing to comply with the provisions of Section 9(a), the parties agree that Parent may, in its sole discretion, pay the Loan in order to release the Shares from the Pledge, and Parent shall deduct from the Purchase Price upon exercise of the Stock Option the sum of (i) the amount paid to satisfy (in whole or in part) the Loan, (ii) interest on such amount at the prime rate of the Bank calculated from the date of payment of the Loan until receipt of the Pledged Shares by Parent, and (iii) any transaction costs in connection therewith (including attorney's fees and expenses). 5. 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 Shareholder 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 other- wise, including, without limitation, the Shareholder's heirs, distributees, guardians, administrators, execu- tors, legal representatives, or successors or other transferees (for value or otherwise) and any other suc- cessors in interest. Notwithstanding any transfer of Shares, the transferor shall remain liable for the per- formance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party, provided that Parent may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. (d) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execu- tion and delivery of a written agreement executed by the parties hereto. (e) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if given) by hand delivery or telecopy (with a confirmation copy sent for next day delivery via courier service, such as Federal Express), or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to Shareholder or Mr. Robinson: Mr. Jack A. Robinson 1589 Kirkway Bloomfield Hills, MI 48013 Telephone No.: Telecopy No.: copy to: Ira J. Jaffe, Esq. Jaffe, Raitt, Heuer & Weiss, Professional Corporation Suite 2400 One Woodward Avenue Detroit, Michigan 48228 Telephone No.: (313) 961-8380 Telecopy No.: (313) 961-8358 If to Parent: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Attention: General Counsel Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5952 copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Telephone No.: (212) 735-3000 Telecopy No.: (212) 735-2001 Attention: Nancy A. Lieberman, Esq. 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 por- tion 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. (j) No Third Party Beneficiaries. This Agree- ment 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 princi- ples of conflicts of law thereof. (l) Jurisdiction. Each party hereby irrevoca- bly submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware or the United States District Court for the Southern District of New York or any court of the State of New York located in the City of New York 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 conve- niens 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 jurisdic- tion of said Courts or in the States of Delaware or New York 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 exe- cuted 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. IN WITNESS WHEREOF, Parent, the Shareholder and Mr. Robinson have caused this Agreement to be duly exe- cuted as of the day and year first above written. RITE AID CORPORATION By:/s/ Martin L. Grass Name: Martin L. Grass Title: President and Chief Operating Officer LAKE ACQUISITION CORPORATION By:/s/ Martin L. Grass Name: Martin L. Grass Title: Vice President By:/s/ Jack A. Robinson Jack A. Robinson, Trustee, Agent and Nominee By:/s/ Jack A. Robinson Jack A. Robinson, Beneficiary By:/s/ Jack A. Robinson Jack A. Robinson, Grantor /s/ Jack A. Robinson Jack A. Robinson EX-99.(C)(3) 13 SHAREHOLDERS AGREEMENT Exhibit 99.(c)(3) CONFORMED COPY SHAREHOLDERS AGREEMENT AGREEMENT, dated as of December 23, 1994, among Rite Aid Corporation, a Delaware corporation ("Parent"), Lake Acquisition Corporation, a Delaware corporation and a direct wholly owned subsidiary of Parent ("Purchaser"), Mrs. Aviva Robinson ("Mrs. Robinson") and Mrs. Aviva Robinson, the trustee, grantor and beneficiary (respec- tively, the "Trustee", "Grantor" and "Beneficiary") under the Trust Agreement (the "Trust"), dated as of March 12, 1991, by and between Aviva Robinson, as grantor, and Aviva Robinson, as trustee, (Mrs. Robinson and the Trust- ee are collectively referred to herein as the "Sharehold- er"). W I T N E S S E T H: WHEREAS, immediately prior to the execution of this Agreement, Parent, Purchaser and Perry Drug Stores, Inc., a Michigan corporation (the "Company"), have en- tered into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not de- fined herein have the respective meanings ascribed to them in the Merger Agreement), pursuant to which Purchas- er will be merged with and into the Company (the "Merg- er"); WHEREAS, in furtherance of the Merger, Parent and the Company desire that as soon as practicable (and not later than five business days) after the execution and delivery of the Merger Agreement, Purchaser shall commence a cash tender offer (the "Offer") to purchase at a price of $11.00 per share all outstanding shares of Company Common Stock (as defined in Section 1 hereof) in- cluding all of the Shares (as defined in Section 2 here- of) owned beneficially by the Shareholder; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent has required that the Shareholder agree, and the Shareholder has agreed, to enter into this Agreement; NOW, THEREFORE, in consideration of the forego- ing and the mutual premises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definitions. For purposes of this Agree- ment: (a) "Beneficially Own" or "Beneficial Owner- ship" 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" as within the meanings of Section 13(d)(3) of the Exchange Act. Notwithstanding the foregoing, for the purposes of this Agreement, the Shareholder will not be deemed to Beneficially Own those securities owned by or in trust for the Shareholder's children or grandchildren (other than Shares held in the Trust). (b) "Company Common Stock" shall mean at any time the common stock, $.05 par value, of the Company, including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of February 4, 1987, as amended, between the Company and National Bank of Detroit, as Rights Agent. (c) "Person" shall mean an individual, corpo- ration, partnership, joint venture, association, trust, unincorporated organization or other entity. 2. Tender of Shares. (a) The Shareholder hereby agrees to validly tender (or cause the record owner of such shares to tender), and not to withdraw, pursuant to and in accor- dance with the terms of the Offer, not later than the fifth business day after commencement of the Offer pursu- ant to Section 1.1 of the Merger Agreement and Rule 14d-2 under the Exchange Act, 42,286 shares of Company Common Stock (the "Existing Shares", and together with any shares of Company Common Stock acquired by the Share- holder in any capacity after the date hereof and prior to the termination of this Agreement whether upon the exer- cise 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 successor in interest in any capacity (including a fiduciary capacity) or otherwise, the " Shares"), Beneficially Owned by the Shareholder. The Shareholder hereby acknowledges and agrees that the Parent's and the Purchaser's obligation to accept for payment and pay for Shares in the Offer, including the Shares Beneficially Owned by such Shareholder, is subject to the terms and conditions of the Offer. The parties agree that the Shareholder will, for all Shares tendered by Shareholder in the Offer and accepted for payment and paid for by Purchaser, receive the same per Share consid- eration paid to other shareholders who have tendered into the Offer. (b) The transfer by the Shareholder of the Shares to Purchaser in the Offer shall pass to and uncon- ditionally vest in Purchaser good and valid title to the Shares, free and clear of all claims, liens, restric- tions, security interests, pledges, limitations and encumbrances whatsoever. (c) The Shareholder hereby agrees to permit Parent and Purchaser to publish and disclose in the Offer Documents and, if approval of the Company's shareholders is required under applicable law, the Proxy Statement (including all documents and schedules filed with the SEC) their identity and ownership of Company Common Stock and the nature of their commitments, arrangements and understandings under this Agreement. 3. Provisions Concerning Company Common Stock. The Shareholder hereby agrees that during the period commencing on the date hereof and continuing until the first to occur of the Effective Time or termination of the Merger Agreement in accordance with its terms, at any 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 Shareholder shall vote (or cause to be voted) the Shares held of record or Beneficially Owned by the Shareholder, whether issued, heretofore owned or hereafter acquired, (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms there- of 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 (after giving effect to any materiality or similar qualifications contained therein); 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 Merger Agreement): (A) any extraor- dinary corporate transaction, such as a merger, consoli- dation or other business combination involving the Compa- ny or its Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Company or its Subsid- iaries, or a reorganization, recapitalization, dissolu- tion or liquidation of the Company or its Subsidiaries; (C)(1) any change in a majority of the persons who con- stitute the board of directors of the Company; (2) any change in the present capitalization of the Company or any amendment of the Company's Restated Articles of Incorporation or By-laws; (3) any other material change in the Company's corporate structure or business; or (4) any other action which, in the case of each of the mat- ters 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 Merger and the transactions contemplated by this Agreement and the Merger Agreement. The Shareholder shall not enter into any agreement or understanding with any person or entity the effect of which would be incon- sistent or violative of the provisions and agreements contained in this Section 3. 4. Option. In order to induce Parent and Pur- chaser to enter into the Merger Agreement, the Share- holder hereby grants to Parent an irrevocable option (a "Stock Option") to purchase the Shares from the Share- holder (the "Option Shares") at a purchase price per share equal to $11.00 (the "Purchase Price"). If (i) the Offer is terminated, abandoned or withdrawn by Parent or Purchaser (whether due to the failure of any of the conditions thereto or otherwise), or (ii) the Merger Agreement is terminated in accordance with its terms, the Stock Option shall, in any such case, become exercisable, in whole but not in part, upon the first to occur of any such event and remain exercisable in whole but not in part until the date which is 90 days after the date of the occurrence of such event (the "90 Day Period"), so long as: (i) all waiting periods under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase of the Option Shares upon such exercise shall have expired or been waived, and (ii) there shall not be in effect any prelim- inary or final injunction or other order issued by any court or governmental, administrative or regulatory agency or authority or legislative body or commission prohibiting the exercise of the Stock Option pursuant to this Agreement; provided that if all HSR Act waiting periods shall not have expired or been waived or there shall be in effect any such injunction or order, in each case on the expiration of the 90 Day Period, the 90 Day Period shall be extended until 5 business days after the later of (A) the date of expiration or waiver of all HSR Act waiting periods and (B) the date of removal or lift- ing of such injunction or order; provided that this Agreement shall terminate if, after one year following the commencement of the original 90 Day Period, (A) all HSR Act waiting periods shall not have expired or been waived or (B) there shall be in effect any such injunc- tion or order, and neither Parent nor Purchaser has exercised the Option. In the event that Parent wishes to exercise the Stock Option, Parent shall send a written notice (the "Notice") to the Shareholder identifying the place and date (not less than two nor more than 20 busi- ness days from the date of the Notice) for the closing of such purchase. If within 12 months following the exer- cise of the Stock Option by Parent, Parent shall sell, transfer or otherwise dispose of any or all of the Option Shares to a third party (or realize cash proceeds in respect of such Shares as a result of a distribution to shareholders of the Company following the sale of sub- stantially all of the Company's assets) in connection with a transaction whereby the third party is acquiring the entire equity interest in the Company pursuant to a merger, tender offer, exchange offer, sale of substan- tially all of the Company's assets or a similar business combination (a "Subsequent Sale") at a per share price (or equivalent per Share cash proceeds, in the case of a sale of substantially all assets) in excess of $13.00 (the "Subsequent Sale Price"), then Parent shall promptly pay to the Shareholder an amount equal to (A) 25% of the excess of the Subsequent Sale Price over $13.00 multi- plied by the number of Option Shares sold in the Subse- quent Sale, plus (B) an additional 25% of the excess (which together with the percentage set forth in the preceding clause (A) aggregates 50% of the excess) (if any) of the Subsequent Sale Price over $14.00 multiplied by the number of Option Shares sold in the Subsequent Sale. 5. Other Covenants, Representations and War- ranties. The Shareholder hereby represents and warrants to Parent as follows: (a) Ownership of Shares. The Shareholder is the record and Beneficial Owner of the Shares. On the date hereof, the Existing Shares constitute all of the Shares owned of record or Beneficially Owned by the Shareholder. The Shareholder has sole voting power and sole power to issue instructions with respect to the matters set forth in Sections 2 and 3 hereof, sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Existing Shares with no limi- tations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. (b) Power; Binding Agreement. The Trustee is a trustee of a valid inter-vivos trust created under the laws of the State of Michigan. The Shareholder has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by the Shareholder will not violate any other agreement to which the Shareholder is a party including, without limi- tation, any voting agreement, proxy arrangement, pledge agreement, shareholders agreement or voting trust. This Agreement has been duly and validly executed and deliv- ered by the Shareholder and constitutes a valid and bind- ing agreement of the Shareholder, enforceable against the Shareholder in accordance with its terms except to the extent such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting credi- tors rights. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which the Shareholder is a trustee whose consent is required for the execution and delivery of this Agreement or the consummation by such Shareholder of the transac- tions contemplated hereby. (c) No Conflicts. Except for (i) filings under the HSR Act and the Exchange Act, (A) 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 Shareholder and the consummation by the Shareholder of the transactions contemplated hereby and (B) none of the execution and delivery of this Agreement by the Share- holder, the consummation by the Shareholder of the trans- actions contemplated hereby or compliance by the Share- holder with any of the provisions hereof shall (1) con- flict with or result in any breach of any applicable organizational documents applicable to the Shareholder, (2) 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 termi- nation, cancellation, material modification or accelera- tion) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, li- cense, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Shareholder is a party or by which the Shareholder or any of its properties or assets may be bound, or (3) violate any order, writ, injunction, de- cree, judgment, order, statute, rule or regulation appli- cable to the Shareholder or any of its properties or as- sets. (d) No Encumbrances. Except as applicable in connection with the transactions contemplated by Sections 2 and 5(g) hereof, the Shares and the certificates repre- senting such Shares are now, and at all times during the term hereof will be, held by the Shareholder, or by a nominee or custodian for the benefit of such Shareholder, 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. Other than existing financial advisory and investment banking arrangements and agreements with Peter J. Solomon Company Limited, 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 connec- tion with the transactions contemplated hereby based upon arrangements made by or on behalf of the Shareholder. (f) No Solicitation. The Shareholder shall not, in the capacity as a shareholder or otherwise, di- rectly or indirectly, solicit (including by way of fur- nishing information) or respond to any inquiries or the making of any proposal by any person or entity (other than Parent or any affiliate of Parent) concerning any merger, tender offer, exchange offer, sale of assets, sale of shares of capital stock or debt securities or similar transactions involving the Company or any Subsid- iary, division or operating or principal business unit of the Company, except as permitted by Sections 1.2(a) and 5.7 of the Merger Agreement. If the Shareholder receives any such inquiry or proposal, then the Shareholder shall promptly inform Parent of the existence thereof in the same manner set forth in Section 5.7 of the Merger Agree- ment. The Shareholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (g) Restriction on Transfer, Proxies and Non- Interference. Except as applicable in connection with the transactions contemplated by Section 2 hereof, the Shareholder shall not, directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any con- tract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, trans- fer, 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 agree- ment with respect to the Shares; or (iii) take any action that would make any representation or warranty of the Shareholder contained herein untrue or incorrect or have the effect of preventing or disabling the Shareholder from performing its obligations under this Agreement. Notwithstanding the foregoing, the Shareholder may (be- fore or after tendering Shares in the Offer) transfer all or part of its interests in all or some of the Shares to a charitable organization, grantor retained annuity trust, charitable remainder trust or similar entity, as long as such recipient agrees in writing to be bound by the terms of this Agreement. (h) Reliance by Parent. The Shareholder understands and acknowledges that Parent is entering into, and causing Purchaser to enter into, the Merger Agreement in reliance upon the Shareholder's execution and delivery of this Agreement. (i) Further Assurances. From time to time, at the other party's request and without further consider- ation, 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. 6. Stop Transfer. The Shareholder agrees with, and covenants to, Parent that the Shareholder 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 (in- cluding 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 divi- dend, 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. 7. Termination. Except as otherwise provided herein, including, but not limited to, Section 4 hereof, the covenants and agreements contained herein with re- spect to the Shares shall terminate upon the termination of the Merger Agreement in accordance with its terms. 8. Confidentiality. The Shareholder recog- nizes 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 Shareholder hereby agrees not to disclose or 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 Share- holder 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. 9. 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 Shareholder 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 other- wise, including, without limitation, the Shareholder's heirs, distributees, guardians, administrators, execu- tors, legal representatives, or successors or other transferees (for value or otherwise) and any other suc- cessors in interest. Notwithstanding any transfer of Shares, the transferor shall remain liable for the per- formance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party, provided that Parent may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Parent of its obligations hereunder if such assignee does not perform such obligations. (d) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execu- tion and delivery of a written agreement executed by the parties hereto. (e) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if given) by hand delivery or telecopy (with a confirmation copy sent for next day delivery via courier service, such as Federal Express), or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to Shareholder or Mrs. Robinson: Mrs. Aviva Robinson 1589 Kirkway Bloomfield Hills, MI 48013 Telephone No.: Telecopy No.: copy to: Ira J. Jaffe, Esq. Jaffe, Raitt, Heuer & Weiss, Professional Corporation Suite 2400 One Woodward Avenue Detroit, Michigan 48228 Telephone No.: (313) 961-8380 Telecopy No.: (313) 961-8358 If to Parent: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Attention: General Counsel Telephone No.: (717) 761-2633 Telecopy No.: (717) 975-5952 copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Telephone No.: (212) 735-3000 Telecopy No.: (212) 735-2001 Attention: Nancy A. Lieberman, Esq. 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 por- tion 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. (j) No Third Party Beneficiaries. This Agree- ment 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 princi- ples of conflicts of law thereof. (l) Jurisdiction. Each party hereby irrevoca- bly submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware or the United States District Court for the Southern District of New York or any court of the State of New York located in the City of New York 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 conve- niens 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 jurisdic- tion of said Courts or in the States of Delaware or New York 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 exe- cuted 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. IN WITNESS WHEREOF, Parent, the Shareholder and Mrs. Robinson have caused this Agreement to be duly exe- cuted as of the day and year first above written. RITE AID CORPORATION By:/s/ Martin L. Grass Name: Martin L. Grass Title: President and Chief Operating Officer LAKE ACQUISITION CORPORATION By:/s/ Martin L. Grass Name: Martin L. Grass Title: Vice President By:/s/ Aviva Robinson Aviva Robinson, Trustee By:/s/ Aviva Robinson Aviva Robinson, Beneficiary By:/s/ Aviva Robinson Aviva Robinson, Grantor /s/ Aviva Robinson Aviva Robinson EX-99.(C)(4) 14 CONSULTING AGREEMENT Exhibit 99.(c)(4) CONFORMED COPY CONSULTING AGREEMENT CONSULTING AGREEMENT, dated as of December 23, 1994, between Rite Aid Corporation, a Delaware corporation (the "Company"), and Jack A. Robinson (the "Executive"). WHEREAS, the Executive is currently employed by Perry Drug Stores, Inc. ("Perry") as President, Chief Executive Officer and Chairman of the Board of Directors of Perry; WHEREAS, pursuant to the Agreement and Plan of Merger by and among the Company, Lake Acquisition Corpo- ration, a Delaware Corporation and a wholly owned subsid- iary of the Company (the "Subsidiary"), and Perry, dated as of December 23, 1994 (the "Merger Agreement"), the Subsidiary will commence a tender offer (the "Offer") for all outstanding shares of Common Stock, par value $.05 per share (the "Shares"), of the Company and will there- after merge with Perry in a merger and thereafter the surviving corporation will be referred to as the "Employ- er" hereunder; and WHEREAS, the Company desires to induce the Executive after the consummation of the Offer (the "Effective Date") to act as a consultant to the Company and the Executive desires to commit himself to act as a consul- tant to the Company. NOW THEREFORE, in order to effect the foregoing, the Company and the Executive wish to enter into a consulting agreement upon the terms and subject to the conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term and Services to be Provided. Com- mencing on the Effective Date and continuing until the tenth anniversary thereof (the "Term"), the Executive agrees to provide consulting services to the Company from time to time at the reasonable request of the Company. Such consulting services shall consist of advising the Company and the Employer with respect to general business matters, issues and strategies relating to the Company's business, including issues concerning real estate and community, governmental and industry relations. For one year following the Effective Time, the Executive will serve as President of Rite Aid of Michigan, Inc. Such services shall be rendered from the Detroit, Michigan metropolitan area, and the Executive shall not be re- quired to travel substantially to render such services. In the event that the Offer is not consummated prior to June 1, 1995 (or if the Offer or Merger Agreement is earlier terminated), this Consulting Agreement shall be cancelled and shall be of no force or effect. 2. Compensation. (a) During the Term, the Company shall pay the Executive consulting fees at the rate of $225,000 per annum, payable in arrears on a semi-monthly basis. (b) In addition to the cash compensation specifically provided under this Consulting Agreement, during the Term, the Company shall provide or make avail- able to the Executive and his spouse at the Company's ex- pense the same medical, health and life insurance plans or coverage as the Executive currently enjoys, or plans or programs providing the Executive and his spouse with at least substantially equivalent benefits. (c) Commencing on the Effective Date until the second anniversary thereof, the Company shall provide the Executive with the same perquisites that Perry currently provides to him; provided, however, that the Company's obligation to provide the Executive with one of the two cars currently provided to him by Perry and the accompanying driver shall expire on the first anniversary of the Effective Date. (d) Commencing on the Effective Date until the second anniversary thereof, the Company shall provide the Executive with office space in the Detroit, Michigan metropolitan area and related support services that, in the Company's and the Executive's mutual reason- able judgment, are adequate for the performance of his duties hereunder. (e) Commencing on the Effective Date until the fifth anniversary thereof, the Company shall pay all reasonable registration, travel and lodging ex- penses incurred by the Executive and his spouse related to the Executive's serving as one of the representatives of the Company at the National Association of Chain Drug Stores ("NACDS") annual convention and at up to three mid-year meetings of the NACDS (or its board of direc- tors) per calendar year. (f) Any payments made hereunder shall be made subject to applicable federal, state and local withholding obligations. In addition to the compensation described in Section 2(a) of this Consulting Agreement, the Company, promptly following receipt of appropriate documentation, shall reimburse the Executive for the rea- sonable ordinary and necessary business expenses that he incurs in connection with rendering services under this Consulting Agreement. Except as otherwise provided in this Section 2(f) and in this Consulting Agreement, all payments and other benefits hereunder (including pursuant to Section 3 hereof) shall be made without set-off for any reason whatever. 3. Termination. (a) Death. The Executive's consulting relationship with the Company hereunder shall terminate upon his death, provided that, if the Executive dies during the Term, the Company shall pay to the beneficiary as shall be designated by the Executive by written notice to the Company, the compensation provided in Section 2(a) hereof, that would have been paid to Executive hereunder for the remainder of the Term. Such compensation shall be paid in semi-monthly installments of substantially equal amounts. In addition, the Company shall provide to the Executive's spouse the benefits provided in Section 2(b) hereof for the remainder of the Term. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, Executive shall be unable to perform the consulting services described herein for a continuous period of six months, the Company may terminate the Executive's con- sulting relationship with the Company. In such event, the Executive shall receive the compensation provided in Section 2(a) hereof in semi-monthly installments of substantially equal amounts and the Executive and his spouse shall receive the benefits provided in Section 2(b) hereof for the remainder of the Term. 4. Noncompetition; Confidentiality. (a) The Executive agrees that during the Term and for five years following termination of his services as a consultant hereunder, he will not: (i) directly or indirectly, either as owner, partner, officer, employee, agent or consultant or in any other capacity, engage in or be employed in any way by any business that is competi- tive with the business of the Company and/or the Employer (and their subsidiaries and affiliates) then being conducted in any locality or region in North America; (ii) whether for his own account or for the account of any other person, willfully and intentionally interfere with the relationship of the Company and/or the Employer (or any of their subsid- iaries or affiliates) with any person who at any time during the Term was an employee, customer or supplier of, or in the habit of dealing with, the Company, the Employer and/or any of their subsidiar- ies or affiliates; provided, however, that the Executive may own up to five percent of any class of stock of a publicly-traded compa- ny. (b) The Executive recognizes and acknowl- edges that, either during or after the Term, the Execu- tive will not, except as may otherwise be required by law, directly or indirectly, willfully or knowingly dis- close or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, or willfully or knowingly use or cause to be used in any manner adverse to the interests of the Em- ployer or the Company any Confidential Information (as defined below). The Executive agrees that, upon termina- tion of services as a consultant of the Company, all Confidential Information in his possession that is in written or other tangible form (together with all copies or duplicates thereof) shall forthwith be returned to the Company and shall not be retained by the Executive or furnished to any third party, either by sample, facsimi- le, film, audio or video cassettes, electronic data, verbal communication or any other means of communication; provided, however, that the Executive shall not be obli- gated to treat as confidential, or return to the Company copies of, any Confidential Information that (1) was publicly known at the time of disclosure to the Execu- tive, (2) becomes publicly known or available thereafter other than by any means in violation of this Consulting Agreement or (3) is lawfully disclosed to the Executive by a third party. (c) In the event that the Executive is requested or required (by oral questions, interrogato- ries, requests for information or documents, subpoena, Civil Investigative Demand or similar process) to dis- close any Confidential Information, it is agreed that the Executive will provide the Company with prompt notice of such request(s) so that it may seek an appropriate pro- tective order and/or waive the Executive's compliance with the provisions of this Consulting Agreement. It is further agreed that if, in the absence of a protective order or the receipt of a waiver hereunder, the Executive is nonetheless, in the reasonable opinion of his counsel, compelled to disclose information concerning the Company to any court or governmental agency or authority or to a civil litigant or any other party or else stand liable for contempt or suffer other censure or penalty, the Executive may disclose such information to such tribunal without liability hereunder. (d) As used in this Consulting Agreement the term "Confidential Information" means: (i) information disclosed to Execu- tive or known by the Executive as a consequence of or through his relationship with the Employer or the Company not generally known in the pharmaceutical industry, advertising, public affairs, lobbying, or public relations businesses, about the Employer or the Company or the Employer's or the Company's cli- ents, advertising methods, public relations methods, business methods, organization, procedures or fi- nances, including, without limitation, information of or relating to the pharmaceutical industry, advertising programs, advertising copy, advertising techniques, art work, designs, contracts, arrange- ments, research, trade secrets, information regard- ing trademarks or other intellectual property rights, customer lists, product and service lines, marketing data and any related or other technical, corporate or trade information; and (ii) information disclosed to the Executive or known by the Executive as a consequence of or through his relationship with the Employer or the Company, not generally known in the businesses in which the Employer's or the Company's clients are or may be engaged, about the products, processors, and services of the Employer's or the Company's clients, including, without limitation, information of or relating to the pharmaceutical industry, pub- licity, publications, media, research, development, inventions, manufacture, purchase, engineering, designs, methods, processes, analytical results and any related or other technical, corporate, profes- sional or trade information. (e) The Executive understands that the agreements contained in this Section 4 are necessary to protect, among other things, the trade secrets, propri- etary information, confidential information, customer and supplier lists and know-how by preventing the Executive from engaging in activities that would inherently create a risk of the Executive engaging in unfair trade practic- es. 5. Remedies; Cessation of Payment Obligation. (a) In the event of a claimed breach by the Executive of the terms of this Consulting Agreement, the Company shall, after giving the Executive notice and a reasonable opportunity to cure such claimed breach, be entitled to institute legal proceedings to obtain damages for any such breach, or to enforce the specific perfor- mance of Section 4 of this Consulting Agreement by the Executive and to enjoin the Executive from any further violation of Section 4. Only after the successful adju- dication resulting in a final, nonappealable judgment in favor of the Company or the Employer to the effect that the Executive has breached this Consulting Agreement, then all rights of the Executive under this Consulting Agreement shall immediately terminate and neither the Employer nor the Company shall thereafter have any obli- gation to pay any amounts to the Executive in connection with the obligations of the Employer or the Company under this Consulting Agreement or otherwise and the Company shall be entitled to exercise such remedies cumulatively or in conjunction with all other rights and remedies provided by law or in equity. The Executive acknowledg- es, however, that the remedies at law for any breach by him of the provisions of Section 4 may be inadequate and that the Company shall be entitled to injunctive relief against him in the event of any breach. (b) In the event that, prior to the purchase of Shares pursuant to the Offer, the Shares that are pledged to Michigan National Bank to secure the loan referenced in Section 9 of the Shareholders Agreement by and among the Company, the Subsidiary and the Executive, dated as of December 23, 1994, are not released from such pledge or are subject to any lien, encumbrance or securi- ty, the Company, in its sole discretion, shall be enti- tled to cease payment under this Consulting Agreement, and to withhold any amounts otherwise due hereunder until such time as all such Shares are delivered to the Company free and clear of all pledges, liens, security interests and encumbrances. 6. Litigation Expenses. In the event of any litigation in any action to enforce a right under this Consulting Agreement, each party hereto shall bear its own expenses. 7. Notice. For the purposes of this Con- sulting Agreement, notices, demands and all other commu- nications provided for in this Consulting Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Jack A. Robinson 1589 Kirkway Bloomfield Hills, MI 48013 with a copy to: Ira J. Jaffe, Esq. Jaffe, Raitt, Heuer & Weiss Professional Corporation One Woodward Avenue, Suite 2400 Detroit, MI 48226 If to the Employer or the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Attn: General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Nancy A. Lieberman, Esq. or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. Consultant's Independence and Discretion. (a) Nothing herein contained shall be construed to constitute the parties hereto as partners or as joint venturers, or either as agent of the other, or as employer and employee. By virtue of the relationship described herein, the Executive's relationship to the Company during the Term shall only be that of an indepen- dent contractor and the Executive shall perform all services pursuant to this Consulting Agreement as an independent contractor. (b) Subject only to such specific limita- tions as are contained in this Consulting Agreement, the manner, means, details or methods by which the Executive performs his obligations under this Consulting Agreement shall be solely within his discretion. 9. Modifications; Waiver Discharge. This Consulting Agreement is entered into between the Company and the Executive for the benefit of each of the Company and the Executive and for the benefit of the Employer. No provisions of this Consulting Agreement may be modi- fied, waived or discharged unless such waiver, modifica- tion or discharge is agreed to in writing signed by the Executive and the Company's Chief Executive Officer or such other officer as may be specifically designated by the Board of Directors of the Company. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Consulting Agreement to be performed by such other party shall be deemed a waiver of similar or dis- similar provisions or conditions at the same or at any prior or subsequent time. 10. Validity. The invalidity or u nenforceability of any provision or provisions of this Consulting Agreement shall not affect the validity or enforceability of any other provision of this Consulting Agreement, which shall remain in full force and effect; provided, however, that if any one or more of the terms contained in Section 4 hereto shall for any reason be held to be excessively broad with regard to time, dura- tion, geographic scope or activity, that term shall not be deleted but shall be reformed and construed in a manner to enable it to be enforced to the extent compati- ble with applicable law. 11. Entire Agreement. This Consulting Agree- ment sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warran- ties whether oral or written, by any officer, employee or representative of any party hereto, and any prior agree- ment of the parties hereto in respect of the subject matter contained herein is hereby terminated. No agree- ments or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party that are not set forth express- ly in this Consulting Agreement. 12. Assignment. This Consulting Agreement may not be assigned by the Executive, but may be assigned by the Company to any successor to its business and will inure to the benefit and be binding upon any such succes- sor. 13. Counterparts. This Consulting Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which to- gether will constitute one and the same instrument. 14. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Consulting Agreement. 15. Governing Law. The validity, interpreta- tion, construction and performance of this Consulting Agreement shall be governed by the laws of the State of Michigan without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed this Consulting Agreement on the date and year first above written. Rite Aid Corporation By:/s/ Martin L. Grass Name: Martin L. Grass Title: President and Chief Operating Officer /s/ Jack A. Robinson Jack A. Robinson EX-99.(C)(5) 15 CONFIDENTIALITY AGREEMENT Exhibit 99.(c)(5) [Letterhead of Peter J. Solomon Company Limited] CONFIDENTIALITY AGREEMENT December 14, 1994 PERSONAL AND CONFIDENTIAL Mr. Martin L. Grass President and Chief Operating Officer Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Dear Martin: In connection with your consideration of a possible transaction with Perry Drug Stores, Inc. (the "Company"), you will receive certain information from Peter J. Solomon Company Limited ("PJS") and the Company. Such information is either non-public, confidential or proprietary in nature. As a condition to your being furnished this information, you agree to treat all information concerning the Company which is furnished to you by or on behalf of the Company together with all analyses, compilations, studies or other documents, whether prepared by you or your agents, representatives (including attorneys, accountants and financial advisors) or employees, which contain or reflect such information (all of which is herein collectively referred to as the "Confidential Information") in accordance with the terms of this letter agreement. The term "Confidential Information" does not include information which (i) is already in your possession in written form, provided that such information is not known by you to be subject to another confidentiality agreement with or other obligation of confidentiality or secrecy to, the Company, (ii) is or becomes generally available to the public other than as a result of a disclosure by you, your directors, officers, employees, agents or representatives, or (iii) becomes available to you from a source other than the Company, or its agents or representatives, or PJS; provided that such source is not known by you to be bound by a confidentiality agreement or other obligation of confidentiality or secrecy. You hereby agree that the Confidential Information will not be used by you in any way detrimental to the Company. You also agree that you will not contact, either directly or indirectly, any director, officer or employee of the Company, any supplier or direct competitor of the Company, or any other party to discuss the business or assets or a potential transaction with or concerning the Company, without first obtaining the written consent of the Company. You also agree for a period of two years from the date hereof, not to solicit or hire any of the employees of the Company with whom you have had contact during the period of your investigation of the Company, without the prior written consent of the Company. You further agree that the Confidential Information will be used solely for the purpose set forth above, and that such information will be kept confidential by you and your agents and representatives; provided, however, that (i) any such information may be disclosed to your directors, officers, employees, agents and representatives who need to know such information for the purpose of evaluating any such possible transaction (it being understood that such directors, officers, employees, agents and representatives shall be informed by you of the confidential nature of such information), and (ii) any disclosure of such information may be made to which the Company or PJS consents in writing. You shall be responsible for any breach of this letter agreement by your directors, officers, employees, agents or representatives. In consideration of our furnishing you with Confidential Information, you also agree that for a period of one year from the date of this letter agreement, neither you nor any of your directors, officers, employees, agents or representatives will, without the prior written consent of the Company: (a) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the Company or any subsidiary thereof, or of any successor to or person in control of the Company, or any assets of the Company or any subsidiary or division thereof or of any such successor or controlling person; (b) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" to vote (as such terms are used in the rules of the Securities and Exchange Commission), or seek to advise or influence any person or entity with respect to the voting of any voting securities of the Company; (c) make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any extraordinary transaction involving the Company or its securities or assets; (d) seek or propose to influence or control the Company's management or policies (or request permission to do so); or (e) form, join or in any way participate in a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, in connection with any of the foregoing. You will promptly advise the Company of any inquiry or proposal made to you with respect to any of the foregoing. The above notwithstanding, none of the restrictions in subparagraphs (a), (b), (c), (d) or (e) will apply in the event that any third party makes an offer to purchase the assets of, or a controlling interest in the stock of, the Company. In the event that you or any of your directors, officers, employees, agents and representatives to whom any Confidential Information is disclosed is required by law to disclose any Confidential Information, it is agreed that you will provide the Company with prompt notice thereof so that the Company may seek an appropriate protective order and/or waive your or such person's compliance with the provisions hereof, but if in the absence of a protective order or the receipt of a waiver hereunder, you or such person is nonetheless, in the opinion of counsel, compelled to disclose Confidential Information or else stand liable for contempt or suffer other censure or penalty, you or such other person may disclose such information as is legally required to be disclosed without penalty hereunder. You will cooperate with the Company in its efforts to obtain any appropriate protective order. In addition, without the prior written consent of the Company, you will not, and will direct your directors, officers, employees, agents and representatives not to, disclose to any person either the fact that discussions or negotiations are taking place concerning a possible transaction with the Company, or any of the terms, conditions, or other facts with respect to such transaction, including the status thereof. The term "person" as used in this letter shall be broadly interpreted to include without limitation any corporation, company, group, partnership, or individual. You understand that the Company has engaged PJS to solicit proposals for a possible transaction with the Company and to advise the Company in connection with such proposals. You further acknowledge and agree that the Company expressly reserves the right in its sole discretion, for any reason or no reason, at any time and in any respect, with or without notice to any party, to reject any and all proposals, to terminate discussions with any or all prospective parties, to negotiate with any party with respect to any transaction involving the Company, and to consummate any such transaction. Upon request of the Company or PJS, you shall promptly redeliver to the Company or PJS the Confidential Information and will not retain any copies, extracts or other reproductions in whole or in part of such written material. All documents, memoranda, notes, and other writings whatsoever, prepared by you or your agents or representatives based on the information contained in the Confidential Information shall be destroyed and you will certify as to such destruction upon request. Although we have endeavored to includein the Confidential Information material known to us which we believe to be relevant for purpose of your investigation, you understand that we do not make any representation or warranty as to the accuracy or completeness of the Confidential Information. You agree that you shall assume full responsibility for all conclusions you derive from the Confidential Information and that neither the Company, PJS, nor any of their affiliates, shall have any liability to you or any of your agents or representatives resulting from your use of the Confidential Information. You agree that you shall be entitled to rely solely on the representations and warranties made to you in a final purchase agreement regarding a transaction that is executed by the Company. You agree that the Company shall be entitled to equitable relief, including injunction, in the event of a breach of this agreement. It is further understood and agreed that no failure or delay by the Company, in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power, or privilege. The Company reserves the rights to assign all rights underthis agreement to any entity that consummates a transaction involving the Company, including without limitation, the right to enforce all of the terms of this agreement. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. This agreement represents the entire agreement between the parties on the subject hereof and all prior agreements and understanding, whether oral or written, are superseded in their entirety by the terms hereof. If you are in agreement with the foregoing, please so indicate by signing and returning one copy of this letter, whereupon this letter will constitute our agreement with respect to the subject matter. Very truly yours, PERRY DRUG STORES, INC. By: /s/ Peter J. Solomon Peter J. Solomon Company Limited Financial Advisor CONFIRMED AND AGREED TO: RITE AID CORPORATION By: /s/ Martin L. Grass Title: President and Chief Operating Officer Date: -----END PRIVACY-ENHANCED MESSAGE-----