among

EXECUTION COPY

================================================================================

AGREEMENT AND PLAN OF MERGER

Dated as of October 27, 1996

among

REVCO D.S., INC.,

RDS ACQUISITION INC.

and

BIG B, INC.

================================================================================
2

TABLE OF CONTENTS

PAGE
----

ARTICLE I

The Offer
----------
SECTION 1.01. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

SECTION 1.02. Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE II

The Merger
----------

SECTION 2.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 2.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 2.03. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 2.04. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . 6

SECTION 2.05. Certificate of Incorporation and By-laws . . . . . . . . . . . . . 6

SECTION 2.06. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

SECTION 2.07. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE III

Effect of the Merger on the Capital Shares
------------------------------------------
of the Constituent Corporations; Exchange of Certificates
----------------------------------------------------------

SECTION 3.01. Effect on Capital Shares . . . . . . . . . . . . . . . . . . . . . 7

SECTION 3.02. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . 8

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PAGE
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ARTICLE IV

Representations and Warranties
------------------------------

SECTION 4.01. Representations and Warranties of the Company . . . . . . . . . . . 9

SECTION 4.02. Representations and Warranties of Parent and Sub . . . . . . . . . 20

ARTICLE V

Covenants Relating to Conduct of Business
-----------------------------------------

SECTION 5.01. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . 22

SECTION 5.02. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VI

Additional Agreements
---------------------
SECTION 6.01. Shareholder Approval; Preparation of Proxy
Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 6.02. Access to Information; Confidentiality . . . . . . . . . . . . . . 28

SECTION 6.03. Best Efforts; Notification . . . . . . . . . . . . . . . . . . . . 28

SECTION 6.04. Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 29

SECTION 6.05. Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

SECTION 6.06. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

SECTION 6.07. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 31

SECTION 6.08. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

SECTION 6.09. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 32

SECTION 6.10. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 33

SECTION 6.11. Dismissal of Litigation . . . . . . . . . . . . . . . . . . . . . . 33

SECTION 6.12. Shareholder Litigation . . . . . . . . . . . . . . . . . . . . . . 34

4
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PAGE
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ARTICLE VII

Conditions Precedent
--------------------
SECTION 7.01. Conditions to Each Party's Obligations To Effect the Merger . . . . 34

SECTION 7.02. Conditions to Obligations of Parent and Sub . . . . . . . . . . . . 34

ARTICLE VIII

Termination, Amendment and Waiver
----------------------------------

SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

SECTION 8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 8.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 8.04. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver . . . . . 37

ARTICLE IX

General Provisions
------------------

SECTION 9.01. Nonsurvival of Representations and Warranties . . . . . . . . . . . 37

SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

SECTION 9.03. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION 9.04. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION 9.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . 40

SECTION 9.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 9.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 9.09. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

5
4

EXHIBITS

Exhibit A Conditions to the Offer
Exhibit B Form of Section 2.01(a) Plan of Merger
Exhibit C Form of Section 2.01(b) Plan of Merger
6
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AGREEMENT AND PLAN OF MERGER dated as of October 27, 1996,
among REVCO D.S., INC., a Delaware corporation ("Parent"), RDS
ACQUISITION INC., a Delaware corporation ("Sub") and a wholly
owned subsidiary of Parent, and BIG B, INC., an Alabama
corporation (the "Company").

WHEREAS Sub has outstanding an offer (the "Existing Offer",
and, as amended from time to time in accordance with this Agreement, the
"Offer") to purchase all the outstanding shares of Common Stock, par value
$0.001 per share, of the Company (the "Common Stock"; the Common Stock and the
associated common stock purchase rights (the "Rights") issued pursuant to the
Rights Agreement dated as of September 23, 1996 (as amended from time to time,
the "Rights Agreement"), being hereinafter collectively referred to as the
"Shares"), upon the terms and subject to the conditions set forth in the Offer
to Purchase dated September 10, 1996, and in the related letter of transmittal;

WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, Sub and certain directors and officers of the Company who
hold Shares and certain related entities holding Shares are entering into a
support agreement (the "Support Agreement" and, together with this Agreement,
the "Operative Agreements");

WHEREAS the Board of Directors of the Company has (i)
determined that the Offer and the Merger (as defined below) are fair to and in
the best interests of the shareholders of the Company, (ii) approved (1) the
acquisition of the Company by Parent on the terms and subject to the conditions
set forth in this Agreement and (2) the transactions contemplated by the
Operative Agreements, (iii) adopted this Agreement, including the appropriate
Plan of Merger contained herein, and (iv) resolved to recommend acceptance of
the Offer and the Merger and approval of this Agreement, including the
appropriate Plan of Merger contained herein, by such shareholders;

WHEREAS the respective Boards of Directors of Parent, Sub and
the Company have approved the merger of Sub into the Company, or the Company
into Sub, at the election of Parent as set forth below (the "Merger"), upon the
terms and subject to the conditions set forth in this Agreement, whereby each
issued and outstanding Share not owned directly or indirectly by Parent or the
Company, except Shares held by persons who object to the Merger and comply with
all the provisions of Alabama law concerning the right of holders of Shares to
dissent from the Merger and obtain payment of the fair value of their Shares
("Dissenting Shareholders"), will be converted into the right to receive the
per share consideration paid pursuant to the Offer; and

WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
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NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

The Offer

SECTION 1.01. The Offer. (a) Subject to the provisions of
this Agreement, as promptly as practicable after the date of this Agreement,
Sub shall, and Parent shall cause Sub to, amend the Existing Offer to reflect
the terms and conditions of this Agreement, including the purchase price of
$17.25 per Share (and associated Right), net to the seller in cash, without
interest thereon (the "Offer Price"), and to set November 15, 1996 (the
"Initial Expiration Date"), as the expiration date for the Offer. The
obligation of Sub to, and of Parent to cause Sub to, accept for payment, and
pay for, any Shares tendered pursuant to the Offer shall be subject only to the
conditions set forth in Exhibit A. Sub expressly reserves the right to modify
any term, or modify or waive any condition, of the Offer, except that, without
the consent of the Company (unless the Company takes any action permitted to be
taken pursuant to Section 5.02(b)), Sub shall not (i) reduce the number of
Shares subject to the Offer, (ii) reduce the price per Share to be paid
pursuant to the Offer, (iii) modify, in any manner adverse to the holders of
Shares, or add to the conditions set forth in Exhibit A, (iv) extend the Offer,
(v) change the form of consideration payable in the Offer or (vi) reduce or
waive the Minimum Tender Condition (as defined in Exhibit A). Notwithstanding
the foregoing, Sub may, without the consent of the Company, (i) extend the
Offer, if at the scheduled expiration date of the Offer any of the conditions
to Sub's obligation to purchase Shares shall not be satisfied, until such time
as such conditions are satisfied or waived, (ii) extend the Offer for a period
of not more than 10 business days beyond the Initial Expiration Date, if on the
date of such extension less than 80% of the outstanding Shares on a fully
diluted basis have been validly tendered and not properly withdrawn pursuant to
the Offer, and (iii) extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange
Commission (the "SEC") or the staff thereof applicable to the Offer. Without
limiting the right of Sub to extend the Offer pursuant to the immediately
preceding sentence, in the event that (i) the Minimum Tender Condition has not
been satisfied or (ii) any condition set forth in paragraph (a) of Exhibit A is
not satisfied at the scheduled expiration date of the Offer, Sub shall, and
Parent shall cause Sub to, extend the expiration date of the Offer in
increments of five business days each until the earliest to occur of (x) the
satisfaction or waiver of the Minimum Tender Condition and such other condition
or Parent reasonably determines that any condition to the Offer is not capable
of being satisfied on or prior to December 24, 1996, (y) the termination of
this Agreement in accordance with its terms and (z) December 24, 1996;
provided, however, that if any person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) has publicly made a Takeover Proposal (as defined below) or disclosed in
writing its intention to make a Takeover Proposal, Sub shall not be required
pursuant to this sentence to extend the Offer for more than 20 calendar days
beyond the date on which such Takeover Proposal was publicly announced or such
intention was disclosed if at the end of
8
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such 20 calendar day period such Takeover Proposal shall not have then been
withdrawn and the Minimum Tender Condition shall not then have been satisfied.
On the terms and subject to the conditions of the Offer, Sub shall, and Parent
shall cause Sub to, accept for payment, and pay for, all Shares validly
tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to
accept for payment, and pay for, pursuant to the Offer as soon as practicable
after the expiration of the Offer.

(b) As soon as reasonably practicable after the date hereof,
Parent and Sub shall amend its Tender Offer Statement on Schedule 14D-1 and
Statement on Schedule 13D (the "Schedule 14D-1") with respect to the Offer that
was originally filed on September 10, 1996, and shall file such amendment (the
"14D-1 Amendment") with the SEC. The Schedule 14D-1 shall contain a supplement
to the Offer to Purchase dated September 10, 1996, and a revised form of the
related letter of transmittal and summary advertisement (which Schedule 14D-1,
Offer to Purchase and other related documents, as amended and supplemented,
together with any further supplements or amendments thereto, are herein
collectively referred to as the "Offer Documents"), which shall be mailed to
holders of Shares. The Offer Documents shall comply as to form in all material
respects with the requirements of the Exchange Act, and the rules and
regulations promulgated thereunder, and the Offer Documents, which shall be
mailed to holders of Shares, on the date filed with the SEC and on the date
first published, sent or given to the Company's shareholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Parent or Sub with respect
to information supplied by the Company for inclusion in the Offer Documents.
Each of Parent, Sub and the Company shall promptly correct any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
each of Parent and Sub shall take all steps necessary to amend or supplement
the Offer Documents and to cause the Offer Documents as so amended or
supplemented to be filed with the SEC and to be disseminated to the Company's
shareholders, in each case as and to the extent required by applicable Federal
securities laws. Parent and Sub shall provide the Company and its counsel in
writing with any comments Parent, Sub or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly after the receipt of
such comments.

(c) Parent shall provide or cause to be provided to Sub on a
timely basis the funds necessary to purchase any Shares that Sub becomes
obligated to purchase pursuant to the Offer.

SECTION 1.02. Company Actions. (a) Subject to Section
5.02(b), the Company hereby approves of and consents to the Offer and
represents that the Board of Directors of the Company, at a meeting duly called
and held, has unanimously duly adopted this Agreement, including the
appropriate Plan of Merger contained herein, approved the Offer and the Merger,
determined that the Offer and the Merger are fair to and in the best interests
of the Company's shareholders and recommended that the Company's shareholders
accept the Offer
9
4

and tender their shares pursuant to the Offer and approve this Agreement and
the appropriate Plan of Merger contained herein. The Company represents that
its Board of Directors have received the opinion of The Xxxxxxxx-Xxxxxxxx
Company, Inc. ("R-H") that, as of the date of such opinion, the proposed
consideration to be received by the holders of Shares pursuant to the Offer and
the Merger is fair to such holders from a financial point of view, and a
complete and correct signed copy of such opinion has been delivered by the
Company to Parent. The Company has been advised by each of its directors and
executive officers that such person intends to tender all Shares owned by such
person pursuant to the Offer, except to the extent that such tender could give
rise to "short-swing" profits under Section 16 of the Exchange Act.

(b) On the date the 14D-1 Amendment is filed with the SEC,
the Company shall file with the SEC a supplement to its
Solicitation/Recommendation Statement on Schedule 14D-9 originally filed on
September 23, 1996, with respect to the Offer (such Schedule 14D-9, as amended
from time to time, the "Schedule 14D-9") containing the recommendations
described in Section 1.02(a) and shall mail the Schedule 14D-9 to the
shareholders of the Company. The Schedule 14D-9 shall comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder and, on the date filed with the SEC and on
the date first published, sent or given to the Company's shareholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Company with
respect to information supplied by Parent or Sub for inclusion in the Schedule
14D-9. Each of the Company, Parent and Sub shall promptly correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company shall take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented to be filed with the SEC and disseminated to the Company's
shareholders, in each case as and to the extent required by applicable Federal
securities laws. The Company shall provide Parent and its counsel in writing
with any comments the Company or its counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments.

(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Sub promptly with mailing labels containing the names
and addresses of the record holders of Shares as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies
of all lists of shareholders, security position listings and computer files and
all other information in the Company's possession or control regarding the
beneficial owners of Shares, and shall furnish to Sub such information and
assistance (including updated lists of shareholders, security position listings
and computer files) as Parent may reasonably request in communicating the Offer
to the Company's shareholders.
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ARTICLE II

The Merger

SECTION 2.01. The Merger. (a) Unless Parent elects to merge
the Company into Sub in accordance with Section 2.01(b), upon the terms and
subject to the conditions set forth in this Agreement, and in accordance with
the Delaware General Corporation Law (the "DGCL") and the Alabama Business
Corporation Act (the "ABCA"), Sub shall be merged with and into the Company at
the Effective Time of the Merger (as defined in Section 2.03). Following a
merger pursuant to this Section 2.01(a), the separate corporate existence of
Sub shall cease and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights
and obligations of Sub in accordance with the DGCL and the ABCA.

(b) If (i) (x) Parent or Sub owns 80% or more of all
outstanding Shares after the expiration of the Offer and Parent elects to
effect the Merger pursuant to Section 11.04 of the ABCA or (y) Parent otherwise
elects and (ii) Parent reasonably determines that such election will result in
the Merger being effected no later than the time the Merger would be effected
if Sub were merged into the Company pursuant to Section 2.01(a), upon the terms
and subject to the conditions set forth in this Agreement and in accordance
with the DGCL and the ABCA, the Company shall be merged with and into Sub at
the Effective Time of the Merger. Following a Merger pursuant to this Section
2.01(b), the separate corporate existence of the Company shall cease and Sub
shall continue as the Surviving Corporation and shall succeed to and assume all
the rights and obligations of the Company in accordance with the DGCL and the
ABCA. Any election by Parent to effect the Merger pursuant to this Section
2.01(b) shall be made in writing prior to the approval by the shareholders of
the Company of this Agreement and the appropriate Plan of Merger included
herein.

(c) Notwithstanding the foregoing, at the election of Parent,
any direct or indirect subsidiary of Parent may be substituted for Sub as a
constituent corporation in the Merger by delivery of written notice to that
effect naming the subsidiary to be so substituted.

(d) If the Merger is effected pursuant to Section 2.01(a),
the Plan of Merger shall be the Plan of Merger attached hereto as Exhibit B.
If the Merger is effected pursuant to Section 2.01(b), the Plan of Merger shall
be the Plan of Merger attached hereto as Exhibit C.

SECTION 2.02. Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m. on a date to be specified by the
parties, which (subject to satisfaction or waiver of the conditions set forth
in Section 7.02 shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Section 7.01
11
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(the "Closing Date"), at the offices of Cravath, Swaine & Xxxxx, Worldwide
Plaza, 000 Xxxxxx Xxxxxx, Xxx Xxxx, X.X. 00000, unless another date or place is
agreed to in writing by the parties hereto.

SECTION 2.03. Effective Time. As soon as practicable
following the satisfaction or waiver of the conditions set forth in Article
VII, the parties shall file a certificate or articles of merger and other
appropriate documents, including, if the Merger is to be effected pursuant to
Section 2.01(a), a Plan of Merger in the form attached hereto as Exhibit B and,
if the Merger is to be effected pursuant to Section 2.01(b), a Plan of Merger
in the form attached hereto as Exhibit C (collectively, the "Certificates of
Merger") executed in accordance with the relevant provisions of the DGCL and
the ABCA, and the parties shall make all other filings or recordings required
under the DGCL and the ABCA. The Merger shall become effective at such date
and time as the Certificates of Merger are duly filed with the Delaware
Secretary of State and the Alabama Secretary of State, or at such other later
time as Sub and the Company (by mutual agreement) shall specify in the
Certificates of Merger (the time the Merger becomes effective being the
"Effective Time of the Merger").

SECTION 2.04. Effects of the Merger. The Merger shall have
the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA.

SECTION 2.05. Certificate of Incorporation and By-laws. (a)
Unless Parent elects to merge the Company into Sub pursuant to Section 2.01(b),
the Articles (Certificate) of Incorporation of the Company, as in effect
immediately prior to the Effective Time of the Merger, shall be amended as of
the Effective Time of the Merger so that the first paragraph of Article IV of
such Articles (Certificate) of Incorporation reads in its entirety as follows:
"The total number of shares of all classes of stock that the corporation shall
have authority to issue is 1,000 shares, par value $0.001 per share." and, as
so amended, shall be the Articles (Certificate) of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.

(b) If Parent elects to merge the Company into Sub pursuant
to Section 2.01(b)(i), the Certificate of Incorporation of Sub, as in effect
immediately prior to the Effective Time of the Merger, shall be the Certificate
of Incorporation of the Surviving Corporation. If Parent elects to merge the
Company into Sub pursuant to Section 2.01(b)(ii), unless the Merger is effected
pursuant to Section 11.04 of the ABCA, the Certificate of Incorporation of Sub,
as in effect immediately prior to the Effective Time of the Merger, shall be
amended as of the Effective Time of the Merger to change the name of Sub to
"Big B, Inc." and, as so amended, such Certificate of Incorporation shall be
the Certificate of Incorporation of the Surviving Corporation.

(c) If (i) the Merger is effected pursuant to Section
2.01(a), the By-laws of the Company as in effect at the Effective Time of the
Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law or (ii) the Merger
is effected pursuant to Section 2.01(b), the By-laws of Sub
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as in effect at the Effective Time of the Merger shall be the By-laws of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.

SECTION 2.06. Directors. Regardless of whether the Merger is
effected pursuant to Section 2.01(a) or 2.01(b), the directors of Sub at the
Effective Time of the Merger shall be the directors of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

SECTION 2.07. Officers. Regardless of whether the Merger is
effected pursuant to Section 2.01(a) or 2.01(b), the officers of the Company at
the Effective Time of the Merger shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

ARTICLE III

Effect of the Merger on the Capital Shares of the
Constituent Corporations; Exchange of Certificates

SECTION 3.01. Effect on Capital Shares. As of the Effective
Time of the Merger, by virtue of the Merger and without any action on the part
of the holder of any Shares or any shares of capital stock of Sub:

(a) Capital Stock of Sub. Each issued and outstanding share
of the capital stock of Sub shall be converted into and become one
fully paid and nonassessable share of common stock of the Surviving
Corporation.

(b) Cancellation of Treasury Shares and Parent Owned Shares.
Each Share that is owned by the Company or by any subsidiary of the
Company and each Share that is owned by Parent, Sub or any other
subsidiary of Parent (together, in each case, with the associated
Right) shall automatically be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor.

(c) Conversion of Shares. Subject to Section 3.01(d), each
issued and outstanding Share (other than Shares to be cancelled in
accordance with Section 3.01(b)) together with the associated Right
shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, the Offer Price (the "Merger
Consideration"). As of the Effective Time of the Merger, all such
Shares (and the associated Rights) shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist,
and each holder of a certificate
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8

representing any such Shares (and the associated Rights) shall cease
to have any rights with respect thereto, except the right to receive
the Merger Consideration, without interest.

(d) Shares of Dissenting Shareholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding
Shares held by a Dissenting Shareholder shall not be converted as
described in Section 3.01(c) but shall become the right to receive
such consideration as may be determined to be due to such Dissenting
Shareholder pursuant to the laws of the State of Alabama; provided,
however, that the Shares (together with the associated Rights)
outstanding immediately prior to the Effective Time of the Merger and
held by a Dissenting Shareholder who shall, after the Effective Time
of the Merger, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to the ABCA, shall be deemed to be
converted as of the Effective Time of the Merger, into the right to
receive the Merger Consideration. The Company shall give Parent (i)
prompt notice of any written notices of any intent to demand payment
and any written demands for payment of Shares received by the Company
and (ii) the opportunity to direct all offers of payment, negotiations
and proceedings with respect to any such demands. The Company shall
not, without the prior written consent of Parent, voluntarily make any
payment with respect to, or settle, offer to settle or otherwise
negotiate, any such demands.

SECTION 3.02. Exchange of Certificates. (a) Paying Agent.
Prior to the Effective Time of the Merger, Parent shall select a bank or trust
company to act as paying agent (the "Paying Agent") for the payment of the
Merger Consideration upon surrender of certificates representing Shares.

(b) Parent to Provide Funds. Parent shall take all steps
necessary to enable and cause the Surviving Corporation to provide to the
Paying Agent, on a timely basis, as and when needed after the Effective Time of
the Merger, funds necessary to pay for the Shares pursuant to Section 3.01.

the Paying Agent, the holder of such Certificate shall be entitled to receive
in exchange therefor the amount of cash into which the Shares theretofore
represented by such Certificate shall have been converted pursuant to Section
3.01, and the Certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of Shares that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.02, each Certificate shall be
deemed at any time after the Effective Time of the Merger to represent only the
right to receive upon such surrender the amount of cash, without interest, into
which the Shares theretofore represented by such Certificate shall have been
converted pursuant to Section 3.01. No interest shall be paid or shall accrue
on the cash payable upon the surrender of any Certificate.

(d) No Further Ownership Rights in Common Stock. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates,
and there shall be no further registration of transfers on the share transfer
books of the Surviving Corporation of the Shares that were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article
III.

(e) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to five
years after the Effective Time of the Merger (or immediately prior to such
earlier date on which any payment pursuant to this Article III would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 4.01(d)), the payment in respect of such Certificate shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
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ARTICLE IV

Representations and Warranties

SECTION 4.01. Representations and Warranties of the Company.
The Company represents and warrants to Parent and Sub as follows:

(a) Organization, Standing and Corporate Power. Each of the
Company and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing or in
good standing or to have such power and authority would not,
individually or in the aggregate, have a material adverse effect on
the Company. Except as disclosed in Section 4.01(a) of the letter
dated the date of this Agreement and delivered to Parent and Purchaser
concurrently with this Agreement (the "Company Disclosure Letter"),
each of the Company and each of its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse
effect on the Company. The Company has delivered to Parent complete
and correct copies of its Articles (Certificate) of Incorporation and
By-laws and the comparable charter or organizational documents of its
Significant Subsidiaries, in each case as amended to the date of this
Agreement. For purposes of this Agreement, a "Significant Subsidiary"
means any subsidiary of the Company that constitutes a significant
subsidiary within the meaning of Rule 1-02 of Regulation S-X of the
SEC.

(b) Subsidiaries. Section 4.01(b) of the Company Disclosure
Letter lists each subsidiary of the Company. All the outstanding
shares of capital stock of each such subsidiary have been validly
issued and are fully paid and nonassessable and are owned by the
Company, by another subsidiary of the Company or by the Company and
another such subsidiary, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital shares of
its subsidiaries, the Company does not own, directly or indirectly,
any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity.

(c) Capital Structure. The authorized equity capital of the
Company consists of 100 million Shares. At the close of business on
October 24, 1996, (i) 18,757,034 Shares were issued and outstanding,
(ii) no Shares were held by the Company in its treasury, (iii)
1,000,000 Shares were reserved for issuance pursuant to, and 86,500
Shares were subject to outstanding options under, the Company's
Employee Stock Option Plan, (iv) not more than 3,299,180 Shares were
reserved for issuance
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and issuable upon conversion of the Company's 6.5% Convertible
Subordinated Debentures Due 2003 (the "Convertible Debentures"), and
(v) Shares reserved for issuance in connection with the Rights.
Except as set forth above, at the close of business on October 24,
1996, no capital shares or other voting securities of the Company were
issued, reserved for issuance or outstanding. There are no
outstanding SARs (as defined in Section 6.05) that were not granted in
tandem with a related Employee Option (as defined in Section 6.05).
All outstanding capital shares of the Company are, and all Shares that
may be issued pursuant to the Company's Employee Stock Option Plan
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are not any
bonds, debentures, notes or other indebtedness of the Company having
the right to vote (or, other than the Convertible Debentures,
convertible into, or exchangeable for, securities having the right to
vote) on any matters on which shareholders of the Company may vote.
Except as set forth above, as of the date of this Agreement, there are
not any securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them
is bound obligating the Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
capital shares or other voting securities of the Company or of any of
its subsidiaries or obligating the Company or any of its subsidiaries
to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are not any
outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any capital
shares of the Company or any of its subsidiaries. The Company has
delivered to Parent a complete and correct copy of the Rights
Agreement as amended and supplemented to the date of this Agreement.

(d) Authority; Noncontravention. The Company has the
requisite corporate power and authority to enter into this Agreement
and, subject in the case of the Merger to approval of this Agreement
by the holders of two-thirds of the outstanding Shares, to consummate
the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by the Operative Agreements
have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Merger, to approval
of this Agreement by the holders of two- thirds of the outstanding
Shares. This Agreement has been duly executed and delivered by the
Company and, assuming that this Agreement constitutes a valid and
binding obligation of Parent and Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms. The execution and delivery of the
Operative Agreements do not, and the consummation of the transactions
contemplated by the Operative Agreements and compliance with the
provisions of the Operative Agreements will not, conflict with, or
result in any violation of, or default (with or without notice or
lapse of time, or both) under, or
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give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of
the Company or any of its subsidiaries under, (i) the Articles
(Certificate) of Incorporation or By-laws of the Company or the
comparable charter or organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its
subsidiaries or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in
the case of clause (ii), (A) any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x)
have a material adverse effect on the Company, (y) impair the ability
of the Company to perform its obligations under this Agreement or (z)
prevent the consummation of any of the transactions contemplated by
the Operative Agreements, (B) any such conflicts, violations or
defaults under the Company's pharmacy, liquor and general business
licenses and any permits from the Federal Drug Administration relating
to controlled substances, (C) any such conflicts, violations or
defaults arising from the consummation of the Merger pursuant to
Section 2.01(b) that would not arise from consummation of the Merger
pursuant to Section 2.01(a), (D) the repurchase obligations of the
Company with respect to the Convertible Debentures and (E) any
defaults under the Company's bank credit agreement. No consent,
approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local government or any court,
administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation of the transactions
contemplated by the Operative Agreements, except for (i) the filing
with the SEC of (x) the Schedule 14D-9, (y) a proxy or information
statement relating to the approval by the Company's shareholders of
this Agreement, if such approval is required by law (as amended or
supplemented from time to time, the "Proxy Statement"), and (z) such
reports under Sections 13(a), 13(d) and 16 of the Exchange Act as may
be required in connection with the Operative Agreements and the
transactions contemplated by the Operative Agreements, (ii) the filing
of the Certificates of Merger with the Delaware Secretary of State and
the Alabama Secretary of State and appropriate documents with the
relevant authorities of other states in which the Company is qualified
to do business, (iii) consents, approvals, orders, authorizations,
declarations and filings, in each case in connection with pharmacy,
liquor and general business licenses and (iv) consents, approvals,
orders, authorizations, declarations and filings in connection with
permits from the Federal Drug Administration relating to controlled
substances.

(e) SEC Documents; Undisclosed Liabilities. The Company has
filed all required reports, schedules, forms, statements and other
documents with the SEC
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since January 29, 1995 (the "SEC Documents"). As of their respective
dates, (i) the SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933 (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading and (ii) the financial statements of the Company included
in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit
adjustments). Except to the extent that information contained in any
SEC Document has been revised or superseded by a later filed SEC
Document, none of the SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. Except as reflected, reserved against or otherwise
disclosed in the Filed SEC Documents (as defined below), neither the
Company nor any of its subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be set forth
on a consolidated balance sheet of the Company and its consolidated
subsidiaries or in the notes thereto and which, individually or in the
aggregate, could reasonably be expected to have a material adverse
effect on the Company.

(f) Information Supplied. None of the information supplied
or to be supplied by the Company for inclusion or incorporation by
reference in the Offer Documents, the Schedule 14D-9, the information
statement to be filed by the Company in connection with the Offer
pursuant to Rule 14f-1 promulgated under the Exchange Act (the
"Information Statement") or the Proxy Statement shall, in the case of
the Offer Documents, the Schedule 14D-9 and the Information Statement,
at the respective times the Offer Documents, the Schedule 14D-9 and
the Information Statement are filed with the SEC or first published,
sent or given to the Company's shareholders, or, in the case of the
Proxy Statement, at the time the Proxy Statement is first mailed to
the Company's shareholders or at the time of the meeting of the
Company's shareholders held to vote on approval and adoption of this
Agreement, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Schedule 14D-9, the
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14

Information Statement and the Proxy Statement shall comply as to form
in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or
warranty is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by
Parent or Sub for inclusion or incorporation by reference therein.

(g) Absence of Certain Changes or Events. Except as
disclosed in the SEC Documents filed and publicly available prior to
the date of this Agreement (the "Filed SEC Documents") and except as
set forth in Section 4.01(g) of the Company Disclosure Letter, from
the date of the most recent audited financial statements included in
the SEC Documents to the date of this Agreement, the Company has
conducted its business only in the ordinary course, and there has not
been (i) any material adverse change in the Company and its
subsidiaries taken as a whole, other than changes arising from general
economic or industry conditions, (ii) except for the regular quarterly
dividend of $0.05 per Share paid on September 13, 1996 to holders of
record on August 30, 1996, any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital shares, (iii)
any split, combination or reclassification of any of its capital
shares or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital shares, (iv) (x) any granting by the Company or
any of its subsidiaries to any executive officer of the Company or any
of its subsidiaries of any increase in compensation, except in the
ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the
most recent audited financial statements included in the Filed SEC
Documents, (y) any granting by the Company or any of its subsidiaries
to any such executive officer of any increase in severance or
termination pay, except as was required under employment, severance or
termination agreements in effect as of the date of the most recent
audited financial statements included in the Filed SEC Documents or
(z) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive
officer, (v) any damage, destruction or loss, whether or not covered
by insurance, that has or could have a material adverse effect on the
Company and its subsidiaries taken as a whole or (vi) any change in
accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may
have been required by a change in generally accepted accounting
principles.

(h) Litigation. Except as disclosed in the Filed SEC
Documents or in Section 4.01(h) of the Company Disclosure Letter,
there is no suit, action or proceeding pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
subsidiaries (and the Company is not aware of any basis for any such
suit, action or proceeding) that, individually or in the aggregate,
could reasonably be expected to (i) have a material adverse effect on
the Company, (ii) impair the ability of the Company to perform its
obligations under this
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Agreement, or (iii) prevent the consummation of any of the
transactions contemplated by the Operative Agreements, nor is there
any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any of its
subsidiaries having, or which, insofar as reasonably can be foreseen,
in the future would have, any such effect.

(i) Absence of Changes in Benefit Plans. Except as disclosed
in the Filed SEC Documents or in Section 4.01(i) of the Company
Disclosure Letter, since the date of the most recent audited financial
statements included in the Filed SEC Documents, there has not been any
adoption or amendment in any material respect by the Company or any of
its subsidiaries of any collective bargaining agreement or any bonus,
pension, salary reduction, profit sharing, deferred compensation,
incentive compensation, share ownership, share purchase, share option,
phantom share, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits to
any current or former employee, officer or director of the Company or
any of its subsidiaries (collectively, "Benefit Plans"). Except as
disclosed in the Filed SEC Documents, there exist no employment,
consulting, severance, termination or indemnification agreements,
arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director
of the Company or any of its subsidiaries.

(j) ERISA Compliance; No Excess Parachute Payments. (i) The
Company has delivered to Parent true, complete and correct copies of
(v) all Benefit Plans that are "employee pension benefit plans" (as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) (sometimes referred to herein as
"Pension Plans") and all Benefit Plans that are "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA) maintained, or
contributed to, by the Company or any of its subsidiaries for the
benefit of any current or former employees, officers or directors of
the Company or any of its subsidiaries, (w) each other Benefit Plan
(or, in the case of any unwritten Benefit Plans, descriptions
thereof), (x) the most recent summary plan description for each
Benefit Plan for which such summary plan description is required, (y)
each trust agreement and group annuity contract relating to any
Benefit Plan and (z) the most recent actuarial valuations relating to
each of the Pension Plans. Section 4.01(j) of the Company Disclosure
Letter sets forth a complete list of all Benefit Plans.

(ii) All Pension Plans that are intended to be tax qualified
have been the subject of determination letters from the Internal
Revenue Service to the effect that such Pension Plans are qualified
and exempt from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Internal Revenue Code of 1986, as amended (the
"Code"), and no such determination letter has been revoked nor, to the
knowledge of the Company, has revocation been threatened, nor has any
such Pension
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Plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely
affect its qualification.

(iii) No Pension Plan that the Company or any of its
subsidiaries maintains, or to which the Company or any of its
subsidiaries is obligated to contribute, other than any Pension Plan
that is a "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA; collectively, the "Multiemployer Pension Plans"),
had, as of the respective last annual valuation date for each such
Pension Plan, an "unfunded benefit liability" (as such term is defined
in Section 4001(a)(18) of ERISA), based on actuarial assumptions which
have been furnished to Parent. None of the Pension Plans has an
"accumulated funding deficiency" (as such term is defined in Section
302 of ERISA or Section 412 of the Code), whether or not waived. None
of the Company, any of its subsidiaries, any officer of the Company or
any of its subsidiaries or any of the Benefit Plans which are subject
to ERISA, including the Pension Plans, any trusts created thereunder
or any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject the Company, any of its subsidiaries
or any officer of the Company or any of its subsidiaries to the tax or
penalty on prohibited transactions imposed by such Section 4975 or to
any liability under Section 502(i) or (1) of ERISA, other than any
such taxes, penalties or liabilities that have been satisfied in full
or that would not, either individually or in the aggregate, have a
material adverse effect on the Company. Neither any of such Benefit
Plans nor any of such trusts has been terminated, nor has there been
any "reportable event" (as that term is defined in Section 4043 of
ERISA) with respect thereto, during the last five years, which
termination or event would have a material adverse effect on the
Company. Neither the Company nor any of its subsidiaries has suffered
or otherwise caused a "complete withdrawal" or a "partial withdrawal"
(as such terms are defined in Section 4203 and Section 4205,
respectively, of ERISA), the liability with respect to which has not
been satisfied in full, since the effective date of such Sections 4203
and 4205 with respect to any of the Multiemployer Pension Plans.

(iv) With respect to any Benefit Plan that is an employee
welfare benefit plan (x) no such Benefit Plan is unfunded or funded
through a "welfare benefits fund", as such term is defined in Section
419(e) of the Code, (y) each such Benefit Plan that is a "group health
plan", as such term is defined in Section 5000(b)(1) of the Code,
complies in all material respects with the applicable requirements of
Section 4980B(f) of the Code and (z) each such Benefit Plan (including
any such Plan covering retirees or other former employees), other than
the Company's Continuity and Deferred Compensation Agreements, may be
amended or terminated without material liability to the Company or any
of its subsidiaries on or at any time after the consummation of the
Offer.
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(v) Any amount that is permitted to be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by the Operative Agreements by any employee,
officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed
Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit
Plan currently in effect pursuant to the terms thereof would not be
characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code). The Company has delivered
to Parent the information the Company used in verifying the accuracy
of the preceding sentence, including (i) the amount that is currently
expected to be paid to each employee, officer or director of the
Company as a result of the transactions contemplated by the Operative
Agreements under all employment, severance and termination agreements,
other compensation arrangements and Benefit Plans currently in effect
and (ii) the approximate "base amount" (as such term is defined in
Section 280G(b)(3) of the Code) for each such person calculated as of
the date of this Agreement, subject to the assumptions set forth in
such information the Company delivered to Parent.

(k) Taxes. Each of the Company and each of its subsidiaries
has filed all tax returns and reports required to be filed by it and
has paid (or the Company has paid on its behalf) all taxes shown to be
due thereon and the most recent financial statements contained in the
Filed SEC Documents reflect an adequate reserve for all taxes payable
by the Company and its subsidiaries for all taxable periods and
portions thereof through the date of such financial statements. No
deficiencies for any taxes have been proposed, asserted or assessed
against the Company or any of its subsidiaries that would in the
aggregate have a material adverse effect on the Company, and no
requests for waivers of the time to assess any such taxes are pending.
The Federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns have been examined by and
settled with the United States Internal Revenue Service for all years
through 1993. As used in this Agreement, "taxes" means all Federal,
state, local and foreign income, property, sales, excise and other
taxes, tariffs or governmental charges of any nature whatsoever.

(l) Labor Matters. The Company has made available to Parent
copies of all collective bargaining agreements, contracts or other
agreements or understandings with a labor union or labor organization
to which the Company or any of its subsidiaries is a party or by which
any of them is bound. There is no unfair labor practice or labor
arbitration proceeding pending or, to the knowledge of the Company,
threatened against the Company or its subsidiaries relating to their
business, except for any such proceeding which would not have,
individually or in the aggregate, a material adverse effect on the
Company. To the knowledge of the Company, there are no organizational
efforts with respect to the formation of a collective bargaining unit
presently being made or threatened involving employees of the Company
or any of its subsidiaries.
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(m) Voting Requirements. No vote of any holders of any
securities of the Company is required to consummate the Offer or
approve the Operative Agreements or any of the transactions
contemplated by the Operative Agreement other than the Merger. The
affirmative vote of the holders of two-thirds of the outstanding
Shares approving this Agreement is the only vote of the holders of any
class or series of securities of the Company necessary to approve the
Merger.

(n) State Takeover Statutes. The By-laws of Big B Drugs,
Inc., a Georgia corporation and a wholly owned subsidiary of the
Company, do not contain any provision that purports to cause Section
1133 of the Georgia Business Corporation Code to be applicable to Big
B Drugs, Inc. Each of the Company and each of its subsidiaries either
has (i) less than 500 residents of Florida as employees or (ii) a
gross annual payroll of less than $5 million to Florida residents.

(o) Rights Agreement. The Offer Price and the other terms of
the Offer have been determined by a majority of the members of the
Board of Directors of the Company who are not officers of the Company
and who are not representatives, nominees, Affiliates or Associates of
an Acquiring Person (each as defined in the Rights Agreement), after
receiving advice from one or more investment banking firms, to be (x)
at a price which is fair to shareholders (taking into account all
factors that such members of the Board of Directors of the Company
deem relevant including prices that could reasonably be achieved if
the Company or its assets were sold on an orderly basis designed to
realize maximum value) and (y) otherwise in the best interests of the
Company and its shareholders, and such determination remains in full
force and effect. The Company has taken or will take all necessary
action to (i) render the Rights inapplicable to the Offer, the Merger
and the other transactions contemplated by the Operative Agreements,
and (ii) ensure that (y) neither Parent nor any of its affiliates is
an Acquiring Person (as defined in the Rights Agreement) and (z) a
Distribution Date (as defined in the Rights Agreement) does not occur
by reason of the announcement or consummation of the Offer or the
Merger or the consummation of any of the other transactions
contemplated by the Operative Agreements in accordance with their
respective terms or the execution of any Operative Agreement. Other
than as disclosed to Parent prior to the date of this Agreement,
neither the Company nor the Board of Directors of the Company has
prior to the date of this Agreement (A) redeemed the Rights, (B)
amended the Rights Agreement, (C) made any determinations under the
Rights Agreement with respect to any Takeover Proposal or (D) approved
or authorized any of the foregoing.

(p) Compliance with Laws. (i) Except as set forth in Section
4.01(p) of the Company Disclosure Letter, neither the Company nor any
of its subsidiaries has violated or failed to comply with any statute,
law, ordinance, regulation, rule, judgment, decree or order of any
Governmental Entity applicable to its business or operations, except
for violations and failures to comply that could not, individually or
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19

in the aggregate, reasonably be expected to result in a material
adverse effect on the Company.

(ii) Except as disclosed in the Filed SEC Documents, (A) to
the best knowledge of the Company after due inquiry, the Company and
each of its subsidiaries is in compliance with all applicable federal,
state and local laws and regulations relating to pollution or
protection of human health or the environment (collectively,
"Environmental Laws"), which compliance includes the possession of all
material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and
conditions thereof, except for non-compliance that would not have,
individually or in the aggregate, a material adverse effect on the
Company, and (B) neither the Company nor any of its subsidiaries has
received written notice of, or, to the knowledge of the Company, is
the subject of, any action, cause of action, claim, investigation,
demand or notice by any person or entity alleging liability under or
non-compliance with any Environmental Law that would have,
individually or in the aggregate, a material adverse effect on the
Company.

(q) Real Property. The Company has made available to Parent
copies of its leases, subleases, licenses or other agreements under
which the Company or any of its subsidiaries uses or occupies or has
the right to use or occupy, now or in the future, any real property
(the "Real Property Leases"). Each Real Property Lease is valid,
binding and in full force and effect, free and clear of all liens
except those that do not or will not individually or in the aggregate
materially interfere with its ability to conduct its business at such
real property as currently conducted, all rent and other sums and
charges payable by the Company and its subsidiaries as tenants
thereunder are current, and no termination event or condition or
uncured default of a material nature on the part of the Company or any
such subsidiary or, to the knowledge of the Company, as to a landlord
exists under any Real Property Lease, except for any of the foregoing
matters which would not have, individually or in the aggregate, a
material adverse effect on the Company. Except as set forth in
Section 4.01(q) of the Company Disclosure Letter and except for any of
the following matters which would not have, individually or in the
aggregate, a material adverse effect on the Company, the Company (i)
has not granted any leases, subleases, licenses or other agreements
granting to any person other than the Company any right to possession,
use, occupancy or enjoyment of the stores covered by the Real Property
Leases or owned by the Company, or any portion thereof, (ii) is not
obligated under any option, right of first refusal or any contractual
right to purchase, acquire, sell or dispose of any real property
covered by the Real Property Leases or owned by the Company and (iii)
has good and marketable title to all real property reflected in the
Filed SEC Documents as owned by the Company or any of its subsidiaries
free and clear of all liens except those that do not or will not
individually or in the aggregate materially interfere with its ability
to conduct its business at such real property as currently conducted.
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(r) Brokers; Schedule of Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than R-H,
the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions
contemplated by the Operative Agreements based upon arrangements made
by or on behalf of the Company. The arrangements made by the Company
with respect to the fees of R-H are accurately described in the
Schedule 14D-9.

(s) Certain Contracts. The Company (i) has delivered, or
made available for copying, true and correct copies of (A) what the
Company reasonably believes to be the nine largest by sales volume
existing managed care contractual arrangements and (B) all material
supplier contractual arrangements (collectively, the "Contracts") to
Parent, (ii) is in compliance, in all material respects, with the
terms and conditions of each of the Contracts, and (iii) has taken no
action to cancel or terminate any of the Contracts except to the
extent any such cancellation or termination would not result in the
Company's payment of any penalty or similar fee and would not,
individually or together with any other cancellations or terminations,
have a material adverse effect on the Company. The information
provided by the Company to Parent regarding margins on managed care
contractual arrangements is true and correct in all material respects.

(t) Opinion of Financial Advisor. The Company has received
the opinion of R-H, dated the date of this Agreement, to the effect
that, as of such date, the consideration to be received in the Offer
and the Merger by the Company's shareholders is fair to the Company's
shareholders from a financial point of view, and a signed copy of such
opinion has been delivered to Parent.

SECTION 4.02. Representations and Warranties of Parent and
Sub. Parent and Sub represent and warrant to the Company as follows:

(a) Organization, Standing and Corporate Power. Each of
Parent and Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite corporate power and authority to carry on its business as
now being conducted. Each of Parent and Sub is duly qualified or
licensed to do business and is in good standing in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed
individually or in the aggregate would not have a material adverse
effect on Parent.

(b) Authority; Noncontravention. Parent and Sub have all
requisite corporate power and authority to enter into the Operative
Agreements and to consummate the transactions contemplated by the
Operative Agreements. The execution and delivery of the Operative
Agreements and the consummation of the transactions contemplated
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by the Operative Agreements, in each case by Parent and Sub, as the
case may be, have been duly authorized by all necessary corporate
action on the part of Parent and Sub. The Operative Agreements have
been duly executed and delivered by Parent and Sub, as the case may
be, and, assuming that the Operative Agreements constitute valid and
binding obligations of the parties thereto other than Parent and Sub,
each constitutes a valid and binding obligation of such party,
enforceable against such party in accordance with its terms. The
execution and delivery of the Operative Agreements do not, and the
consummation of the transactions contemplated by the Operative
Agreements and compliance with the provisions of the Operative
Agreements will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of
Parent or any of its subsidiaries under, (i) the certificate of
incorporation or by-laws of Parent or Sub or the comparable charter or
organizational documents of any other subsidiary of Parent, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to Parent or Sub or their respective properties or assets
or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent, Sub
or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clause (ii), any such conflicts,
violations, defaults, rights or Liens that individually or in the
aggregate would not (x) have a material adverse effect on Parent and
its subsidiaries taken as a whole, (y) impair the ability of Parent
and Sub to perform their respective obligations under the Operative
Agreements or (z) prevent the consummation of any of the transactions
contemplated by the Operative Agreements. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent, Sub or
any other subsidiary of Parent in connection with the execution and
delivery of the Operative Agreements by Parent or Sub, as the case may
be, or the consummation by Parent or Sub, as the case may be, of any
of the transactions contemplated by the Operative Agreements, except
for (i) the filing with the SEC of the Offer Documents, and such
reports under Sections 13 and 16 of the Exchange Act as may be
required in connection with the Operative Agreements and the
transactions contemplated by the Operative Agreements, (ii) the filing
of the Certificates of Merger with the Delaware Secretary of State and
the Alabama Secretary of State and appropriate documents with the
relevant authorities of other states in which Parent is qualified to
do business and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be
required under the "takeover" or "blue sky" laws of various states.

(c) Information Supplied. None of the information supplied
or to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Offer Documents, the Schedule 14D-9, the Information
Statement or the Proxy Statement shall, in the
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case of the Offer Documents, the Schedule 14D-9 and the Information
Statement, at the respective times the Offer Documents, the Schedule
14D-9 and the Information Statement are filed with the SEC or first
published, sent or given to the Company's shareholders, or, in the
case of the Proxy Statement, at the date the Proxy Statement is first
mailed to the Company's shareholders or at the time of the meeting of
the Company's shareholders held to vote on approval of this Agreement,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading. The Offer Documents shall comply as to
form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder, except that
no representation or warranty is made by Parent or Sub with respect to
statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or
incorporation by reference therein.

(d) Brokers. No broker, investment banker, financial advisor
or other person, other than Salomon Brothers Inc ("Salomon"), the fees
and expenses of which will be paid by Parent, is entitled to any
broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by the
Operative Agreements based upon arrangements made by or on behalf of
Parent or Sub.

(e) Financing. Parent and Sub have funds available
sufficient to consummate the Offer and the Merger on the terms
contemplated by this Agreement, and, at the expiration of the Offer
and the Effective Time of the Merger, Parent and Sub will have
available all funds necessary for the acquisition of all Shares on a
fully diluted basis pursuant to the Offer and the Merger, as the case
may be, and to perform their respective obligations under this
Agreement.

(f) Litigation. Except as set forth in any report, schedule,
form, statement or other document filed by Parent with the SEC and
publicly available prior to the date hereof, there is no suit, action
or proceeding pending or, to the knowledge of Parent, threatened
against or affecting Parent or any of its subsidiaries (and Parent is
not aware of any basis for any such suit, action or proceeding) that,
individually or in the aggregate, could reasonably be expected to (i)
have a material adverse effect on Parent, (ii) impair the ability of
Parent to perform its obligations under the Operative Agreements, or
(iii) prevent the consummation of any of the transactions contemplated
by the Operation Agreements, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future would
have, any such effect.
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ARTICLE V

Covenants Relating to Conduct of Business

SECTION 5.01. Conduct of Business. (a) Ordinary Course.
During the period from the date of this Agreement to the Effective Time of the
Merger, the Company shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time of the Merger. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time of the Merger, the Company shall not, and shall not
permit any of its subsidiaries to:

(i) (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital shares,
other than dividends and distributions by any direct or indirect
wholly owned subsidiary of the Company to its parent (except to
regular quarterly dividends on the Shares declared and paid at times
consistent with past practice in an amount not in excess of $0.05 per
Share per quarter), (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock or (z) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its subsidiaries or
any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;

(ii) issue, deliver, sell, pledge or otherwise encumber any
capital shares, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than
(x) the issuance of Shares upon the exercise of Employee Options
outstanding on the date of this Agreement in accordance with their
present terms and (y) the issuance of Shares upon conversion of the
Convertible Debentures);

(iii) amend its Articles (Certificate) of Incorporation,
By-laws or other comparable charter or organizational documents;

(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization
or division thereof or (y) any assets that are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of inventory in the ordinary course of
business consistent with past practice or in the
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fulfillment of contracts in existence on the date hereof and copies of
which have been made available to Parent;

(v) sell, lease, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its material properties or
assets, except sales of inventory in the ordinary course of business
consistent with past practice;

(vi) (y) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its subsidiaries, guarantee any
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice, or (z) make
any loans, advances or capital contributions to, or investments in,
any other person, other than to the Company or any direct or indirect
wholly owned subsidiary of the Company;

(vii) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $500,000 or, in the
aggregate, are in excess of $5 million;

(viii) make any tax election or settle or compromise any
income tax liability;

(ix) except as permitted by Section 6.06, grant to any
executive officer any increase in compensation or in severance or
termination pay, except in each case as was required under employment
agreements in effect as of the date hereof, or enter into any
employment, severance or termination agreement with any executive
officer;

(x) adopt or implement any change in accounting methods,
principles or practices materially affecting its assets, liabilities
or business, except insofar as may have been required by a change in
generally accepted accounting principles;

(xi) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than any payment required pursuant to an order of a
court of competent jurisdiction and the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of the
Company included in the Filed SEC Documents or incurred in the
ordinary course of business consistent with past practice, or waive
the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company
or any of its subsidiaries is a party; or
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(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.

(b) Other Actions. The Company shall not, and shall not
permit any of its subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii)
except as otherwise permitted by Section 5.02, any of the conditions to the
Offer set forth in Exhibit A, or any of the conditions to the Merger set forth
in Article VII, not being satisfied.

(c) Advice of Changes. The Company shall promptly advise
Parent orally and in writing of any change or event having, or which, insofar
as can reasonably be foreseen, would have, a material adverse effect on the
Company and its subsidiaries taken as a whole.

SECTION 5.02. No Solicitation. (a) The Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to any Takeover Proposal (as defined below). The Company shall not
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or advisor retained by it or any of its subsidiaries to (i)
solicit, initiate or encourage (including by way of furnishing information), or
take any other action to facilitate, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, a Takeover
Proposal or (ii) participate in any discussions or negotiations regarding any
Takeover Proposal; provided, however, that, in the event that prior to the
acceptance for payment of Shares pursuant to the Offer an unsolicited Takeover
Proposal is made and the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so
in order to comply with its fiduciary duties to the Company's shareholders
under applicable law, the Company may deliver a written notice to that effect
promptly to Parent and thereafter, subject to compliance with Section 5.02(c),
(x) furnish, pursuant to a confidentiality agreement that is not less favorable
to the Company than the Confidentiality Agreement dated October 3, 1996,
between Parent and the Company (the "Confidentiality Agreement"), information
with respect to the Company to the person making such unsolicited Takeover
Proposal and (y) participate in discussions or negotiations regarding such
Takeover Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
director or employee of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other advisor,
representative or agent of the Company or any of its subsidiaries, whether or
not such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section
5.02(a) by the Company. For purposes of this Agreement, "Takeover Proposal"
means any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase in any manner of a substantial amount of
assets of the Company and subsidiaries (taken as a
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whole) or an interest in any substantial amount of voting securities of the
Company or any Significant Subsidiary, any tender offer or exchange offer that
if consummated would result in any person beneficially owning any voting
securities of the Company or Significant Subsidiary, any merger, consolidation,
business combination, sale of all or substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, other than the transactions contemplated by
the Operative Agreements, or any other transaction the consummation of which
could reasonably be expected to impede, interfere with, prevent or materially
delay the Offer or the Merger or that would reasonably be expected to dilute
materially the benefits to Parent or Sub of the transactions contemplated by
the Operative Agreements.

(b) Except as set forth in this Section 5.02(b), neither the
Board of Directors of the Company nor any committee thereof may (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub,
the adoption, approval or recommendation by such Board of Directors or any such
committee of the Offer, this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (except
pursuant to Section 6.04(a)) take any action, or make any determination, under
the Rights Agreement to facilitate any Takeover Proposal or (iii) cause or
permit the Company to enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
acceptance for payment of Shares pursuant to the Offer, the Board of Directors
of the Company determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to the Company's shareholders under applicable law, the Board of
Directors of the Company may withdraw or modify its adoption, approval or
recommendation of the Offer, this Agreement and the Merger at any time
following Parent's receipt of written notice (a "Notice of Superior Proposal")
advising Parent that the Board of Directors of the Company has received a
Superior Proposal and identifying the person making such Superior Proposal.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
Takeover Proposal for all outstanding Shares on terms that the Board of
Directors of the Company determines in its good faith judgment (based on the
written opinion of R-H or another financial advisor of nationally recognized
reputation, which opinion takes into account all the terms and conditions of
the Takeover Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation) are not more favorable to the person
or persons making such Takeover Proposal and provide greater present value to
all the Company's shareholders, in each case, than this Agreement, the Offer
and the Merger taken as a whole.

(c) In addition to the obligations of the Company set forth
in Sections 5.02(a) and 5.02(b), the Company shall immediately advise Parent
orally and in writing of any request for information or of any Takeover
Proposal, or any inquiry with respect to or which could lead to any Takeover
Proposal, the material terms and conditions of such request, Takeover Proposal
or inquiry and the identity of the person making such request, Takeover
Proposal or inquiry. The Company shall keep Parent fully informed of the
status and
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material terms (including amendments or proposed amendments) of any such
request, Takeover Proposal or inquiry.

(d) Nothing contained in this Section 5.02 shall prohibit the
Company from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's shareholders if the Board of Directors of the
Company determines in good faith, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's shareholders under applicable law; provided, however, that neither
the Company nor its Board of Directors nor any committee thereof shall, except
as permitted by Section 5.02(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to the Offer, this Agreement or the Merger or
approve or recommend, or propose to approve or recommend, a Takeover Proposal.

ARTICLE VI

Additional Agreements

SECTION 6.01. Shareholder Approval; Preparation of Proxy
Statement. (a) If shareholder approval of this Agreement is required by law,
the Company shall, at Parent's request, as soon as practicable following the
expiration of the Offer, duly call, give notice of, convene and hold a meeting
of its shareholders (the "Shareholders Meeting") for the purpose of approving
this Agreement, including the appropriate Plan of Merger contained herein, and
the transactions contemplated by the Operative Agreements. The Company shall,
through its Board of Directors, recommend to its shareholders approval of this
Agreement, including the appropriate Plan of Merger contained herein, and the
transactions contemplated by the Operative Agreements, except to the extent
that the Board of Directors of the Company shall have withdrawn or modified its
approval or recommendation of the Offer, this Agreement or the Merger as
permitted by Section 5.02(b). Without limiting the generality of the
foregoing, the Company agrees that its obligations pursuant to the first
sentence of this Section 6.01(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to the Company of any
Takeover Proposal or (ii) the withdrawal or modification by the Board of
Directors of the Company of its approval or recommendation of the Offer, this
Agreement or the Merger. If requested by Parent, the Company shall from time
to time postpone or adjourn the Shareholders Meeting to allow Parent and the
Company additional time to seek proxies in favor of approval of this Agreement,
including the appropriate Plan of Merger contained herein, and the transactions
contemplated by the Operative Agreements.

(b) If shareholder approval of this Agreement is required by
law, the Company shall, at Parent's request, as soon as practicable following
the expiration of the Offer, prepare and file a preliminary Proxy Statement
with the SEC and shall use its best efforts to respond to any comments of the
SEC or its staff and to cause the Proxy Statement
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to be mailed to the Company's shareholders as promptly as practicable after
such filing. The Company shall notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and shall supply Parent with copies of all correspondence between
the Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger.
If at any time prior to the approval of this Agreement by the Company's
shareholders there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its shareholders such an amendment or supplement. The
Company shall not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects.

(c) Parent shall cause all Shares purchased pursuant to the
Offer and all other Shares owned by Sub or any other subsidiary of Parent to be
voted in favor of the approval of this Agreement.

SECTION 6.02. Access to Information; Confidentiality. (a)
The Company shall, and shall cause each of its subsidiaries to, afford to
Parent, and to Parent's officers, employees, accountants, counsel, financial
advisors and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time of the Merger to all their
respective properties, books, contracts, commitments, personnel and records
and, during such period, the Company shall, and shall cause each of its
subsidiaries to, furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and
(ii) all other information concerning its business, properties and personnel as
Parent may reasonably request.

(b) Except as required by law, Parent shall hold, and shall
cause its officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
confidence until such time as such information otherwise becomes publicly
available (otherwise than through the wrongful act of any such person) and
shall use its best efforts to ensure that such persons do not disclose such
information to others without the prior written consent of the Company. In the
event of termination of this Agreement for any reason, Parent shall promptly
return or destroy all documents containing nonpublic information so obtained
from the Company or any of its subsidiaries and any copies made of such
documents. The Company or its representatives have requested the return or
destruction of confidential information of the Company provided by the Company
or its representatives from each of the parties that executed confidentiality
or standstill agreements following public announcement of the Existing Offer
and shall not waive, amend or modify any provision of any such agreement
without the prior written consent of Parent.

SECTION 6.03. Best Efforts; Notification. (a) Upon the
terms and subject to the conditions set forth in this Agreement, unless, to the
extent permitted by Section 5.02(b), the Board of Directors of the Company
approves or recommends a Superior
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Proposal, each of the parties agrees to use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Offer and the Merger, and the other transactions contemplated
by the Operative Agreements, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging any Operative Agreement or the consummation of any
of the transactions contemplated by the Operative Agreements, including seeking
to have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, the Operative
Agreements. In connection with and without limiting the foregoing, the Company
and its Board of Directors shall (i) take all action necessary to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Offer, the Merger, any Operative Agreement or any of the
other transactions contemplated by the Operative Agreements and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
the Offer, the Merger, any Operative Agreement or any other transaction
contemplated by any Operative Agreement, take all action necessary to ensure
that the Offer, the Merger and the other transactions contemplated by the
Operative Agreements may be consummated as promptly as practicable on the terms
contemplated by the Operative Agreements and otherwise to minimize the effect
of such statute or regulation on the Offer, the Merger and the other
transactions contemplated by the Operative Agreements. Notwithstanding the
foregoing, the Board of Directors of the Company shall not be prohibited from
taking any action permitted by Section 5.02(b).

(b) The Company shall give prompt notice to Parent, and
Parent or Sub shall give prompt notice to the Company, of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.

SECTION 6.04. Rights Agreement. (a) At the request of
Parent upon five business days' prior written notice, the Board of Directors of
the Company shall redeem the Rights prior to the Effective Time of the Merger.
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(b) Except with the prior written consent of Parent, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or make any determination under, the
Rights Agreement, in each case that could have the effect of rendering the
Rights applicable to the Offer, the Merger Agreement, or any of the other
transactions contemplated by the Operative Agreements, including any amendment
or supplement to the Offer that includes a cash Offer Price that is not less
than $17.25 per Share for all Shares.

SECTION 6.05. Stock Options. (a) As soon as practicable
following the date of this Agreement, the Board of Directors of the Company
(or, if appropriate, any committee administering the Stock Plans (as defined
below)) shall adopt such resolutions or take such other actions as are required
to adjust the terms of all outstanding employee stock options to purchase
Shares ("Employee Options") and all outstanding stock appreciation rights
("SARs") heretofore granted under any stock option or stock appreciation rights
plan, program or arrangement of the Company (collectively, the "Stock Plans")
to provide that each Employee Option (and any SAR related thereto) outstanding
immediately prior to the acceptance for payment of Shares pursuant to the
Offer, including all vested and unvested Employee Options, shall be cancelled
in exchange for a cash payment by the Company immediately prior to the
Effective Time of the Merger of an amount equal to (i) the excess, if any, of
(x) the Offer Price over (y) the exercise price per Share subject to such
Employee Option, multiplied by (ii) the number of Shares for which such
Employee Option shall not theretofore have been exercised (the "Option
Consideration").

(b) All amounts payable pursuant to this Section 6.05 shall
be subject to any required withholding of taxes and shall be paid without
interest. The Company shall use its best efforts to obtain all consents of the
holders of the Employee Options as shall be necessary to effectuate the
foregoing to any such holder. Notwithstanding anything to the contrary
contained in this Agreement, payment shall, at Parent's request, be withheld in
respect of any Employee Option until any necessary consent of such holder is
obtained.

(c) The Stock Plans shall terminate as of the Effective Time
of the Merger, and the provisions in any other Benefit Plan providing for the
issuance, transfer or grant of any capital stock of the Company or any interest
in respect of any capital stock of the Company shall be deleted as of the
Effective Time of the Merger, and the Company shall ensure that following the
Effective Time of the Merger no holder of an Employee Option or SAR or any
participant in any Stock Plan or other Benefit Plan shall have any right
thereunder to acquire any capital stock of the Company or the Surviving
Corporation.

SECTION 6.06. Benefit Plans. (a) Except as provided in
Section 6.05(c), Parent shall cause the Surviving Corporation to maintain for a
period of one year after the Effective Time of the Merger the Benefit Plans of
the Company and its subsidiaries in effect on the date of this Agreement or to
provide benefits for such period to employees of the Company and its
subsidiaries that are not materially less favorable in the aggregate to such
employees than those in effect on the date of this Agreement.
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31

(b) Parent shall cause the Surviving Corporation to honor all
severance policies and agreements, deferred compensation agreements, employment
agreements and death benefit agreements with the Company's officers and
employees disclosed in Section 4.01(j) of the Company Disclosure Letter,
including the proposed additional agreements and modifications described in
Section 4.01(j) of the Company Disclosure Letter; provided, however, that in no
event shall the liability of the Surviving Corporation for severance,
post-termination health and other benefits, deferred compensation and
acceleration of non-vested stock options under all such policies and agreements
exceed $12.5 million. Parent acknowledges that the transactions contemplated
by the Operative Agreements will constitute a change of control for purposes of
the agreements described in the preceding sentence.

(c) For purposes of the Company's Annual Bonus Plan for the
fiscal year ending February 1, 1997, Parent acknowledges that (i) the Company
shall be deemed to have achieved all targets under such Plan and (ii) any
employee of the Company whose employment with the Company is terminated by the
Company (other than termination for dishonesty or violation of Company policy)
or who terminates his or her employment with the prior written consent of the
Company following consummation of the Offer and prior to February 1, 1997,
shall upon termination be fully vested under such Plan for fiscal year 1997;
provided, however, that the liability of the Company under such Plan shall be
$1,060,000 less any amounts attributable to employees who terminate their
employment prior to February 1, 1997, without the prior written consent of
Parent or whose employment with the Company is terminated prior to such date
for dishonesty or violation of Company policy.

(d) For purposes of the Company's Profit Sharing Plan for the
fiscal year ending February 1, 1997, Parent acknowledges that the Company shall
make a discretionary contribution for such fiscal year in an aggregate amount
of $3,100,000.

SECTION 6.07. Indemnification. Parent and Sub agree that all
rights to indemnification for acts or omissions occurring prior to the
Effective Time of the Merger now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws shall survive the Merger
and shall continue in full force and effect in accordance with their terms for
a period of not less than six years from the Effective Time of the Merger.
Parent shall cause to be maintained for a period of not less than six years
from the Effective Time of the Merger the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time of the Merger (the
"D&O Insurance") for all persons who are directors and officers of the Company
on the date of this Agreement, so long as the annual premium therefor would not
be in excess of 225% of the last annual premium paid prior to the date of this
Agreement (such 225% amount, the "Maximum Premium"). If the existing D&O
Insurance expires, is terminated or cancelled during such six-year period,
Parent will use all reasonable efforts to cause to be obtained as much D&O
Insurance as can be obtained for the remainder of such
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32

period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions no less advantageous than the existing D&O Insurance. The
Company represents to Parent that the Maximum Premium is $315,000.

SECTION 6.08. Directors. Promptly upon the acceptance for
payment of, and payment by Sub for, any Shares pursuant to the Offer, Sub shall
be entitled to designate such number of directors on the Board of Directors of
the Company as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act and the ABCA, representation on such Board of Directors equal to
at least that number of directors, rounded up to the next whole number, which
is the product of (a) the total number of directors on such Board of Directors
(giving effect to the directors elected pursuant to this sentence) multiplied
by (b) the percentage that (i) such number of Shares so accepted for payment
and paid for by Sub plus the number of Shares otherwise owned by Sub or any
other subsidiary of Parent bears to (ii) the number of such shares outstanding,
and the Company shall, at such time, cause Sub's designees to be so elected;
provided, however, that in the event that Sub's designees are appointed or
elected to the Board of Directors of the Company, until the Effective Time of
the Merger such Board of Directors shall have at least three directors who are
Directors on the date of this Agreement (the "Continuing Directors"); and
provided further that, in such event, if the number of Continuing Directors
shall be reduced below three for any reason whatsoever, any remaining
Continuing Directors (or Continuing Director, if there shall be only one
remaining) shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Continuing Directors for purposes of this Agreement or,
if no Continuing Directors then remain, the other directors shall designate
three persons to fill such vacancies who shall not be officers, shareholders or
affiliates of the Company, Parent or Sub, and such persons shall be deemed to
be Continuing Directors for purposes of this Agreement. Subject to applicable
law, the Company shall take all action requested by Parent necessary to effect
any such election, including mailing to its shareholders the Information
Statement containing the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder, and the Company agrees to make such
mailing with the mailing of the Schedule 14D-9 (provided that Sub shall have
provided to the Company on a timely basis all information required to be
included in the Information Statement with respect to Sub's designees). In
connection with the foregoing, the Company shall promptly, at the option of
Sub, either increase the size of the Company's Board of Directors or obtain the
resignation of such number of its current directors as is necessary to enable
Sub's designees to be elected or appointed to the Company's Board of Directors
as provided above.

SECTION 6.09. Fees and Expenses. (a) Except as set forth
below, all fees and expenses incurred in connection with the Offer, the Merger,
this Agreement and the transactions contemplated by the Operative Agreements,
including all fees and expenses in connection with all litigation subject to
Sections 6.11 and 6.12, shall be paid by the party incurring such fees or
expenses, whether or not the Offer or the Merger is consummated.

(b) The Company shall pay to Parent upon demand in cash a fee
of $15 million (the "Termination Fee"), payable in same day funds, if:
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33

(i) this Agreement is terminated pursuant to Section
8.01(b)(ii) as a result of the failure of any condition set forth in
paragraph (d) (other than clause (ii)(A) thereof), (e) or (f) of
Exhibit A;

(ii)(v) after the date of this Agreement, any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act)
publicly makes a Takeover Proposal or amends a Takeover Proposal made
prior to the date of this Agreement or discloses its intention to do
either of the foregoing, in any case (A) at an all-cash price in
excess of $17.25 per Share or (B) for non-cash consideration or a
combination of cash and non-cash consideration, (w) the Offer remains
open for the period contemplated by Section 1.01, (x) the Minimum
Tender Condition is not satisfied at such expiration date, (y) this
Agreement is thereafter terminated pursuant to Section 8.01(b)(ii),
and (z) either (A) the Board of Directors of the Company, within five
business days of being requested to do so by Parent, failed to both
reaffirm its recommendation of the Offer and the Merger and recommend
rejection of such Takeover Proposal on the grounds that it is not in
the best interests of the Company and its shareholders (such request
having been made following the making of such Takeover Proposal, such
amendment or such public disclosure and at least five business days
prior to expiration of the Offer) or (B) within twelve months after
such termination the Company enters into a definitive agreement
providing for a Takeover Proposal or a Takeover Proposal is
consummated; or

(iii) this Agreement is terminated pursuant to Section
8.01(c).

(c) If this Agreement is terminated as a result of a wilful
and material breach of this Agreement by Parent or Sub, Parent shall pay the
Company in cash, payable in same day funds, $5 million (the "Expenses") in lieu
of reimbursement of the Company for all fees and expenses incurred or paid by
or on behalf of it or any of its affiliates in connection with the Offer, the
Merger or the consummation of any of the transactions contemplated by the
Operative Agreements. If this Agreement is terminated pursuant to Section
8.01(b)(ii) as a result of the failure of the Minimum Tender Condition (except
under circumstances described in Section 6.09(b)(ii)) or pursuant to Section
8.01(d), the Company shall pay Parent in cash, payable in same day funds, the
Expenses. Any amount actually paid by the Company pursuant to the immediately
preceding sentence shall be a credit against any amounts subsequently due from
the Company pursuant to Section 6.09(b)(ii).

SECTION 6.10. Public Announcements. Parent and Sub, on the
one hand, and the Company, on the other hand, shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the
transactions contemplated by the Operative Agreements, including the Offer and
the Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange.
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SECTION 6.11. Dismissal of Litigation. Each of the parties
shall promptly enter into stipulations dismissing without prejudice all
litigation currently pending between them or their respective affiliates and
representatives, or commenced by or on behalf of any of them in connection with
the Offer, and promptly to cause such stipulations to be filed in connection
with such litigation. Each such stipulation shall provide that the relevant
litigation shall be deemed to be dismissed with prejudice from and after the
Effective Time of the Merger. In addition, (a) the Company shall not reinstate
(or permit its affiliates or representatives to reinstate) any such litigation
so long as Parent and Sub are not in material breach of their respective
obligations under this Agreement and (b) each of Parent and Sub shall not
reinstate (or permit its affiliates or representatives to reinstate) any such
litigation so long as the Company is not in material breach of its obligations
under this Agreement.

SECTION 6.12. Shareholder Litigation. The Company shall give
Parent the opportunity to participate in the defense or settlement of any
shareholder litigation against the Company or its directors or officers
relating to any of the transactions contemplated by the Operative Agreements;
provided, however, that no such settlement shall be agreed to without Parent's
consent, which shall not be unreasonably withheld.

ARTICLE VII

Conditions Precedent

SECTION 7.01. Conditions to Each Party's Obligation To Effect
the Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:

(a) Shareholder Approval. If required by applicable law,
this Agreement and the appropriate Plan of Merger contained herein
shall have been approved and adopted by the affirmative vote or
consent of the holders of two-thirds of the outstanding Shares in
accordance with the ABCA and the Company's Articles (Certificate) of
Incorporation.

(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition arising under the authority of any Governmental Entity
preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used its best
efforts to prevent the entry of any such injunction or other order and
to appeal as promptly as possible any injunction or other order that
may be entered.

SECTION 7.02. Conditions to Obligations of Parent and Sub.
The obligations of Parent and Sub to effect the Merger are further subject to
the condition that there shall not be pending any suit, action or proceeding by
any Governmental Entity that has
40
35

a substantial likelihood of success (other than any suit, action or proceeding
pending on the date of consummation of the Offer), (i) challenging the
acquisition by Parent or Sub of any Shares, seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by any
Operative Agreement, or seeking to obtain from the Company, Parent or Sub any
damages that are material in relation to the Company and its subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material portion
of the business or assets of the Company, Parent or any of their respective
subsidiaries, or to compel the Company, Parent or any of their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or any of their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by any Operative Agreement, (iii) seeking to impose limitations on
the ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any Shares, including, without limitation, the right to vote the
Common Stock purchased by it on all matters properly presented to the
shareholders of the Company or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company or its subsidiaries.

ARTICLE VIII

Termination, Amendment and Waiver

SECTION 8.01. Termination. This Agreement may be terminated
at any time prior to the Effective Time of the Merger, whether before or after
approval of matters presented in connection with the Merger by the shareholders
of the Company:

(a) by mutual written consent of Parent and the Company;

(b) by either Parent or the Company:

(i) if, upon a vote at a duly held Shareholders
Meeting or any adjournment thereof at which Parent voted all
Shares beneficially owned by it in accordance with this
Agreement, any required approval of the Shareholders of the
Company shall not have been obtained; provided, however, that
the Company shall not have the right to terminate this
Agreement pursuant to this Section 8.01(b)(i) if (A) any
Shares beneficially owned on the date of this Agreement by any
shareholder party to the Support Agreement that are not
purchased pursuant to the Offer are not voted in favor of the
Merger and such approval would have been obtained had all such
Shares been so voted or (B) the Company is in violation of
Section 5.02, 6.01 or 6.03;

(ii) if, as the result of the failure of any of the
conditions set forth in Exhibit A to this Agreement, the Offer
shall have terminated or expired in
41
36

accordance with its terms without Sub having purchased any
Shares pursuant to the Offer; provided, however, that the
right to terminate this Agreement pursuant to this Section
8.01(b)(ii) shall not be available to any party whose failure
to fulfill any of its obligations under, or breach of any
provisions of, any Operative Agreement results in the failure
of any such condition; or

(iii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the purchase
of Shares pursuant to the Offer or the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable;

(c) by the Company if (i) the Company shall have given Parent
a Notice of Superior Proposal with respect to a Takeover Proposal,
(ii) at least five business days later, the Board of Directors of the
Company shall have determined in good faith (based on the written
opinion of R-H or another financial advisor of nationally recognized
reputation, which opinion takes into account all the terms of such
Takeover Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation) that the terms of such
Takeover Proposal are not more favorable to the person or persons
making such Takeover Proposal and provide greater present value to all
the Company's shareholders, in each case, than this Agreement, the
Offer and the Merger taken as a whole in light of any improved terms
proposed by Parent or Sub prior to the expiration of such five
business day period and (iii) the Company has paid to Parent the
Termination Fee pursuant to Section 6.09(b)(ii); or

(d) by Parent if it shall have received a Notice of Superior
Proposal pursuant to Section 5.02(b).

SECTION 8.02. Effect of Termination. In the event of
termination of this Agreement by either the Company or Parent as provided in
Section 8.01, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Sub or the Company,
other than the provisions of Section 4.01(r), Section 4.02(d), Section 6.02(b),
Section 6.04(b) (other than following termination of this Agreement by Parent
or Sub), Section 6.09, this Section 8.02 and Article IX and except to the
extent that such termination results from the wilful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in the Operative Agreements.

SECTION 8.03. Amendment. This Agreement may be amended by
the parties at any time before or after any required approval of matters
presented in connection with the Merger by the shareholders of the Company;
provided, however, that after any such approval, there shall not be made any
amendment that by law requires further approval by such shareholders without
the further approval of such shareholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
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37

SECTION 8.04. Extension; Waiver. At any time prior to the
Effective Time of the Merger, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 8.03, waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.

SECTION 8.05. Procedure for Termination, Amendment, Extension
or Waiver. A termination of this Agreement pursuant to Section 8.01, an
amendment of this Agreement pursuant to Section 8.03 or an extension or waiver
pursuant to Section 8.04 shall, in order to be effective, require (a) in the
case of Parent, Sub or the Company, action by its Board of Directors or the
duly authorized designee of its Board of Directors and (b) in the case of the
Company, action by a majority of the members of the Board of Directors of the
Company who were members thereof on the date of this Agreement and remain as
such hereafter or the duly authorized designee of such members; provided,
however, that in the event that Sub's designees are appointed or elected to the
Board of Directors of the Company as provided in Section 6.08, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time of the Merger, the affirmative vote of a majority of the
Continuing Directors, in lieu of the vote required pursuant to clause (b)
above, shall be required by the Company to (i) amend or terminate this
Agreement, (ii) exercise or waive any of the Company's rights or remedies under
this Agreement or (iii) extend the time for performance of Parent's and Sub's
respective obligations under this Agreement.

ARTICLE IX

General Provisions

SECTION 9.01. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time of the Merger. This Section 9.01 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time of the Merger.

SECTION 9.02. Notices. All notices, requests, claims,
demands and other communications under this Agreement shall be in writing and
shall be deemed given if delivered personally, sent by overnight courier
(providing proof of delivery) or faxed to the
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38

parties at the following addresses or fax numbers (or at such other address or
fax number for a party as shall be specified by like notice):

(a) if to Parent or Sub, to:

Revco D.S., Inc.
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000

Attention: Xxxx X. Staph, Esq.

with a copy to:

Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Fax: (000) 000-0000

Attention: Xxxxxxx Xxxx, Esq.

(b) if to the Company, to:

Big B, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxx, XX 00000
Fax: (000) 000-0000

Attention: Xx. Xxxxxxx X. Xxxxx

with copies to:

Sirote & Permutt
0000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000

Attention: Xxxxxxx Xxxx, Esq.
44
39

and

Skadden, Arps, Slate, Xxxxxxx & Xxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000

Attention: Xxxxxxx X. Xxxx, Esq.

SECTION 9.03. Definitions. For purposes of this Agreement:

An "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first person;

"material adverse change" or "material adverse effect" means,
when used in connection with the Company or Parent, any change or
effect (or any development that, insofar as can reasonably be
foreseen, is likely to result in any change or effect) that is
materially adverse to the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of such
party and its subsidiaries taken as a whole;

"person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other
entity;

A "subsidiary" of any person means another person, an amount
of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its
Board of Directors or other governing body (or, if there are no such
voting Interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person;

SECTION 9.04. Interpretation. When a reference is made in
this Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".

SECTION 9.05. Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
45
40

SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries.
The Operative Agreements (a) constitute the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of the Operative Agreements
(including the Confidentiality Agreement which is hereby terminated) and (b)
except for the provisions of Article III and Sections 6.06 and 6.07, are not
intended to confer upon any person other than the parties any rights or
remedies hereunder.

SECTION 9.07. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware (except to the extent that Alabama law mandatorily applies),
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.

SECTION 9.08. Assignment. Neither this Agreement nor any of
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
46
41

SECTION 9.09. Enforcement. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of New York in the event any dispute arises out of any
Operative Agreement or any of the transactions contemplated by any Operative
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to any Operative Agreement or
any of the transactions contemplated by any Operative Agreement in any court
other than a Federal or state court sitting in the State of New York.

IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.

REVCO D.S., INC.,

by /s/ XXXXX X. XXXXXX
----------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Senior Vice President, Finance

RDS ACQUISITION INC.,

by /s/ XXXXX X. XXXXXX
----------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Treasurer

BIG B, INC.,

by /s/ XXXXXXX X. XXXXX
----------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
47
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EXHIBIT A
Conditions of the Offer

Notwithstanding any other term of the Offer or this Agreement,
Sub shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange
Act (relating to Sub's obligation to pay for or return tendered Shares after
the termination or withdrawal of the Offer), to pay for any Shares tendered
pursuant to the Offer unless there shall have been validly tendered and not
withdrawn prior to the expiration of the Offer that number of Shares which
would represent at least a majority of the Fully Diluted Shares (the "Minimum
Tender Condition"). The term "Fully Diluted Shares" means all outstanding
securities entitled generally to vote in the election of directors of the
Company on a fully diluted basis, after giving effect to the exercise or
conversion of all options, rights and securities exercisable or convertible
into such voting securities, other than potential dilution attributable to the
Rights. Furthermore, notwithstanding any other term of the Offer or this
Agreement, Sub shall not be required to accept for payment or, subject as
aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate or amend the Offer, with the consent of the Company or
if, at any time on or after the date of this Agreement and before the
acceptance of such Shares for payment or the payment therefor, any of the
following conditions exists:

(a) there shall be threatened by any Governmental Entity, or
there shall be instituted or pending any suit, action, proceeding,
application or counterclaim by any Governmental Entity or any other
person, or before any court or governmental authority, agency or
tribunal, domestic or foreign, in each case that has a substantial
likelihood of success, (i) challenging the acquisition by Parent or
Sub of any Shares, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of
the other transactions contemplated by any Operative Agreement, or
seeking to obtain from the Company, Parent or Sub any damages that are
material in relation to the Company and its subsidiaries taken as
whole, (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of any
material portion of the business or assets of the Company, Parent or
any of their respective subsidiaries, or to compel the Company, Parent
or any of their respective subsidiaries to dispose of or hold separate
any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries, as a result of the Offer or
any of the other transactions contemplated by any Operative Agreement,
(iii) seeking to impose limitations on the ability of Parent or Sub to
acquire or hold, or exercise full rights of ownership of, any Shares,
including, without limitation, the right to vote the Shares purchased
by it on all matters properly presented to the shareholders of the
Company, (iv) seeking to prohibit Parent or any of its subsidiaries
from effectively controlling in any material respect the business or
operations of the Company or its subsidiaries, or (v) which otherwise
is reasonably likely to have a
48
2

material adverse effect on the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of the
Company and its subsidiaries taken as a whole;

(b) there shall be any statute, rule, regulation, legislation,
interpretation, judgment, order or injunction enacted, entered,
enforced, promulgated, amended or issued with respect to, or deemed
applicable to, or any consent or approval withheld with respect to,
(i) Parent, the Company or any of their respective subsidiaries or
(ii) the Offer, the Merger or any of the other transactions
contemplated by the Operative Agreements, by any Governmental Entity
or before any court or governmental authority, agency or tribunal,
domestic or foreign, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i)
through (v) of paragraph (a) above;

(c) there shall have occurred any material adverse change in
the Company, or any development that, insofar as reasonably can be
foreseen, has resulted in or is reasonably likely to result in a
material adverse change in the Company, other than any change arising
from general economic or industry conditions;

(d)(i) it shall have been publicly disclosed or Parent shall
have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated
under the Exchange Act) of more than 50% of the outstanding Shares has
been acquired by another person, entity or "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) other than acquisitions for
bona fide arbitrage purposes only and other than as disclosed in a
Schedule 13D or 13G on file with the SEC prior to the date of this
Agreement, (ii) the Board of Directors of the Company or any committee
thereof shall have (A) withdrawn or modified in a manner adverse to
Parent or Sub its approval or recommendation of the Offer, the Merger
or this Agreement, (B) approved or recommended any Takeover Proposal
or (C) taken any action, or made any determination, under the Rights
Agreement to facilitate any Takeover Proposal, (iii) the Company shall
have entered into any agreement with respect to any Takeover Proposal
or (iv) the Board of Directors of the Company or any committee thereof
shall have resolved to do any of the foregoing;

(e) any of the representations and warranties of the Company
set forth in this Agreement that are qualified as to materiality shall
not be true and correct and any such representations and warranties
that are not so qualified shall not be true and correct in any
material respect, in each case as if such representations and
warranties were made as of such time;
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(f) the Company shall have failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of the Company to be performed or complied with
by it under this Agreement; or

(g) this Agreement shall have been terminated in accordance
with its terms.

The foregoing conditions are for the sole benefit of Sub and
Parent and, subject to Section 1.01(a), may be asserted by Sub or Parent
regardless of the circumstances giving rise to such condition or may be waived
by Sub and Parent in whole or in part at any time and from time to time in
their sole discretion. The failure by Parent, Sub or any other affiliate of
Parent at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect to
any other facts and circumstances and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
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EXHIBIT B
[FORM OF]

Plan of Merger

SECTION 1.01. Constituent Corporations. RDS Acquisition
Inc., a Delaware corporation ("Sub"), and Big B, Inc., an Alabama corporation
(the "Company"), constitute the constituent corporations of this Plan of
Merger.

SECTION 1.02. The Merger. Upon the terms and subject to the
conditions set forth in this Plan of Merger, and in accordance with the
Delaware General Corporation Law (the "DGCL") and the Alabama Business
Corporation Act (the "ABCA"), Sub shall be merged with and into the Company at
the Effective Time of the Merger (as defined below). Following a merger
pursuant to this Section 1.02 (the "Merger"), the separate corporate existence
of Sub shall cease and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights
and obligations of Sub in accordance with the DGCL and the ABCA.

SECTION 1.03. Effective Time. The Merger shall become
effective at such date and time as this Plan of Merger and any other required
documents (collectively, the "Certificates of Merger") are duly filed with the
Delaware Secretary of State and the Alabama Secretary of State (the time the
Merger becomes effective being the "Effective Time of the Merger").

SECTION 1.04. Effects of the Merger. The Merger shall have
the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA.

SECTION 1.05. Certificate of Incorporation and By-laws. (a)
The Articles (Certificate) of Incorporation of the Company, as in effect
immediately prior to the Effective Time of the Merger, shall be amended as of
the Effective Time of the Merger so that the first paragraph of Article IV of
such Articles (Certificate) of Incorporation reads in its entirety as follows:
"The total number of shares of all classes of stock that the corporation shall
have authority to issue is 1,000 shares, par value $0.001 per share." and, as
so amended, shall be the Articles (Certificate) of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.

(b) The By-laws of the Company as in effect at the Effective
Time of the Merger shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.

SECTION 1.06. Directors. The directors of Sub at the
Effective Time of the Merger shall be the directors of the Surviving
Corporation, until the earlier of
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their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.

SECTION 1.07. Officers. The officers of the Company at the
Effective Time of the Merger shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

SECTION 1.08. Effect on Capital Shares. As of the Effective
Time of the Merger, by virtue of the Merger and without any action on the part
of the holder of any shares of Common Stock, par value $0.001 per share, of the
Company (the "Common Stock"; the Common Stock and the associated common stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as
of September 23, 1996, as amended, being hereinafter collectively referred to as
the "Shares") or any shares of capital stock of Sub:

(b) Cancellation of Treasury Shares and Parent Owned Shares.
Each Share that is owned by the Company or by any subsidiary of the
Company and each Share that is owned by Revco D.S., Inc., a Delaware
corporation ("Parent"), Sub or any other subsidiary of Parent
(together, in each case, with the associated Right) shall
automatically be cancelled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor.

(c) Conversion of Shares. Subject to Section 1.08(d), each
issued and outstanding Share (other than Shares to be cancelled in
accordance with Section 1.08(b)) together with the associated Right
shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, $17.25 (the "Merger
Consideration"). As of the Effective Time of the Merger, all such
Shares (and the associated Rights) shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares (and the
associated Rights) shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without
interest.

(d) Shares of Dissenting Shareholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding
Shares held by persons who object to the Merger and comply with all
the provisions of Alabama law concerning the right of holders of
Shares to dissent from the Merger and obtain payment of the fair value
of their Shares ("Dissenting
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Shareholders"), shall not be converted as described in Section 1.08(c)
but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Shareholder pursuant to the
laws of the State of Alabama; provided, however, that the Shares
(together with the associated Rights) outstanding immediately prior to
the Effective Time of the Merger and held by a Dissenting Shareholder
who shall, after the Effective Time of the Merger, withdraw his demand
for appraisal or lose his right of appraisal, in either case pursuant
to the ABCA, shall be deemed to be converted as of the Effective Time
of the Merger, into the right to receive the Merger Consideration.

SECTION 1.09. Exchange of Certificates. (a) Paying Agent.
[ ] is the paying agent (the "Paying Agent") for the payment of the Merger
Consideration upon surrender of certificates representing Shares.

(c) Exchange Procedure. As soon as reasonably practicable
after the Effective Time of the Merger, the Paying Agent shall mail to each
holder of record of a certificate or certificates that immediately prior to the
Effective Time of the Merger represented outstanding Shares (the
"Certificates") whose Shares were converted into the right to receive the
Merger Consideration pursuant to Section 1.08, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Paying Agent and shall be in a form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by the Parent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the amount of cash into which
the Shares theretofore represented by such Certificate shall have been
converted pursuant to Section 1.08, and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of Shares that
is not registered in the transfer records of the Company, payment may be made
to a person other than the person in whose name the Certificate so surrendered
is registered, if such Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of such Certificate or establish to the satisfaction
of the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 1.09, each Certificate shall
be deemed at any time after the Effective Time of the Merger to
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represent only the right to receive upon such surrender the amount of cash,
without interest, into which the Shares theretofore represented by such
Certificate shall have been converted pursuant to Section 1.08. No interest
shall be paid or shall accrue on the cash payable upon the surrender of any
Certificate.

(d) No Further Ownership Rights in Common Stock. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Plan of Merger shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates,
and there shall be no further registration of transfers on the share transfer
books of the Surviving Corporation of the Shares that were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Plan of
Merger.

(e) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to five
years after the Effective Time of the Merger (or immediately prior to such
earlier date on which any payment pursuant to this Plan of Merger would
otherwise escheat to or become the property of any governmental authority or
agency, domestic or foreign), the payment in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
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EXHIBIT C
[FORM OF]

Plan of Merger

SECTION 1.02. The Merger. Upon the terms and subject to the
conditions set forth in this Plan of Merger and in accordance with the Delaware
General Corporation Law (the "DGCL") and the Alabama Business Corporation Act
(the "ABCA"), the Company shall be merged with and into Sub at the Effective
Time of the Merger (as defined below). Following a merger pursuant to this
Section 1.02 (the "Merger"), the separate corporate existence of the Company
shall cease and Sub shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations of
the Company in accordance with the DGCL and the ABCA.

SECTION 1.03. Effective Time. The parties shall file a
certificate or articles of merger and other appropriate documents. The Merger
shall become effective at such date and time as this Plan of Merger and any
other required documents (collectively, the "Certificates of Merger") are duly
filed with the Delaware Secretary of State and the Alabama Secretary of State
(the time the Merger becomes effective being the "Effective Time of the
Merger").

SECTION 1.04. Effects of the Merger. The Merger shall have
the effects set forth in Section 259 of the DGCL and Section 11.06 of the ABCA.

SECTION 1.05. Certificate of Incorporation and By-laws. (a)
The Certificate of Incorporation of Sub, as in effect immediately prior to the
Effective Time of the Merger, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.

(b) The By-laws of Sub as in effect at the Effective Time of
the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.

SECTION 1.06. Directors. The directors of Sub at the
Effective Time of the Merger shall be the directors of the Surviving
Corporation, until the earlier of
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their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.

Shareholders") shall not be converted as described in Section 1.08(c)
but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Shareholder pursuant to the
laws of the State of Alabama; provided, however, that the Shares
(together with the associated Rights) outstanding immediately prior to
the Effective Time of the Merger and held by a Dissenting Shareholder
who shall, after the Effective Time of the Merger, withdraw his demand
for appraisal or lose his right of appraisal, in either case pursuant
to the ABCA, shall be deemed to be converted as of the Effective Time
of the Merger, into the right to receive the Merger Consideration.

SECTION 1.09. Exchange of Certificates. (a) Paying Agent.
[ ] is the paying agent (the "Paying Agent") for the payment of the
Merger Consideration upon surrender of certificates representing Shares.

(e) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to five
years after the Effective Time of the Merger (or immediately prior to such
earlier date on which any payment pursuant to this Plan of Merger would
otherwise escheat to or become the property of any governmental authority or
agency, domestic or foreign) the payment in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.

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