STOCK OPTION AGREEMENT
AGREEMENT, dated as of November 29, 1995, by and among Rite Aid
Corporation, a Delaware corporation ("Parent"), Ocean Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and Revco
D.S., Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, immediately prior to the execution of this Agreement, Parent,
Sub and the Company, have entered into an Agreement and Plan of Merger (as such
agreement may hereafter be amended from time to time, the "Merger Agreement"),
pursuant to which Sub will be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company desire
that as soon as practicable (but in no event later than five business days)
after the execution of the Merger Agreement, Sub shall commence an offer (the
"Offer") to purchase for cash not less than 35,144,833 shares and up to all of
the issued and outstanding Company Common Stock (as defined in Section 1
hereof), or such greater number of shares as equals 50.1% of the shares
outstanding on a fully diluted basis as of the expiration of the Offer, at a
price of $27.50 per share of Company Common Stock; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Sub have required that the Company agree, and the Company
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Certain Definitions. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement.
For purposes of this Agreement:
a. "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" within the meaning of Section 13(d)
of the Exchange Act.
b. "Company Common Stock" shall mean at any time the common stock,
$.01 par value, of the Company.
c. "Person" shall mean an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or other entity.
2. Grant of Stock Option. In order to induce Parent and Sub to enter
into the Merger Agreement, the Company hereby grants to Parent an unconditional,
irrevocable option (a "Stock Option") to purchase up to 13,251,010 fully
paid and nonassessable shares of Company Common Stock at a purchase price of
$27.50 per share (the "Purchase Price"), or such other number of shares of
Company Common Stock as equals 19.9% of the Company's issued and outstanding
shares of Company Common Stock at the time of exercise of the Stock Option;
provided that in no event shall the number of shares of Company Common Stock for
which the Stock Option is exercisable exceed 19.9% of the shares of Company
Common Stock issued and outstanding at the time of exercise of the Stock Option
(the "Option Shares"). The number of shares of Company Common Stock that may be
received upon the exercise of the Stock Option is subject to adjustments as
herein set forth.
3. Exercise of Stock Option. (a) Upon (x) the occurrence of a
Trigger Event (as defined in Section
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7.3 of the Merger Agreement), or (y) the occurrence of the condition set forth
in clause (h) of Annex A to the Merger Agreement, the Stock Option shall become
immediately exercisable, in whole or in part, and remain exercisable in
whole or in part until the later of (i) the date which is six months after the
date the Stock Option first became exercisable and (ii) the fifth business day
following expiration or termination of any applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act")
(the "Option Period").
(b) In the event that Parent is entitled to and wishes to exercise
the Stock Option, Parent shall, during the Option Period, send a written notice
(the "Notice") to the Company identifying the place and date for the closing of
such purchase and the number of Option Shares to be purchased. Upon the giving
by Parent to the Company of the Notice and the tender of the aggregate Purchase
Price at the closing so specified, Parent shall be deemed to be the holder of
record of the shares of Company Common Stock issuable upon such exercise, not-
withstanding that the stock transfer books of the Company shall then be closed
or that certificates representing such shares of Company Common Stock shall not
then be actually delivered to Parent. The Company shall pay all expenses, and
any and all United States federal, state and local taxes and other charges that
may be payable in connection with the preparation, issue and delivery of stock
certificates under this Section 3 in the name of Parent or its assignee,
transferee or designee.
4. Sale of Option Shares. If, at any time following the exercise of
the Option, Parent shall either (i) transfer, sell or otherwise dispose of any
or all of the Option Shares, including, without limitation, by means of tender
or exchange of any or all of the Option Shares pursuant to a tender or exchange
offer involving the capital stock of the Company, or (ii) convert such Option
Shares into cash, capital stock, other securities or any other consideration of
any third party in a merger any recapitalization or restructuring or similar
business combination transaction (a "Business Combination Transaction"),
Parent shall pay to the Company within five days the amount equal to the Profit
(as defined below) Parent shall receive, if any, pursuant to such Disposition or
Business Combination Transaction. "Profit", for purposes
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of this Agreement, shall equal (i) the product of (a) the number of Option
Shares Parent transfers, sells, tenders, exchanges or otherwise disposes of
pursuant to a Disposition or a Business Combination Transaction by (b) the
excess of the per Share consideration received by Parent pursuant to such
Disposition or Business Combination Transaction valuing any non-cash
consideration at its fair market value on the date of such consummation (not
including any increase in such aggregate per Share consideration after the
date thereof) over the Purchase Price. For purposes hereof, the fair market
value of any non-cash consideration shall be the closing price or the last sale
price, or, in case no such sale takes place on the day of consummation of such
Business Combination Transaction, the average of the closing bid and asked
prices, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
principal national securities exchange on which such consideration is listed or
admitted to trading or, if such consideration is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if not so determinable, the fair value of such consideration on such date
shall be determined in good faith by the Board of Directors of Parent.
5. Covenants, Representations and Warranties of the Company. The
Company hereby represents and warrants to, and agrees with, Parent and Sub as
follows:
a. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power or other power and authority to execute and
deliver this Agreement and perform its obligations hereunder. The execution
and delivery by the Company of this Agreement and the performance by the Company
of its obligations hereunder have been duly and validly authorized by the Board
of Directors of the Company and no other corporate proceedings on the part of
the Company are necessary to authorize the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby.
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b. Corporate Authorization. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
agreement enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
c. Authorized Stock. The Company has taken all necessary corporate
and other action to authorize, reserve and permit it to issue, and, at all times
from the date hereof until the obligation to deliver the Option Shares upon the
exercise of the Stock Option terminates, will have reserved for issuance, upon
exercise of the Stock Option, shares of Company Common Stock necessary for
Parent to exercise the Stock Option, and the Company will take all necessary
corporate action to (x) authorize and reserve for issuance all additional shares
of Company Common Stock or other securities which may be issued pursuant to
Section 7 upon exercise of the Stock Option and (y) protect the rights of Parent
against dilution. The shares of Company Common Stock to be issued upon due
exercise of the Stock Option, including all additional shares of Company Common
Stock or other securities which may be issuable pursuant to Section 7, upon
issuance pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of the Company.
d. No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act of 1933, as amended (the "Securities Act"), (i) no filing with,
and no permit, authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby and (ii) none of the execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions con-
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templated hereby or compliance by the Company with any of the provisions hereof
shall (A) conflict with or result in any breach of any applicable organizational
documents applicable to the Company or any of its subsidiaries, (B) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination, can-
cellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, pledge, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the Company or
any subsidiary is a party or by which the Company or any subsidiary or any of
their respective properties or assets may be bound, or (C) violate any order,
writ, injunction, decree, judgment, statute, rule or regulation applicable to
the Company or any of its subsidiaries or any of its properties or assets.
e. Reliance by Parent. The Company understands and acknowledges
that Parent is entering into, and causing Sub to enter into, the Merger
Agreement in reliance upon the Company's execution and delivery of this
Agreement.
f. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
g. Listing on New York Stock Exchange. Upon the exercise of the
Stock Option, the Company shall use its best efforts to promptly list on the New
York Stock Exchange, Inc. (the "NYSE"), subject to official notice of issuance,
the shares of Company Common Stock to be issued pursuant to this Agreement.
6. Representations and Warranties of Parent and Sub. Parent and Sub
hereby represent and warrant to the Company as follows:
a. Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good
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standing under the laws of the State of Delaware, has all requisite corporate
power or other power and authority to execute and deliver this Agreement and
perform their respective obligations hereunder. The execution and delivery by
Parent and Sub of this Agreement and the performance by Parent and Sub of their
respective obligations hereunder have been duly and validly authorized by the
Board of Directors of each of Parent and Sub and no other corporate proceedings
on the part of Parent or Sub are necessary to authorize the execution, delivery
or performance of this Agreement or the consummation of the transactions
contemplated hereby.
b. Corporate Authorization. This Agreement has been duly and validly
executed and delivered by Parent and Sub and constitutes a valid and binding
agreement of each of Parent and Sub enforceable against each of Parent and Sub
in accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
c. No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by Parent or Sub and the consummation by Parent or
Sub of the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Parent of Sub, the consummation by Parent or Sub
of the transactions contemplated hereby or compliance by Parent or Sub with any
of the provisions hereof shall (A) conflict with or result in any breach of
any applicable organizational documents applicable to Parent or Sub, (B) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license,
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contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Sub is a party or by
which Parent or Sub or any of their respective properties or assets may be
bound, or (C) violate any order, writ, injunction, decree, judgment, statute,
rule or regulation applicable to Parent or Sub or any of their respective
properties or assets.
7. Adjustment Upon Changes in Capitalization. In the event of any
change in Company Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the type and
number of shares of Company Common Stock subject to the Stock Option and the
Purchase Price shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Company Common Stock
are issued or otherwise become outstanding as a result of any such change after
the date of this Agreement (other than pursuant to this Agreement), the number
of shares of Company Common Stock subject to the Stock Option shall be adjusted
so that, after such issuance and together with shares of Company Common Stock
previously issued pursuant to the exercise of the Stock Option (as adjusted on
account of any of the foregoing change in Company Common Stock), it equals 19.9%
of the number of shares of Company Common Stock then issued and outstanding.
Nothing contained in this Section 7 shall be deemed to authorize the Company to
breach any provision of the Merger Agreement.
8. Registration Rights. The Company shall, if requested by Parent
at any time and from time to time within three years of the first exercise of
the Stock Option, promptly prepare, file and keep current a registration
statement under the Securities Act in order to permit the sale or other
disposition of the shares of Company Common Stock that have been acquired by or
are issuable to Parent upon exercise of the Stock Option in accordance with the
intended method of sale or other disposition stated by Parent, including a
"shelf" registration statement under Rule 415 of the Securities Act or any
successor provision, and the Company shall use its best efforts to qualify such
shares or other securities under any applicable state securities laws. Parent
shall provide all information reasonably requested by the Company for inclusion
in any registration statement to be
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filed hereunder. The Company will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Parent shall have the
right to demand one such registration. The Company shall bear the costs of such
registration (including, but not limited to, the Company's attorneys' fees,
printing costs and filing fees, except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Parent's counsel
related thereto). If requested by Parent, in connection with such registration,
the Company will become a party to any underwriting agreement relating to the
sale of such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities, and other agreements customarily
included in such underwriting agreements. Upon receiving any request from the
Company or assignee thereof under this Section 8, the Company agrees to send a
copy thereof to Parent and to any assignee thereof known to the Company, in each
case by promptly mailing the same, postage prepaid, to the address of record of
the person entitled to receive such copies.
9. Termination. Except as otherwise provided herein, the covenants
and agreements contained herein with respect to the Option Shares shall
terminate upon the earlier of (i) the consummation of the Merger and (ii) the
expiration of the Option Period.
10. Miscellaneous.
a. Entire Agreement. Except as otherwise expressly provided
herein, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities
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under or by reason of this Agreement, except as expressly provided herein.
b. Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
c. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
d. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if given) by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier service, such as
Federal Express), or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Company: Revco D.S., Inc.
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxx, Xxxx 00000
Attention.: Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
copy to: Xxxxxxx X.X. Xxxxx, Esq.
Benesch, Friedlander,
Xxxxxx & Aronoff
0000 XX Xxxxxxx Xxxxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Telephone No.: 000-000-0000
Telecopy No.: 000-000-0000
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If to Parent Rite Aid Corporation
or Sub: 00 Xxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxxxx 00000
Attention.: Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
copy to: Xxxxx X. Xxxxxxxxx, Esq.
Skadden, Arps, Slate,
Xxxxxxx & Xxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
e. Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
f. Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
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g. Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
h. No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
j. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
k. Jurisdiction. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware in any
action, suit or proceeding arising in connection with this Agreement, and agrees
that any such action, suit or proceeding shall be brought only in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein); provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this paragraph (l) and shall not be deemed
to be a general submission to the jurisdiction of said Court or in the State
of Delaware other than for such purposes. Each party hereto hereby waives any
right to a trial by jury in connection with any such action, suit or proceeding.
l. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
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m. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be duly executed as of the day and year first above written.
RITE AID CORPORATION
By: /s/ Xxxxxx X. Grass
------------------------------
Name: Xxxxxx X. Grass
Title: Chairman of the Board
and Chief Executive Officer
OCEAN ACQUISITION CORPORATION
By: /s/ Xxxxxx X. Grass
------------------------------
Name: Xxxxxx X. Grass
Title: President
REVCO D.S., INC.
By:
------------------------------
Name: D. Xxxxxx Xxxxx
Title: President and Chief
Executive Officer
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be duly executed as of the day and year first above written.
RITE AID CORPORATION
By: /s/
------------------------------
Name:
Title:
OCEAN ACQUISITION CORPORATION
By: /s/
------------------------------
Name:
Title:
REVCO D.S., INC.
By: /s/ D. Xxxxxx Xxxxx
------------------------------
Name: D. Xxxxxx Xxxxx
Title: President and Chief
Executive Officer
