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Executive Summary

Revco is denying board representation to officials of its Odd Lot subsidiary, according to the firm's proxy statement issued Aug. 22. The proxy material asks shareholders to approve seven board nominations, none of which include management from Odd Lot. The chain nominated Revco Chairman and President Sidney Dworkin, Cleveland attorney Malvin Bank, Royal Companies President Daniel Bogard, and Revco Senior VP-Real Estate Marvin Solganik, to terms ending in 1987. Nominated for terms expiring in 1985 were retired Natl. City Bank (Cleveland) Chairman Claude Blair and the bank's current President Edward Brandon. Bogard, Blair and Brandon are new to the chain's board. According to an Aug. 21 Revco release, Odd Lot's Issac Perlmutter and Bernard Marden had demanded six seats on Revco's board. They also demanded Sidney Dworkin be replaced as Revco's chief executive officer. Revco is taking a hard line in dealing with a number of proposals reportedly made by Odd Lot officials at a meeting with Revco management Aug. 9 ("The Pink Sheet" Aug. 20, T&G-9). The board "rejected both demands as 'self serving' and did not include Marden, Perlmutter or anyone proposed by them, on the slate being presented to shareholders," the release noted. Revco's annual meeting is scheduled for Sept. 26. Perlmutter and Marden, a former Revco board member who resigned shortly before the chain acquired Odd Lot in April, own a total of 4.3 mil. shares of Revco stock, or about 12%. In an Aug. 15 filing with the Securities & Exchange Commission, the two threatened to engage in a proxy battle or to sell their currently-held shares in block transactions. Revco Right Of First Refusal For Odd Lot Holdings Makes Sales To Third Party "Most Unlikely," Chain Says The board is also asking shareholders to grant advance authorization of its right to first refusal to buy all shares owned by the Odd Lot officials. Under the terms of the Odd Lot acquisition, Revco has the right of first refusal, for a five-year period, for Marden's and Perlmutter's shares. If a third party offers to purchase the shares, Revco has "three business days to purchase such offered shares upon the same terms and conditions as are contained in such private offer or tender offer," the proxy explains. The proxy adds that Revco does not know of any proposed offers to purchase the shares. According to the proxy statement, advance shareholder authorization will eliminate the need for approval by the New York Stock Exchange for the firm to exercise the first refusal right. Urging shareholders to approve the proposal, Revco's board said it "believes that it would be difficult to obtain timely New York Stock Exchange approval in view of the short period of time . . . during which this right of first approval will exist." In a letter to Revco shareholders issued Aug. 21, Dworkin said the Odd Lot group's possible plan to sell their stake in Revco to a potential third party interested in controlling the chain "is most unlikely" to occur because of the first refusal right agreement. "This means that if they receive any bone fide offer for the shares, before they can accept, they must submit that offer to Revco and the company has an overriding right to buy the shares at the price offered," he explained. A key issue in the dispute has been the questioning of Revco's purchasing procedures by the former Odd Lot officials. Formerly under Sidney Dworkin's son Elliot, purchasing operations were recently merged with merchandising under long-time Revco employee Daniel Horwitz in a newly-created position of VP-merchandising and purchasing. An outside cmte. to review allegations of "possible irregularities" in Revco's purchasing operations is scheduled to submit a report and recommendations to Revco's board Aug. 28. Revco will not pursue anti-takeover provisions considered by the board, such as the creation of a new class of voting preferred stock and "fair price" takeover provisions. Odd Lot had urged the Revco board not to submit the anti-takeover provisions to the shareholders. Revco CEO Dworkin said in the release: "It was felt that at the present time, in a business climate that mitigates against such provisions, the effort required to assure approval of such provisions wouldn't be a good use of executive time and attention, and of company funds." Perlmutter and Marden obtained their stake in Revco as a result of Odd Lot's purchase by the chain in April ("The Pink Sheet" April 30, p. 3). The transaction was valued at $113 mil. at that time. Revco's just released annual report for fiscal 1984 (ended June 2) indicated that Odd Lot sales (outside of Revco) grew nearly 80% to $113.8 mil., representing about 3% of Revco pro forma sales. Sales to Revco jumped from $12.5 mil. in fiscal 1983 to $42 mil. in fiscal 1984, the report notes. Odd lot net earnings in fiscal 1984 (excluding inter-company profits) also rose dramatically to $11.1 mil., up from $1.6 mil. in 1983 and a $100,000 loss in 1982, the annual report notes.

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