-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FkpXlUXjVhgnpjluT29rG5DcA+DZhrX9uS5A78v4zEkuwLmvKAXLx+KFUa/OAEYi EIUzxLln7uAMHOEjelJ9jg== 0000907098-95-000008.txt : 19950501 0000907098-95-000008.hdr.sgml : 19950501 ACCESSION NUMBER: 0000907098-95-000008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECKERD CORP CENTRAL INDEX KEY: 0000031364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 133302437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-04844 FILM NUMBER: 95532556 BUSINESS ADDRESS: STREET 1: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 BUSINESS PHONE: 8133996000 MAIL ADDRESS: STREET 1: JACK ECKERD CORPORATION STREET 2: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 FORMER COMPANY: FORMER CONFORMED NAME: ECKERD DRUGS OF FLORIDA INC DATE OF NAME CHANGE: 19700112 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K405 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended January 28, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File Number 1-4844 ECKERD CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3302437 (State of incorporation) (I.R.S. Employer Identification No.) 8333 Bryan Dairy Road Largo, FL 34647 (Address and zip code of principal executive offices) (813) 399-6000 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $.01 New York Stock Exchange 11 1/8% Subordinated Debentures Due 2001 American Stock Exchange 9 1/4% Senior Subordinated Notes Due 2004 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K405 or any amendment to this Form 10-K405. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Company as of March 31, 1995 was $555,182,153 (Calculated on the assumption that all directors, all executive officers, and the Merrill Lynch Investors are affiliates). As of March 31, 1995, 32,127,007 shares of common stock, par value $.01, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Certain portions of the Annual Report to Stockholders for the fiscal year ended January 28, 1995 Parts II & IV (2) Certain portions of the Definitive Proxy Statement for Stockholder Meeting to be held on May 24, 1995 Part III ECKERD CORPORATION JANUARY 28, 1995 FORM 10-K405 ANNUAL REPORT Table of Contents PART I Item Page 1. Business 3 2. Properties 13 3. Legal Proceedings 13 4. Submission of Matters to a Vote of Security Holders 14 Executive Officers of the Registrant 14 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 8. Financial Statements and Supplementary Data 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III 10. Directors and Executive Officers of the Registrant 17 11. Executive Compensation 17 12. Security Ownership of Certain Beneficial Owners and Management 17 13. Certain Relationships and Related Transactions 17 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 17 PART I Item 1. Business General Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd Drug store chain, which is one of the largest drug store chains in the United States. At January 28, 1995, the Eckerd Drug store chain consisted of 1,735 stores in 13 states located primarily in the Sunbelt, including 553 stores in Florida and 490 stores in Texas. Over its 42-year history, the Eckerd Drug store chain has built a strong market position in areas where demographic characteristics are favorable to drug store growth. The Company's stores are concentrated in 10 of the 12 metropolitan statistical areas with the largest percentage growth in population from 1980 to 1990, and, according to industry sources, the Company ranks first or second in terms of drug store sales in 12 of the 14 major metropolitan markets in which it operates. The primary focus of Eckerd Drug stores is the sale of prescription and over-the-counter drugs, which, during fiscal 1994, generated approximately 61% of the Company's drug store sales. Another significant focus of Eckerd Drug stores is photofinishing. The Company offers overnight photofinishing services in all Eckerd Drug stores and operates Eckerd Express Photo centers, which are one-hour photofinishing mini-labs. Eckerd Express Photo centers were located in 481 Eckerd Drug stores at January 28, 1995. The Company was formed in 1985 by Merrill Lynch Capital Partners, Inc. ("Merrill Lynch Capital Partners"), an affiliate of Merrill Lynch & Co., Inc. ("ML & Co."), for the purpose of acquiring the former Jack Eckerd Corporation ("Old Eckerd"), in April 1986 (the "Acquisition"). Merrill Lynch Capital Partners formed EDS Holdings Inc. ("EDS") and its wholly owned subsidiary, Eckerd Holdings II, Inc. ("EH II"), to acquire certain additional drug stores in July 1990. On August 12, 1993, the Company completed an initial public offering (the "IPO") in which it issued and sold 5,175,000 shares of Common Stock for $14.00 per share. In connection with the consummation of the IPO, the holders of EDS common stock exchanged their shares for shares of Common Stock. Immediately thereafter, EDS was merged into Eckerd with EH II becoming a wholly owned subsidiary of Eckerd. All references in this Form 10-K405 to the "Company" for periods prior to such acquisition mean the Company, EDS and their respective subsidiaries. In connection with the IPO the Company also amended its Restated Certificate of Incorporation to effect, among other things, (i) the reclassification of its Class A common stock and Class B common stock into Common Stock at certain specified rates, (ii) a 2-for-3 reverse stock split (the "Stock Split"), (iii) the adoption of certain provisions such as a classified board of directors and the prohibition of stockholder action by written consent, which could make non-negotiated acquisitions of the Company more difficult and (iv) the change of the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation." None of the Company's stockholders sold any shares of Common Stock in the IPO. On May 2, 1994, the company completed an underwritten secondary offering of 3,199,056 shares of Common Stock for $19.00 per share. The secondary offering only included shares of Common Stock owned by the Merrill Lynch Investors and certain institutional investors. Stockholders of the Company include (i) certain partnerships affiliated with Merrill Lynch Capital Partners and, (ii) certain other affiliates of ML & Co. ((i) and (ii), collectively, the "Merrill Lynch Investors") who beneficially owned 38.3% of the Common Stock of the Company as of March 31, 1995. The Drug Store Industry Prescription and over-the-counter medications have traditionally been sold by independent drug stores as well as conventional drug store chains, such as Eckerd Drug stores, and purchased by consumers with cash or credit cards. The drug store industry has recently undergone significant changes as a result of the following important trends: (i) the increase in third-party payments for prescription drugs, (ii) the consolidation within the drug store industry, (iii) the aging of the United States population and (iv) the increase in competition from non-traditional retailers of prescription and over-the-counter drugs. During the last several years, a growing percentage of prescription drug volume throughout the industry has been accounted for by sales to customers who are covered by third-party payment programs ("third-party sales"). In a typical third-party sale, the drug store has a contract with a third-party payor, such as an insurance company, HMO, PPO, other managed care provider, government agency or private employer, which agrees to pay for part or all of the customer's eligible prescription purchases. Although these third-party sales contracts often provide a high volume of prescription sales, such sales typically generate lower gross margins than non third-party sales due principally to the highly competitive nature of this business and recent efforts by third-party payors to contain costs. Larger drug store chains, such as Eckerd Drug stores, are better able to service the growing third-party segment than independent drug stores and smaller chains as a result of the larger chains' more sophisticated technology systems, larger number of stores and greater penetration within their markets. As a result of the economies of scale from which larger drug store chains benefit as well as the third-party payment trend, the number of independent drug stores and smaller drug store chains has decreased as many of such retailers have been acquired by larger drug store chains. This trend is expected to continue because larger chains are better positioned to handle the increased third-party sales, purchase inventory on more advantageous terms and achieve other economies of scale with respect to their marketing, advertising, distribution and other expenditures. The Company believes that the number of independent drug stores and smaller drug store chains remaining in operation may provide significant acquisition opportunities for larger drug store chains, such as the Company. Strong demographic trends have also contributed to changes in the drug store industry, as the group of persons over age 50 is the fastest growing segment of the United States population. This trend has had, and is expected to continue to have, a marked effect on the pharmacy business in the United States because consumer prescription and over-the-counter drug usage generally increases with age. The Company's markets have large concentrations of, and are continuing to experience significant growth in, the number of persons over age 65. In 1994, drug store chains and independent drug stores represented approximately 37% and 31%, respectively, of all pharmacy sales in the United States. In response to a number of factors, including the aging of the United States population, mass merchants (including discounters and deep discounters), supermarkets, combination food and drug stores, mail order distributors, hospitals, HMO's and other managed care providers have entered the pharmacy industry. Supermarkets, including combination food and drug stores, and mass merchants each represented approximately 11% of all pharmacy sales in the United States in 1994. Although the Company currently faces increased competition from these retailers, industry studies show that consumers in the over 65 age group tend to make purchases at traditional drug stores, such as Eckerd Drug stores, and maintain strong store loyalty. Eckerd Drug Stores In 1992, the Company celebrated the 40th anniversary of the opening of the first Eckerd Drug store. The Company has grown to its present size and developed its leading position in the industry through both internal expansion and acquisitions. As of January 28, 1995, the Company operated the number of Eckerd Drug stores and Eckerd Express Photo centers indicated below in each of the following states: Drug Stores Eckerd With Eckerd Drug Express Photo Stores Centers Florida 553 225 Texas 490 132 North Carolina 192 45 Georgia 164 44 Louisiana 110 17 South Carolina 82 13 Tennessee 35 1 New Jersey 27 1 Mississippi 26 - Oklahoma 26 - Alabama 18 3 Delaware 11 - Maryland 1 - Total 1,735 481 Over the past five years, the Company has implemented several initiatives designed to increase the size, and improve the quality and operating performance, of the Company's store base. Among such initiatives are the opening and acquisition of new stores, the closure or divestiture of underperforming stores and an extensive remodeling program. Since 1986, 500 Eckerd Drug stores have been opened or acquired within the Company's existing markets, more than 300 underperforming stores have been closed or divested, and substantially all of the Company's remaining stores have been remodeled. In addition, the Company opened more than 450 Express Photo centers. The Company has also increased the degree to which merchandise is tailored to specific markets, instituted a chainwide shrinkage reduction program and made a significant investment in its management information systems. As a result of, among other things, these actions, aggregate sales have increased from $2.73 billion in fiscal 1987 to $4.55 billion in fiscal 1994. The following table summarizes the number of Eckerd Drug stores operated by the Company and the sales on an aggregate and per store basis for the last five years. Fiscal Years 1994 1993 1992 1991 1990 Number of Eckerd Drug stores at beginning of period 1,718 1,696 1,675 1,673 1,630 Stores opened or acquired(3) 39 52 50 22 139 (1) Stores sold or closed (22) (30) (29) (20) (96)(2) Number of Eckerd Drug stores at end of period 1,735 1,718 1,696 1,675 1,673 Number with Express Photo centers 481 413 378 321 258 Sales of Eckerd Drug stores $4,396,440 4,014,094 3,722,523 3,594,037 3,330,062 Average annual sales per Eckerd Drug store $ 2,561 2,365 2,222 2,142 2,036
(1) Includes 96 stores acquired by, and managed on behalf of, EH II (two of which were closed in fiscal year 1991). Excludes 127 stores acquired by EH II that were liquidated or sold. (2) Includes 14 Eckerd Drug stores closed as a result of the acquisition of drug stores by EH II. (3) Excludes relocations. The Company intends to continue to expand its business through both internal expansion and acquisitions of smaller drug store chains and independent drug stores. Although the Company currently plans to expand Eckerd Drug stores within the Company's existing markets, the Company also considers strategic acquisitions in other markets. The Company opened or acquired 55 drug stores, including relocations, in fiscal 1994 and has a goal of opening (including relocations) 90 drug stores in fiscal 1995 and 100 drug stores per year in fiscal 1996 through 1999. In addition to such openings and acquisitions, the Company expects to sell or close a small number of drug stores per year in fiscal 1995 and thereafter through 1999, which would be intended to improve the quality of the Company's store base. In the fourth quarter of fiscal 1994, the Company decided to accelerate the closing of approximately 90 geographically dispersed, under-performing stores over the next twelve to eighteen months, and established a $49.0 million reserve for future store closings. These closings are in addition to the small number of stores the Company closes in the normal course of business. The cash costs associated with opening a drug store are estimated to be approximately $490,000, which includes initial inventory costs of approximately $260,000. The Company intends to use cash flow from operations to finance the cash costs of this growth, although borrowings may also be available to finance such growth. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." In determining the areas in which to open or acquire drug stores, the Company evaluates a number of demographic considerations, including the size, growth pattern and per capita income of the population, as well as the competitive environment and the accessibility of a proposed site to the customer and to the Company'swarehouse and distribution facilities. The Company also continually reviews these factors and the performance of individual stores in determining whether to close or relocate certain stores. Products and Services Pharmacy The primary focus of Eckerd Drug stores is the sale of prescription and over-the-counter drugs. During fiscal 1994, Eckerd Drug Stores filled more than 89 million prescriptions, and sales of prescription and over-the-counter drugs generated approximately 61% of the Company's drug store sales. During the period from fiscal 1990 to fiscal 1994, the dollar volume of sales of prescription drugs by the Company increased 62.8%. The Company seeks to position pharmacists as health-care professionals who build relationships with their customers. Over the years, marketing and advertising campaigns have been focused on reinforcing the professionalism of the Company's pharmacists and positioning them as a key factor to high quality pharmacy service. The Company has also instituted several health-related programs such as health screenings, education and outreach programs, and customer relationship programs. The Company provides to prescription drug customers, the "Rx Advisor," a personalized easy-to-read publication, for each new prescription, which advises the customer of the specific dosages, drug interactions and side effects of his or her new prescription medicine. Eckerd Drug store pharmacy departments are modern, clean and clearly identified by attractive signs. The pharmacy areas in many of the Company's newer and remodeled stores provide a consultation area and a waiting area with comfortable seating, informational brochures and free blood pressure testing. The pharmacy areas are designed to be conducive to customer service and counseling by the pharmacists. The Company has devoted substantial resources to marketing to third party payors, such as insurance companies, health maintenance organizations, preferred provider organizations and other managed care providers and government agencies. In addition, the Company's computer systems provide on-line adjudication which permits the Company and the third-party payor to determine electronically, at the time of sale, eligibility of the customer, coverage of the prescription and pricing and co-payment requirement, if any, and automatically bills the respective plan. On-line adjudication reduces losses from rejected claims and eliminates a portion of the Company's paperwork for billing and collection of receivables and costs associated therewith. During the past five years, the Company has reduced the average number of days that receivables from third-party sales were outstanding from 48 days in fiscal 1990 to 22 days in fiscal 1994 (or more than 50%) while increasing sales by 187% during the same period. Third-party prescription sales accounted for approximately 64.6%, 58.0%, 49.6%, 43.1% and 36.0% of the Company's prescription sales in fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990, respectively. Nonpharmacy Merchandise In addition to prescription and over-the-counter drugs, Eckerd Drug stores sell a wide variety of nonpharmacy merchandise, including health and beauty aids, greeting cards and numerous other convenience products. Eckerd-brand products, which are attractively priced and provide higher margins than similar national brand products, represent a growing segment of products offered by Eckerd Drug stores. Health. Eckerd Drug stores offer a broad assortment of popular national brands as well as private label over-the-counter drugs and other products related to dental care, foot care, vitamins and nutritional supplements, feminine hygiene, family planning and baby care. Eckerd Drug stores provide a helpful environment in which consumers can obtain product information from professional pharmacists, knowledgeable sales associates and store managers or from literature available throughout the store. Beauty. Eckerd Drug stores offer an assortment of popular brand name cosmetics, fragrances and other beauty products. Management believes that Eckerd Drug stores provide the customer with a convenient format in which to purchase the lines of beauty products offered in its stores. Skin care products are an increasingly important component of the beauty category due to the aging population and growing concern about the effects of the environment on the skin. The Company has recently completed an expansion which devoted more shelf space to this product category. Greeting Cards. The greeting card department in Eckerd Drug stores offers a wide selection of contemporary and traditional cards, gift wrap, bows and novelties. The Company believes that the locations of its stores together with the wide selection offered by Eckerd Drug stores enable customers to satisfy their card and gift needs more conveniently than at traditional card stores. The Company has increased the space devoted to its greeting card department because of the profitability of such merchandise and because the Company believes that the demand for such merchandise will increase traffic in its stores. Convenience Products. This merchandise category consists of an assortment of items, including candy, food, tobacco products, books and magazines, household products, seasonal merchandise and toys. These items are carefully positioned to provide optimum convenience to the customer with easy access in the front part of the store. The Company also seeks to serve its customers' needs by specifically tailoring items in this category to meet the needs of its customers in specific store locations. This strategy includes the introduction and further expansion of the food mart section offering convenience food items such as staple grocery shelf items, staple and chilled beverages, snack foods and specialty items in approximately 550 locations. The Company plans to add food mart sections to an additional 400 stores in fiscal 1995. For example, souvenirs and select summer products are offered in beach and tourist locations while convenience food is stressed in urban areas and malls. Photofinishing Another significant focus of Eckerd Drug stores is photofinishing. The Company offers overnight photofinishing services in all Eckerd Drug stores and operates Eckerd Express Photo centers, which are one-hour photo processing mini-labs. Eckerd Express Photo centers were located in 481 Eckerd Drug stores at January 28, 1995. The Company is among the top three vertically integrated retail photofinishers in the United States, and the Company believes that it is the leading source of photofinishing in all of the major markets in which it operates. The Company processed over 28 million rolls of film in fiscal 1994 in its own photo labs and has several well known branded processing programs, including System 2(R) (two prints for the price of one), Ultralab 35(R) (larger size, higher quality prints) and Express Print 60 (one-hour processing). The Company believes that its branded processing programs, which emphasize quality and service, have helped position the Company as a leader in photofinishing. The Company currently intends to continue to expand its one-hour photofinishing business, with a goal of adding approximately 270 new Express Photo centers by 1999. The Company's photo departments also offer camera and photo accessories, small electronics, batteries and audio and video tapes. The entire photo department, including photofinishing, represented approximately 9.2% of the Company's total drug store sales in fiscal 1994. Store Operations Eckerd Drug stores are located and designed to maximize customer service and convenience and are situated in areas of high customer traffic, typically in neighborhood shopping centers with strong supermarket co-tenants or in strategically located free-standing stores. Eckerd Drug stores are designed to facilitate customer movement and feature well-stocked shelves, clearly identified aisles and well-lit interiors to maximize product visibility. Pharmacy departments are generally located near the back of the store to maximize customer exposure to the store. The stores are equipped with modern fixtures and equipment and most of them range in size from 8,200 to 10,800 square feet. About 85% of the floor space is selling area, with the remainder used for storeroom and office space. To enhance productivity per square foot and maintain consistent merchandising, the Company utilizes centrally prepared formats for the display and stocking of products in the Company's stores, while continuing to allow some flexibility to store managers to modify the merchandise assortment based upon the Company's program of tailoring merchandise offerings to the markets in which the stores operate. The typical Eckerd Drug store is open every day of the year except Christmas, with store hours geared to the needs of the specific markets. A select number of strategically located stores stay open until midnight or 24 hours a day. Eckerd Drug stores are currently grouped under six operating regions located in or near Orlando and Deerfield Beach, Florida; Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. Each operating region is headed by a vice president who supervises the various districts comprising the region. Within each district, there are managers who are responsible for the drug stores in their districts and regularly visit their stores to assure quality of service and merchandising. District pharmacy managers supervise the pharmacy operations and district Express Photo managers supervise the Express Photo operations in the drug stores. Each drug store is individually supervised by a manager who receives training in the Company's merchandise offerings, customer service and management strategy. The Company has implemented various initiatives designed to reduce shrinkage expense. These initiatives include training and awareness programs, tailored audit programs for district managers, hiring of internal auditors and loss prevention specialists, and computerized exception reporting for, among other things, customer refunds, voids and cash overages and shortages from daily register check-outs. Purchasing and Distribution Merchandising and buying are generally, as are all supplier payments, centralized at Company headquarters to assure consistency of marketing approach and efficiency in supplier relations. The Company has implemented an enhanced electronic buying system to improve inventory management and gross profit by enabling the Company to take better advantage of quantity discounts and forward buying opportunities, which the Company believes will lower the average cost of inventory. Additionally, it is anticipated that this buying system and its improved forecasting ability will improve service levels to the stores and will reduce average inventory required in the Company's distribution centers. Approximately 85% of store merchandise is purchased centrally and distributed, principally by Company-operated trucks, through the Company's five centrally located distribution facilities located in or near Orlando, Florida; Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The remainder of store merchandise is distributed directly to the stores, some of which is purchased at the store level. Advertising and Marketing A combination of newspaper advertising and TV and radio spot commercials is carried on throughout the year to promote sales. During the fiscal year ended January 28, 1995, these net advertising expenses totaled approximately 0.5% of Company sales. The Company's concentration of stores within its markets enables it to achieve economies of scale in its advertising and marketing expenditures and also enables the Company to negotiate favorable rates for advertising time and print production. From the time of the Acquisition through fiscal 1994, the Company reduced its net advertising expense as a percentage of sales by more than 70%. In addition, the Company has derived additional cost savings through a rationalization of its advertising expenditures. Certain advertising expenditures related to the Company's overall corporate image have been reduced in favor of advertising efforts such as newspaper circulars. This change in advertising strategy has resulted in increased financial support from the Company's vendors and a more direct impact on sales. The Company believes that its current level of advertising expenditures is appropriate to support its existing marketing strategies. The Company's communications and marketing programs are based upon an ongoing commitment to consumer research. Through regular telephone surveys in all major markets, exit interviews in its stores, and studies of various consumer groups, the Company is able to monitor changes in customer attitudes and shopping habits and adjust its marketing strategies accordingly. Information and Technology The Company intends to continue to invest in information systems to improve customer service, reduce operating costs, provide information needed to support management decisions and enhance the Company's competitive position with third-party payors. The Company's Comp-U-Care System, installed in each pharmacy location, provides support for the pharmacy and assists pharmacists in their prescription processing activities, which in turn enhances the pharmacy's ability to service customers. The system's transfer of information between headquarters and each of the in-store pharmacy terminals allows central monitoring of prescription sales activity by store and item, centralized billing of third-party sales and daily updates to the stores' data files. The Comp-U-Care System performs on-line adjudication of customer and claim eligibility and reimbursement for the majority of the third-party payment plans in which the Company participates. On-line adjudication reduces losses from rejected claims and eliminates a portion of the Company's paperwork for billing and collection of receivables and costs associated therewith. The Company believes that such systems are essential to service the increasing volume of third-party sales. The Company is currently developing its advanced Comp-U-Care 2000 System, which is scheduled to be introduced in Eckerd Drug stores in fiscal 1995. The Comp-U-Care 2000 System will improve speed and productivity in the pharmacy; decrease customer wait time; enhance functionality, including expanded drug utilization reviews; and will ultimately in fiscal 1996 permit the transfer of information directly from one drug store to another enabling customers to fill and refill prescriptions at any Eckerd Drug store. During fiscal 1994 the Company installed a satellite communications network, enhanced the point-of-sale ("POS") system and upgraded the merchandise buying system. The Company currently has POS product scanning equipment in approximately 530 stores and expects to expand scanning to approximately 590 additional stores by the end of fiscal 1995. The Company has been expanding scanning to its higher volume stores and the over 1,100 stores installed by the end of fiscal 1995 will represent approximately 75% of front-end sales. Scanning systems will provide more and better merchant and store level information to facilitate inventory management, automatic re-ordering, product sales and gross profit analysis and inventory shrinkage control. The Company believes that broader use of scanning throughout the chain will improve customer service by decreasing customer check-out time and improving adherence to advertised sale or promotional prices. The Company is expanding its use of electronic data interchange ("EDI") systems with certain of its major suppliers. EDI allows for the paperless ordering of products with immediate confirmation from the vendor on price, delivery terms and amount of goods ordered. The Company is also experimenting with automatic replenishment buying in connection with its warehouse and distribution systems, which includes the computer generation of purchase orders for certain vendors. These systems should also allow the Company to reduce lead time on orders and improve cash flow by reducing the amount of inventory required to be kept on hand. EDI will be expanded as the Company expands its scanning system. The Company is also developing or purchasing software with applications in the human resources area to improve personnel scheduling; to expand the merchandise and store information data base systems to enable the Company to more efficiently manage its business; and to start the initial roll out of the warehouse management system to provide improved control and management of inventory and personnel. In 1993, the Company and Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM, entered into a Systems Operations Service Agreement pursuant to which the Company and ISSC are developing a state of the art information systems operation to include pharmacy and POS systems for the Company's drug stores. Under the Company's supervision, ISSC manages the entire information systems operation and is responsible for providing technology services to the Company. The Systems Operations Services Agreement has a 10-year term, and the total payments to be made by the Company thereunder are currently expected to be between $400.0 million and $440.0 million over such term, depending on optional services utilized. The Company believes that this arrangement has and will continue to enable the Company to further improve customer service, replace the Company's existing systems, reduce operating costs and capital expenditures for hardware, obtain information needed to support management decisions on an improved basis and increase the Company's focus on its core business. Competition The Company's retail drug stores operate in a highly competitive industry. The Company's drug stores compete primarily on the basis of customer service, convenience of location and store design, price and product mix and selection. In addition to traditional competition from independent drug stores and other drug store chains, the Company faces competition from mass merchants (including discounters and deep discounters), supermarkets, combination food and drug stores, mail order distributors, hospitals and HMOs. These other formats have experienced significant growth in their market share of the prescription and over-the-counter drug business. The Company's Express Photo centers compete with a variety of photo processors including other mini-labs, retail stores and photo specialty stores. The Company's Express Photo business competes primarily on the basis of quality of processing, quality and speed of service and value. Regulation All of the Company's pharmacists and stores are required to be licensed by the appropriate state boards of pharmacy. The Company's drug stores and distribution centers are also registered with the Federal Drug Enforcement Administration. Most of the stores sell beer and wine and are subject to various state and local liquor licensing requirements. By virtue of these license and registration requirements, the Company is obligated to observe certain rules and regulations, and a violation of such rules and regulations could result in a suspension or revocation of a license or registration. The Company has a number of third-party payor contracts pursuant to which the Company is a provider of prescription drugs. "Freedom of choice" state statutes, pursuant to which all pharmacies would be entitled to be a provider under such a contract, have been enacted in certain states, including Alabama, Georgia, New Jersey, North Carolina, Louisiana, Tennessee and Texas, and may be enacted in others. Although such statutes may adversely affect certain of the Company's third-party contracts, they may also provide the Company with opportunities regarding additional third-party contracts. The Clinton Administration has stated that health care reform is one of its priorities. A health care reform plan by President Clinton as well as a number of competing health care reform proposals were introduced in Congress, and some may be introduced again this year. The Company cannot predict whether any federal health care reform legislation will eventually be passed and, if so, the impact on the Company's financial position or results of operations. In 1993, the State of Florida enacted health care legislation that is applicable to state employees, small businesses with fewer than 50 employees and Medicaid recipients. Such legislation, which began to be implemented in 1994, created 11 health care purchasing cooperatives, which accepted bids from groups of health care providers (which include certain of the Company's managed health care clients) to provide goods and services to the cooperatives members. The Company expects to provide prescription drugs to the cooperatives members through its existing managed health care clients. However, the Company is unable to predict whether its efforts will be successful or whether the Florida legislation will have an adverse impact on the Company's financial position or results of operations. Other Operations On March 31, 1994, the company closed on the sale of its Vision Group retail optical operations which was sold effective January 30, 1994 for an amount in cash and notes approximately equal to the book value of the related assets. In fiscal 1993, Vision Group sales were approximately $61 million and earnings before interest and taxes were approximately $3 million. On November 15, 1994, the company closed on the sale of its Insta-Care Pharmacy Services (Insta-Care) institutional pharmacy services operations for a total consideration of $112 million in cash. The net proceeds after certain closing adjustments was approximately $94 million. In fiscal 1994, Insta-Care sales were approximately $89 million and earnings before interest and income taxes were approximately $3 million. The Company recognized a gain on the sale of Insta-Care of $49.5 million, net of income taxes of $4.6 million. Employees As of January 28, 1995, the Company had approximately 42,700 employees, of which 22,200 were full-time employees. The Company believes that overall employee relations are good. None of the Company's employees are represented by unions. Patents, Trademarks and Tradenames No patent, trademark, license, franchise or concession is considered to be of material importance to the business of the Company other than the trade names under which the Company operates its retail businesses, including the Eckerd name. The Company also holds servicemarks for its photofinishing products, private label products and information systems. Item 2. Properties The Company conducts substantially all of its retail businesses from stores located in leased premises. Substantially all of these leases will expire within the next twenty-five years. In the normal course of business, however, it is expected that leases will be renewed or replaced by leases on other properties. Most of the Company's store leases provide for a fixed minimum rental together with a percentage rental based on sales. The material office and distribution center properties owned or leased by the Company at January 28, 1995 are as follows: Owned or Location Square Feet Leased Largo, Florida 488,000 Owned(1) Charlotte, North Carolina 587,000 Owned Garland, Texas 270,000 Owned Conroe, Texas 345,000 Owned Orlando, Florida 321,000 Owned(2) Orlando, Florida 587,000 Leased(2) Newnan, Georgia 244,000 Owned(3) Hammond, Louisiana 185,000 Owned(3)(4) (1) Includes the Company headquarters. (2) In January, 1993 the Company assumed a lease for an office and distribution facility of approximately 587,000 square feet (lease expires 2005). The Company's existing Orlando facilities and the Largo distribution center facility were consolidated into the new facility during 1993. One of the owned Orlando facilities was sold in May 1994, and the other owned facility is under contract to be sold. (3) Construction was financed pursuant to revenue bond issues. Because these properties are currently leased subject to nominal purchase options with development authorities which the Company anticipates it will exercise, they are listed as owned by the Company. (4) The Company closed the Hammond distribution center and subleased the former Hammond, Louisiana office and distribution center. The Company considers that all property owned or leased is well maintained and in good condition. Item 3. Legal Proceedings In the ordinary course of its business, the Company and its subsidiaries are parties to various legal actions which the Company believes are routine in nature and incidental to the operation of the business of the Company and its subsidiaries. The Company believes that the outcome of the proceedings to which the Company and its subsidiaries currently are parties will not have a material adverse effect upon its operations or financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the last quarter of the fiscal year ended January 28, 1995. Executive Officers of the Registrant The name, age and office of the executive officers of the Company as of year end January 28, 1995 and certain information relating to their business experience are set forth below: Name Age Position Stewart Turley 60 Director, Chairman of the Board and Chief Executive Officer Francis A. Newman 46 Director, President and Chief Operating Officer Kenneth L. Flynn 50 Senior Vice President/Store Operations Edward W. Kelly 49 Senior Vice President/Merchandising Robert L. Myers 49 Senior Vice President/Pharmacy James M. Santo 53 Senior Vice President/Administration and Secretary Samuel G. Wright 44 Senior Vice President and Chief Financial Officer Robert D. Boos 55 Vice President Martin W. Gladysz 42 Vice President/Treasurer Robert E. Lewis 34 Vice President/General Counsel and Assistant Secretary Mr. Turley is Chairman of the Board and Chief Executive Officer of the Company, positions he has held since 1986. He served as President of the Company from 1986 until July 1993. He joined Old Eckerd in 1966 and has served as Senior Vice President (1971-1974) and President and Chief Executive Officer (1984-1985) prior to being elected to Chairman of the Board, President and Chief Executive Officer. He is also a director of Barnett Banks, Inc., Sprint Corporation and Springs Industries, Inc. Mr. Newman is President, Chief Operating Officer and a director of the Company, positions he has held since July 1993. Prior to joining the Company, Mr. Newman served as President, Chief Executive Officer and a director of F&M Distributors, Inc. ("F&M"), a drug store chain, since 1986. F&M filed bankruptcy under Chapter 11 of the United States Bankruptcy Code in December 1994. Prior to joining F&M, he was the Executive Vice President of Household Merchandising, a retail firm, from 1984 to 1985 and the Senior Vice President of Merchandising for F.W. Woolworth, a retail firm, from 1980 to 1984. Mr. Newman is also a director of FabriCenters of America, a retail firm. Mr. Flynn was appointed Senior Vice President/Store Operations of the Company in December 1994. Prior to joining the Company, Mr. Flynn was Executive Vice President with the Thrifty/Payless drug chain in Portland, Oregon. Prior to joining Thrifty/Payless in August 1993, Mr. Flynn was employed by Lucky Stores, Inc. for over 30 years most recently as Senior Vice President/Store Operations. Mr. Kelly was appointed Senior Vice President/Merchandising of the Company in February 1993. Prior thereto he served as Vice President of Merchandising of Eckerd Drug Company, formerly Old Eckerd's principal subsidiary ("Eckerd Drug Company") and now the Company's principal division, for more than the past five years. Mr. Myers was appointed Senior Vice President/Pharmacy of the Company in February 1993. Prior thereto he was a Vice President of the Company, a position he held for more than the past five years. In addition, Mr. Myers has served as Vice President of Pharmacy Services of Eckerd Drug Company for more than the past five years. Mr. Santo was appointed Senior Vice President/Administration of the Company in February 1993. Prior thereto he was Vice President/Legal Affairs of the Company, a position he held for more than the past five years. In addition, Mr. Santo was appointed Secretary of the Company effective January 1, 1992. Mr. Wright was appointed Senior Vice President and Chief Financial Officer of the Company in February 1995. Prior thereto Mr. Wright was appointed Senior Vice President/Finance in February 1993 and was also Vice President and Controller of the Company, from September 1988 until February 1993. Mr. Wright became a Vice President of the Company in June 1986. In addition, Mr. Wright has served as Vice President of Finance of Eckerd Drug Company since May 1985. Mr. Boos was appointed Vice President of the Company in April 1991. In addition, Mr. Boos has been Vice President of Real Estate and Development of Eckerd Drug Company since August 1985. Mr. Boos joined Eckerd Drug Company in 1982. Mr. Gladysz was appointed Vice President/Treasurer of the Company in May 1994. Prior to joining the Company, Mr. Gladysz was Executive Vice President/Treasurer for Fortune Bancorp, a Florida banking organization, a position he held for more than the past five years. Mr. Lewis was appointed Vice President/General Counsel and Assistant Secretary of the Company in August 1994. Prior to joining the Company, Mr. Lewis was a shareholder in the law firm of Shackleford, Farrior, Stallings & Evans, P.A. in Tampa, Florida, from January 1992 to August 1994 and was an associate at that firm for more than five years prior thereto. Officers are elected for a one-year term by the Board of Directors at its annual meeting. There is no family relationship between any of the aforementioned officers or directors of the Company. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock is listed on the New York Stock Exchange (Symbol: ECK) and started trading on August 6, 1993. The approximate number of shareholders of record on March 31, 1995 was 937. Fiscal 1994 Quarter Ended Market Price Per Share Information 4/30/94 7/30/94 10/29/9 1/28/95 High 24.00 25.25 31.50 32.00 Low 18.50 18.125 23.25 25.375 Fiscal 1993 Market Price Quarter Ended Per Share Information 10/30/93 1/29/94 High 18.00 20.75 Low 12.75 13.75 The Company is subject to restrictive covenants under its Credit Agreement and the 9 1/4% Senior Subordinated Notes which restrict the payment of dividends. The Company has not paid or declared any dividends on its common stock. Item 6. Selected Financial Data The selected financial information required by this item is included in the Company's 1994 annual report to stockholders on page 9 under the heading "Five Year Financial Operating Summary". Such information is incorporated herein by reference. The ratio of earnings to fixed charges was 1.7X and 1.0X in fiscal 1994 and 1991, respectively. In fiscal 1993, 1992 and 1990 earnings were inadequate to cover fixed charges, and the Company had a deficiency in earnings to fixed charges of $2,941,000, $4,123,000 and $35,982,000 in fiscal years 1993, 1992 and 1990, respectively. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is included in the Company's 1994 annual report to stockholders on pages 10 through 14 under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition". Such information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The following consolidated financial statements as of January 28, 1995 and January 29, 1994 and for each of the years in the three year period ended January 28, 1995 included in the Company's 1994 annual report to stockholders on pages 15 through 27 are incorporated herein by reference: Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Information on selected quarterly financial data also required by this item is included in the Company's 1994 annual report to stockholders on page 30 under the heading "Quarterly Information (Unaudited)". Such information is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Information required by this item regarding the directors of the Company is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 2 through 4 under the headings "Nominees For Election of Directors In Class II With Terms Expiring in 1998"; "Directors in Class III With Terms Expiring in 1996" and "Directors in Class I with Terms Expiring in 1997". Such information is incorporated herein by reference. Information required by this item regarding executive officers of the Company is contained in Part I of this Form 10-K405 under the item entitled "Executive Officers of the Registrant". Item 11. Executive Compensation Information regarding management remuneration is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 1 and 2, and 8 through 14 under the headings "Nomination and Election of Directors" and "Executive Compensation". Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners and of management is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 5 through 7 under the heading "Security Ownership Of Certain Persons". Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions is included in the Company's definitive proxy statement dated April 24, 1995 for the 1995 annual meeting of stockholders on pages 13 and 17 under the headings "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Certain Transactions". Such information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Listed below are all financial statements, notes, schedules, and exhibits filed as part of this Form 10-K405 annual report: (a) Financial statements and Schedules 1. The following financial statements and schedules of the Company together with the Report of Independent Certified Public Accountants dated March 20, 1995 in this Form 10-K405 are filed herewith: Eckerd Corporation and Subsidiaries Financial Statements: Independent Auditors' Report Consolidated Balance Sheets as of January 28, 1995 and January 29, 1994 Consolidated Statements of Operations for the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Stockholders' Equity for the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Cash Flows for the Years Ended January 28, 1995, January 29, 1994 and January 30, 1993 Notes to Consolidated Financial Statements Schedules: II - Reserves Independent Auditor's Report All other schedules for the Company are omitted as the required information is inapplicable or the information is presented in the respective consolidated financial statements or related notes. Also filed in this Form 10-K405 is the consent of KPMG Peat Marwick LLP to the incorporation by reference of their auditors' report dated March 20, 1995, relating to the consolidated financial statements appearing in the Form 10-K405, into Registration Statement Numbers 33-49977 and 33-50755 on Form S-8 and Registration Statement Numbers 33-10721, 33-50223, and 33-56261 on Form S-3. 2. Exhibits: Exhibits previously filed or filed by incorporation by reference: 3.1(i) Restated Certificate of Incorporation of Eckerd Corporation (the "Company") (incorporated by reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 3.2(ii) Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 4.1 Form of certificate for the Company's Common Stock, par value $.01 per share (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 4.2 Indenture dated as of May 1, 1986 by and between the Company and Mellon Bank, N.A. as trustee, relating to the 11 1/8% Subordinated Debentures due 2001 (incorporated by reference to the Registration Statement on Form S-1 of Eckerd Holdings Inc. (No. 33-4576)). (On February 6, 1991, Mellon Bank, N.A. was succeeded by Security Pacific National Trust Company, as trustee.) 4.3 Indenture dated as of November 1, 1993 between the Company and State Street Bank and Trust Company of Connecticut, National Association, as Trustee relating to the Company's 91/4% Senior Subordinated Notes Due 2004 (incorporated by reference to Exhibit 4.02 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.4 Form of 9 1/4% Senior Subordinated Notes Due 2004 of the Company (incorporated by reference to Exhibit 4.01 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 10.1 Merrill Lynch Common Stock Purchase Agreement dated as of April 1, 1986 by and among the Company and the Merrill Lynch Investors (incorporated by reference to the Registration Statement on Form S-4 of Eckerd Holdings Inc. (No. 33-4497)). 10.2 Commercial Paper Placement Agency Agreement dated July 17, 1989 between the Company and Merrill Lynch Money Markets, Inc. (incorporated by reference to Exhibit 10.15 of Form 10-K of the Company for the period ended February 3, 1990). 10.3 Registration Rights Agreement dated as of April 30, 1986 by and among the Company, the Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.4 First Amendment to Registration Rights Agreement among the Company, EDS Holdings Inc., the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.5 First Employees Management Stock Option Plan (incorporated by reference to the Registration Statement on Form S-8 of the Company (No. 33-30761)). 10.6 Employment Agreement dated as of April 30, 1986, between the Company and Stewart Turley (incorporated by reference to Exhibit 10.23 to the Registration Statement on FormS-2 of the Company (No. 33-64906)). 10.7 Employment Agreement dated as of April 30, 1986, between the Company and John W. Boyle (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.8 Employment Agreement dated June 9, 1993, between the Company and Francis A. Newman (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.9 Master Lease Agreement I dated as of May 18, 1993 between the Company and Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.10 Master Lease Agreement II dated as of June 15, 1993 between the Company and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.11 Systems Operations Service Agreement dated as of July 14, 1993 between the Company and Integrated Systems Solutions Corporation (incorporated by reference to Exhibit 10.30 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.12 Letter dated March 16, 1993 between IFS and the Company relating to IFS Sale and Leaseback (incorporated by reference to Exhibit 10.31 to Amendment No. 2 of the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.13 1993 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)). 10.14 Employment Agreement dated October 1, 1988 between the Company and James M. Santo (incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended January 29, 1994 of the Company (File No. 1-4844)). 10.15 Employment Agreement dated October 1, 1988 between the Company and Robert L. Myers (incorporated by reference to Exhibit 10.38 to Form 10K/A for the year ended January 29, 1994 of the Company (File No. 1-4844)). 10.16 Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Credit Agreement"), among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A. as managing agents and swingline lenders, and Chemical Bank, as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 10.1 to form 10-Q of the Company for twenty-six weeks ended July 30, 1994). 12.1 Statement regarding computation of ratio of earnings to fixed charges of the Company (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223)). Exhibits filed herewith: 10.17 Employment Agreement dated October 1, 1988 between the Company and Samuel G. Wright. 10.18 Receivables Purchase Agreement dated as of January 26, 1995 between the Company and Three Rivers Funding Corporation. 10.19 First Amendment to Receivables Purchase Agreement dated as of March 31, 1995 between the Company and Three Rivers Funding Corporation. 10.20 Registration Rights Agreement dated as of December 31, 1994 by and among the Company and the Eckerd Corporation Profit Sharing Plan. 10.21 Guarantee Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent. 10.22 Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.23 Pledge Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Registrant listed therein and Chemical Bank, as collateral agent. 10.24 Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.25 Trademark Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.26 Revolving Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.27 Term Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.28 Swingline Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.29 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas. 10.30 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas. 10.31 Amendment, Consent and Waiver dated as of October 31, 1994 to the Credit Agreement, the Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement. 10.32 Amended and Restated Mortgage, Security Agreement and Assignment of Leases and Rents dated as of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee. 12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company. 13 The following sections of the 1994 annual report to stockholders of the Company incorporated by reference and included in Parts II and IV of this Form 10-K405: Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditor's Report. Quarterly Information. 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Certified Public Accountants. 27 Financial data schedules. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the thirteen weeks ended January 28, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K405 report to be signed on its behalf by the undersigned, thereunto duly authorized. April 27, 1995 ECKERD CORPORATION By:/s/ Samuel G. Wright Samuel G. Wright Senior Vice President Chief Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated. Signature Titles Date /s/Stewart Turley Stewart Turley Chairman of the Board April 27, 1995 and Chief Executive Officer /s/Francis A. Newman Francis A. Newman President, Chief April 27, 1995 Operating Officer and Director /s/John W. Boyle John W. Boyle Director April 27, 1995 /s/James T. Doluisio James T. Doluisio Director April 27, 1995 /s/Donald F. Dunn Donald F. Dunn Director April 27, 1995 /s/Albert J. Fitzgibbons, III Albert J. Fitzgibbons, III Director April 27, 1995 /s/Lewis W. Lehr Lewis W. Lehr Director April 27, 1995 /s.Alexis P. Michas Alexis P. Michas Director April 27, 1995 /s/Rupinder S. Sidhu Rupinder S. Sidhu Director April 27, 1995 Independent Auditor's Report The Board of Directors Eckerd Corporation and Subsidiaries: Under date of March 20, 1995, we reported on the consolidated balance sheets of Eckerd Corporation and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended January 28, 1995, which are incorporated by reference in the Form 10-K405. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the Form 10-K405. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 9 to the consolidated financial statements, the Company changed its accounting policy in the current year related to the timing of the recognition of closed store obligations. KPMG PEAT MARWICK LLP Tampa, Florida March 20, 1995 Schedule II ECKERD CORPORATION AND SUBSIDIARIES RESERVES Years ended January 28, 1995, January 29, 1994 and January 30, 1993 (In Thousands) Balance at Charged Balance at Beginning to End Description of Period earnings Deductions Others of Period Allowance for doubtful receivables (a) Year ended January 28, 1995 $5,000 $7,148 $4,924 ($4,224) $3,000 Year ended January 29, 1994 $5,000 $7,000 $7,000 - $5,000 Year ended January 30, 1993 $4,600 $4,475 $4,075 - $5,000
Notes: (a) This reserve is deducted from receivables in the balance sheets. Exhibit Index Eckerd Corporation Form 10-K405 for the Fiscal Year Ended January 28, 1995 Exhibit Page Number Description of Exhibit Number 3.1(i) Restated Certificate of Incorporation of Eckerd * Corporation (the "Company") (incorporated by reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 3.2(ii) Amended and Restated By-laws of the Company * (incorporated by reference to Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 4.1 Form of certificate for the Company's Common * Stock, par value $.01 per share (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)). 4.2 Indenture dated as of May 1, 1986 by and between * the Company and Mellon Bank, N.A. as trustee, relating to the 11 1/8% Subordinated Debentures due 2001 (incorporated by reference to the Registration Statement on Form S-1 of Eckerd Holdings Inc. (No. 33-4576)). (On February 6, 1991, Mellon Bank, N.A. was succeeded by Security Pacific National Trust Company, as trustee.) 4.3 Indenture dated as of November 1, 1993 between * the Company and State Street Bank and Trust Company of Connecticut, National Association, as Trustee relating to the Company's 9 1/4% Senior Subordinated Notes Due 2004 (incorporated by reference to Exhibit 4.02 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.4 Form of 9 1/4% Senior Subordinated Notes Due * 2004 of the Company (incorporated by reference to Exhibit 4.01 to the Current Report of Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 10.1 Merrill Lynch Common Stock Purchase Agreement * dated as of April 1, 1986 by and among the Company and the Merrill Lynch Investors (incorporated by reference to the Registration Statement on Form S-4 of Eckerd Holdings Inc. (No. 33-4497)). 10.2 Commercial Paper Placement Agency Agreement dated * July 17, 1989 between the Company and Merrill Lynch Money Markets, Inc. (incorporated by reference to Exhibit 10.15 of Form 10-K of the Company for the period ended February 3, 1990). 10.3 Registration Rights Agreement dated as of * April 30, 1986 by and among the Company, the Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.4 First Amendment to Registration Rights Agreement * among the Company, EDS Holdings Inc., the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)). 10.5 First Employees Management Stock Option Plan * (incorporated by reference to the Registration Statement on Form S-8 of the Company (No. 33-30761)). 10.6 Employment Agreement dated as of April 30, 1986, * between the Company and Stewart Turley (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.7 Employment Agreement dated as of April 30, 1986, * between the Company and John W. Boyle (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.8 Employment Agreement dated June 9, 1993, between * the Company and Francis A. Newman (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-2 of the Company (No. 33- 64906)). 10.9 Master Lease Agreement I dated as of May 18, 1993 * between the Company and Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.10 Master Lease Agreement II dated as of June 15, * 1993 between the Company and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.11 Systems Operations Service Agreement dated as of * July 14, 1993 between the Company and Integrated Systems Solutions Corporation (incorporated by reference to Exhibit 10.30 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.12 Letter dated March 16, 1993 between IFS and the * Company relating to IFS Sale and Leaseback (incorporated by reference to Exhibit 10.31 to Amendment No. 2 of the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.13 1993 Stock Option and Incentive Plan of the * Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)). 10.14 Employment Agreement dated October 1, 1988 * between the Company and James M. Santo (incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended January 29, 1994 of the Company (File No. 1-4844)). 10.15 Employment Agreement dated October 1, 1988 * between the Company and Robert L. Myers (incorporated by reference to Exhibit 10.38 to Form 10K/A for the year ended January 29, 1994 of the Company (File No. 1-4844)). 10.16 Credit Agreement dated as of June 14, 1993, as * amended, and restated as of August 3, 1994 (the "Credit Agreement"), among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A. as managing agents and swingline lenders, and Chemical Bank, as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 10.1 to form 10-Q of the Company for twenty-six weeks ended July 30, 1994). 10.17 Employment Agreement dated October 1, 1988 between the Company and Samuel G. Wright. 10.18 Receivables Purchase Agreement dated as of January 26, 1995 between the Company and Three Rivers Funding Corporation. 10.19 First Amendment to Receivables Purchase Agreement dated as of March 31, 1995 between the Company and Three Rivers Funding Corporation. 10.20 Registration Rights Agreement dated as of December 31, 1994 by and among the Company and the Eckerd Corporation Profit Sharing Plan. 10.21 Guarantee Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent. 10.22 Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.23 Pledge Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.24 Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.25 Trademark Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent. 10.26 Revolving Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.27 Term Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.28 Swingline Note dated as of August 3, 1994 made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement. 10.29 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas. 10.30 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas. 10.31 Amendment, Consent and Waiver dated as of October 31, 1994 to the Credit Agreement, the Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement. 10.32 Amended and Restated Mortgage, Security Agreement and Assignment of Leases and Rents dated as of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee. 12.1 Statement regarding computation of ratio earnings to * fixed charges of the Company (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company. 13 The following sections of the 1994 annual report to stockholders of the Company incorporated by reference and included in Parts II and IV of this Form 10-K405: Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditor's Report. Quarterly Information. 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Certified Public Accountants. 27 Financial data schedules. * Filed by incorporation by reference. EX-10.17 2 EMPLOYMENT AGREEMENT AGREEMENT made as of October 1, 1988, by and between JACK ECKERD CORPORATION, a Delaware corporation (the "Company) and SAMUEL G. WRIGHT, residing at 10 Ambleside Drive, Belleair, Florida 34616 (the "Employee"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ the Employee and the Employee is willing to accept employment by the Company. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of the Employee's employment by the Company under this Agreement shall commence on the date hereof and shall be for a term of twelve (12) months, subject to extension and termination as provided in Section 8 hereof (the "Contract Period"). 3. Duties; Extent of Services. (a) During the Contract Period, the Employee shall serve as Vice President, Controller of the Company or in such other executive capacity as shall be determined from time to time by the Board of Directors of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Contract Period, the Employee shall (i) devote his full time and attention during normal business hours to the business of the Company and its subsidiaries; (ii) use his best efforts to promote the Company's and its subsidiaries' interest; and (iii) discharge such other and further executive and administrative duties as may be assigned to him by the Board of Directors of the Company and its subsidiaries. (c) Except for directorships held by the Employee on the date of this Agreement, during the Contract Period the Employee will not, without the prior written consent of the Company's Board of Directors, serve as a director of any corporation, joint venture, association or other commercial enterprise not controlled by, controlling or under common control with, the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by the Employee under this Agreement, the Company shall pay the Employee a base annual salary (the "Base Salary") in the amount of $134,000 (or such higher amount as the Board of Directors of the Company shall determine) payable monthly on the fifteenth (15th) of each month during the Contract Period. (b) During the Contract Period, as additional compensation for his services and as a further incentive and inducement to the Employee to accept employment by the Company and to devote his best efforts to the business and affairs of the Company and its subsidiaries, the Company shall pay to the Employee additional compensation (the "Bonus Compensation") in the following amounts: (i) The Company shall pay, or shall cause to be paid, to the Employee the payments described in the letter agreement dated April 30, 1986 between the Company and the Employee, the form of which is attached hereto as Exhibit A; and (ii) The Employee shall be entitled to participate in the Company's Key Management Bonus Plan (KMBP), 3-Year Bonus Plan (3-Year Bonus) and such other plans as may be in effect from time to time as determined by the Board of Directors of the Company from time to time. (c) The Company agrees that the Employee shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Contract Period the Employee shall be entitled to the following benefits: (a) The Employee shall be entitled to paid vacation time annually in accordance with the Company policy as determined by the Board of Directors. (b) The Employee shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, automobile allowance or leasing, stock option (subject to approval by the Board of Directors), supplemental retirement income (subject to approval by the board of Directors), hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. 6. Expenses. The Company shall pay or reimburse the Employee for all reasonable expenses reasonably incurred or paid by him in connection with the performance of his duties hereunder upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 7. Benefits Payable Upon Disability, Death, or Retirement. (a) In the event of the disability (as hereinafter defined) of the Employee during the Contract Period, the Company shall continue to pay the Employee the compensation provided in Section 4 hereof during the period of his disability or earlier termination hereof; provided, however, that in the event the Employee is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to the Employee, in which event the Employee shall be entitled to receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement. As used in this Agreement, the term "disability" shall mean the inability of the Employee due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by the Employee and acceptable to the Company. (b) During the period the Employee shall be entitled to receive payments under Section 7(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company, furnish information and assistance to the Company, and, in addition, upon reasonable request of Senior Management or the Board of Directors, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of the Employee during the Contract Period, the Company shall pay, or cause to be paid, to the Employee's designated beneficiary or beneficiaries or estate or legal representatives, the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans. (d) In the event of the retirement of the Employee on his Normal Retirement Date (as such term is defined in the Company's Pension Plan) in addition to such retirement benefits that are available to the Employee upon retirement pursuant to the Company's retirement benefit plans, the Company shall reduce the principle amount of the Employee's aggregate obligation under the Employee's 10% Recourse Secured Promissory Note and 10% Non-Recourse Secured Promissory Note dated as of April 30, 1986 (hereinafter collectively referred to as the "Notes") by an amount equal to the amount such Notes would have been reduced had the Employee remained in the employment of the Company for a period of two (2) years from the date of retirement and shall pay the Employee an additional amount equal to the federal, state or local income taxes deemed to be payable by the Employee in respect of the reduction in the principle amount of the Notes pursuant to this clause. 8. Termination. (a) Except as otherwise provided in subsection (c), (d) and (e) hereof, this Agreement and the employment of the Employee hereunder shall terminate upon the earliest to occur of the dates specified below: (i) The close of business on September 30, 1989 (the "Initial Period"), except that this Agreement and the employment of the Employee hereunder shall be automatically extended from year to year thereafter unless (x) terminated by the Company by delivery of not less than 60 days written notice to the Employee prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice, or (y) terminated by the Employee by delivery of not less than 60 days written notice to the Company prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice; (ii) the close of business on the date of death of the Employee; (iii) the close of business on the date the Company delivers to the Employee a written notice of its election to terminate his employment for "cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to the Employee a written notice of its intention to terminate his employment because the board of Directors has determined that such termination is in the best interests of the Company and such termination is not for cause, death, disability or failure to extend pursuant to Section 8(a)(i)(x) hereof; (v) the close of business on the date of a termination by the Company pursuant to Section 7(a) hereof; or (vi) the close of business the date of the retirement of the Employee pursuant to Section 7(d) hereof. (b) For purposes of this Agreement, the term "cause" shall be limited to (i) a felony conviction or (ii) the commission of an act of fraud or embezzlement against the Company or any of its subsidiaries. (c) For purposes hereof, upon termination of this Agreement and employment of Employee as provided in Section 8(a)(i)-(vi), all obligations and liabilities of the parties hereto shall cease and be of no effect except for those liabilities and obligations provided for in Section 7, 9, 10 and 11 hereof. (d) For purposes of clauses (i) and (iv) of Section 8(a) above, the Employee shall be relieved of his duties and shall vacate his office and the Company's premises on the date of receipt of the notice required by such clauses unless requested by the Company to remain in the active employment of the Company during such period between the receipt of notice and the effective date of termination of employment. (e) Notwithstanding the provisions of this Section 8, the Company in its sole discretion may, in connection with the termination of all of the employment agreements dated as of this date between the Company and the Management Group (as such term is defined in the Registration Rights Agreements), terminate this Agreement upon 3 months written notice; provided, however, that if termination of this Agreement under this provision results in the termination of employment of Employee by the Company other than for cause, death, disability or retirement within one (1) year from the effective date of the termination of this Agreement under this clause (e), Employee shall be entitled to the benefits and shall be bound by the obligations provided in Sections 9, 10 and 11 hereof. 9. Payments to Employee Upon Termination of Employment. (a) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i) (x) or (iv) of Section 8(a) of this Agreement, the Company shall pay to the Employee, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay (i) an amount equal the Employee's Base Salary on the date of termination for the Applicable Severance Period payable in monthly installments on the fifteenth (15th) of each month during the Applicable Severance Period plus (ii) a pro rata portion of the lower of (x) the bonus compensation which would have been paid to Employee pursuant to the KMBP in respect of the year of termination if he had not been terminated and (y) the amount of Bonus Compensation which would have been paid to Employee under the KMBP in such year if the Company had met Target as such term is defined in the KMBP plus (iii) a pro rata portion of any Bonus compensation payable under the 3-Year Bonus Plan for any 3-year Performance Period in which Employee has been a participant for a period of 12 months plus (iv) an amount equal to the value as of the valuation date next preceding the date of termination of this Agreement of the pro rata portion of any of the Employee's shares of Class B Common Stock that would have become Vested Shares in respect of the year of termination if he had not been terminated. Any payments due Employee hereunder with respect to the KMBP, 3-Year bonus Plan or Vested Class B Stock shall be paid promptly after the determination of such amounts. (b) Upon the termination of the Employee's full-time employment hereunder pursuant to (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall at its expense continue on behalf of the Employee the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance. The coverage of any such insurance provided by the Company hereunder shall be no less favorable to the Employee, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company from time to time for the Company's executives. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall terminate upon the earlier of the end of the applicable Severance Period or the date the Employee obtains any such benefits pursuant to a subsequent employer's benefit plans. (c) Benefits pursuant to the Company's Profit Sharing and Pension Plans (and such other plans in which Employee participates) shall be payable to Employee in accordance with the terms of such Plans. (d) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall reduce the principle amount of the Employee's aggregate obligation under the Employee's 10% Recourse Secured Promissory Note and 10% Non-Recourse Secured Promissory Note dated as of April 30, 1986 by an amount equal to the amount such Notes would have been reduced had the Employee remained in the employment of the Company through the end of the Applicable Severance Period and shall pay the Employee an additional amount equal to the federal, state or local income taxes deemed to be payable by the Employee in respect of the reduction in the principle amount of the Notes pursuant to this clause. (e) For purposes of this Agreement, Applicable Severance Period shall mean (i) one year (12 months) for a termination which occurs prior to the Employee's tenth (10th) anniversary of employment with the Company or (ii) one and one-half years (18 months) for a termination which occurs after the Employee's tenth (10th) anniversary of employment with the Company. 10. Covenants of the Employee. (a) The Employee agrees that during the Contract Period and for a period of time equal to (i) one year in the event of a termination of employment in accordance with clauses (i) (y) or (iii) of Section 8(a); (ii) two years in the event of a termination of employment in accordance with Section 7(a) or retirement in accordance with Section 7(d); or (iii) the Applicable Severance Period in the event of a termination of employment in accordance with clauses (i) (x) or (iv) of Section 8(a), he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that through the operation of retail stores in which prescription drugs are sold competes with the business engaged or hereafter engaged in by the Company or any of its subsidiaries in the Company's or such subsidiaries' trade areas (for purposes hereof "trade areas" shall mean any county in any state of the United States in which retail drug stores operated by the Company and its subsidiaries are located). Nothing contained herein shall prevent the Employee from acquiring less than 2% of any class of outstanding securities of any Company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) The Employee agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries. (c) The Employee agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, the Employee agrees to undertake the following obligations with respect to such Confidential Information: (i) The Employee agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) The Employee agrees that, except as required by the Employee duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of his employment with the Company and its subsidiaries, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries. (iii) The Employee agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) The Employee agrees that, upon termination of his employment by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in the possession of or under the control of the Employee. The Employee further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 10(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which the Employee gained knowledge by reason of his employment by the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement that is not generally known in any industry in which the Company is or may become engaged. Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to the Employee's termination of employment with the Company and its subsidiaries, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 11. Covenant Not to Sue. Employee hereby covenants and agrees with the Company, its successors and assigns forever to refrain from making, instituting, pressing or in any way aiding any claim, demand, action or cause of action against the Company and its officers and agents arising in connection with his employment, modification of employment or termination thereof, including claims, demands, actions or causes of action arising under federal and state fair employment practice or discrimination laws, laws pertaining to breach of employment contract or wrongful discharge and any other federal, state or local laws relating in any way to Employee's employment with the Company or the termination thereof. Employee further understands and agrees that this covenant not to sue applies to any and all forms of relief, whether monetary or other, which Employee might seek in connection with his employment, modification of employment or termination thereof. Provided, however, that this covenant not to sue shall not prohibit Employee from making, instituting or pressing any claim, demand, action or cause of action to enforce the benefits payable to Employee pursuant to Sections 7 and 9 of the Agreement upon termination of employment with the Company or arising under the Management Subscription Agreement dated April 30, 1986 or any employee benefit plan maintained by the Company or any claim under the workman's compensation laws of any state. Employee further acknowledges that as a condition precedent to Employee receiving any benefits under this Agreement, Employee shall complete, execute and deliver to the Company at the time of his termination of employment a Release in the form of Exhibit "B" hereto which releases any and all claims that the Employee may have against the Company as of the date of termination arising under federal, state, local or common law. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 11 shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of the Employee. 13. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purposes in a notice similarly given. 14. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) The Employee and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of the Employee and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 14 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses. (d) Nothing contained in this Section 14 shall be deemed to limit the Company's obligation to indemnify the Employee to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of the Employee related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 15. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and there are no restrictions, agreements, promises, covenants, undertakings, representations or warranties with respect to the subject matter hereof other than those expressly set forth herein and in the following instruments and agreements to which the Company and the Employee are parties: The Recourse Note, the Non-Recourse Note, the Convertible Debentures, the Compensation Letter, the Management Subscription Agreement, the Registration Rights agreement, the Stockholders' Agreement and the Pledge Agreement (such instruments and agreements to have the same defined meanings as such instruments and agreements are defined in the Management Subscription Agreement). No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 16. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 17. Injunctive Relief. (a) The Employee acknowledges and agrees that the covenants and obligations contained in Sections 10(a), 10(b) and 10(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, the Employee agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining the Employee from committing any violation of the covenants and obligations set forth in Sections 10(a), 10(b) and 10(c) hereof. (b) The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provision of this Section 17, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. 18. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. JACK ECKERD CORPORATION By:/s/ Stewart Turley Stewart Turley, President EMPLOYEE /s/ Samuel G. Wright Samuel G. Wright EX-10.18 3 RECEIVABLES PURCHASE AGREEMENT THIS AGREEMENT dated as of January 26, 1995 between ECKERD CORPORATION, a Delaware corporation (the "Seller"), and THREE RIVERS FUNDING CORPORATION, a Delaware corporation (the "Buyer"). WITNESSETH THAT: WHEREAS, the Seller and the Buyer wish to enter into this Agreement pursuant to which the Buyer may from time to time purchase from the Seller undivided percentage ownership interests in receivables originated by the Seller pursuant to and in accordance with the terms hereof; NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants hereinafter set forth and intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION 1.01. CERTAIN DEFINITIONS. In addition to other words and terms defined in the recitals hereof and elsewhere in this Agreement, as used herein, the following words and terms shall have the following meanings respectively, unless otherwise required by context: "Account Balance" shall mean, in respect of any Contract, all amounts shown on the most recent invoice or statement sent to the related Obligor, and all other amounts which are shown on the most recent Settlement Statement and in respect of which the related Obligor is obligated. "Accounting Period" shall mean each fiscal month of the Seller. "Affected Party" shall mean each of the Buyer, any permitted assignee of the Buyer, the Banks, the Surety Bond Provider, any assignee of any of the Buyer's obligations to the Banks or the Surety Bond Provider under the Credit Agreement or the Insurance Agreement, respectively, and the Agent. "Affiliate" shall mean, with respect to a Person, any other Person which directly or indirectly Controls, is Controlled by or is under common Control with such Person. "Agent" shall mean Mellon Bank, acting as agent for the Banks. "Agreement" shall mean this Receivables Purchase Agreement, as the same may from time to time be amended, supplemented or otherwise modified and in effect. "Banks" shall mean the banks party to the Credit Agreement from time to time. "Business Day" shall mean any day other than a Saturday, Sunday, public holiday under the Laws of the Commonwealth of Pennsylvania or the State of New York or other day on which banking institutions are authorized or obligated to close in the Commonwealth of Pennsylvania or the State of New York. "Buyer's Allocation" shall have the meaning ascribed to such term in Section 3.01 hereof. "Certificate of Participation" shall mean the written evidence of the Buyer's interest in the Receivables Pool, in the form attached as Exhibit A hereto. "Change in Control" shall mean the occurrence of any one of the following: (a) any Person or group (within the meaning of Rule 13d-5 promulgated under the Securities Exchange Act of 1934 as in effect on the date hereof) other than Merrill Lynch Capital Partners, Inc. and its Affiliates shall own directly or indirectly, beneficially or of record, shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Seller; (b) a change in the membership of the board of directors of the Seller shall occur at any time during any twelve-month period such that, following such change, at least 30% of the members of the board of directors are Persons who were not members of the board of directors at the beginning of such twelve-month period (but only if the election of such new members of the board of directors was not approved by a majority of the directors who were either sitting at the beginning of such twelve-month period or elected to the board of directors during such twelve-month period with the approval of a majority of the directors who were sitting at the beginning of such twelve-month period); or (c) any Person or group other than Merrill Lynch Capital Partners, Inc. and its Affiliates shall otherwise directly or indirectly Control the Seller. "Chief Executive Office" shall mean, with respect to the Seller, the place where the Seller is located, within the meaning of Section 9-103(3)(b) of the Uniform Commercial Code, as the same may from time to time be amended, supplemented or otherwise modified, or any analogous provision of any successor statute or, to the extent applicable, any analogous provision of the Uniform Commercial Code in effect in the jurisdiction whose Law governs the perfection of the Buyer's ownership interest in any Purchased Receivable. "Closing Date" shall mean the date on which the Participation Interest is initially purchased by the Buyer in the Receivables Pool pursuant to the terms of this Agreement. "Collateral Agent" shall mean Bankers Trust Company, as collateral agent for the Banks, the Depositary, the Surety Bond Provider and the holders from time to time of the commercial paper notes and short-term promissory notes of the Buyer. "Collections" shall mean, for any Purchased Receivable as of any date, (i) the sum of all amounts, whether in the form of cash, checks, drafts, or other instruments, received by the Seller or the Servicer or in a Permitted Lockbox, a Lockbox Account or a Medicaid Collection Account in payment of, or applied to, any amount owed by an Obligor on account of such Purchased Receivable (including but not limited to all amounts received on account of any Defaulted Receivable) on or before such date, including, without limitation, all amounts received on account of such Purchased Receivable and other fees and charges, and (ii) all amounts deemed to have been received by the Seller or the Servicer as a Collection pursuant to Sections 5.03(c) or 6.04 hereof. "Complete Servicing Transfer" shall have the meaning ascribed to such term in Section 6.07 hereof. "Concentration Limit" shall mean, as of any date of determination, with respect to all of the Receivables owing from a single Obligor, together with Receivables owing from its Affiliates or subsidiaries, an amount equal to six percent (6.00%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period; PROVIDED (i) that the Concentration Limit with respect to Receivables owing from Paid shall be an amount equal to eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as Paid has, or shall be a wholly-owned subsidiary of an entity which has, short-term ratings of at least A-1 and P-1 from S&P and Moody's, respectively, (ii) that the Concentration Limit in respect of each Obligor whose Receivables are outstanding under a Contract with PCS shall be six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period prior to any adjustment for unapplied cash received from all such Obligors and (iii) that the Buyer may, at any time in its sole discretion, reduce or increase the Concentration Limit for any Obligor through the delivery of a notice to the Seller. "Confirmation" shall mean each acknowledgment, notice of receipt, or agreement in respect of a related Notice of Assignment which is required to be delivered to the Seller by, or received by the Seller from, the recipient of such Notice of Assignment. "Consent and Acknowledgment" shall mean an agreement, in substantially the form of Exhibit N, by Holdings in favor of the Buyer pursuant to which, among other things, Holdings consents to, and acknowledges, the transactions contemplated hereby. "Contract" shall mean a written contract, which shall be legally binding on an Obligor, which gives rise to a short-term receivable with a maturity of not greater than 45 days arising from the sale by the Seller of goods or services in the ordinary course of the Seller's pharmaceutical business. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the term "Controlled" shall have the meaning correlative thereto. "Cost of Funds" shall mean, with respect to any Settlement Period, an amount, as notified in writing by the Buyer to the Seller on or prior to the related Settlement Date, equal to the interest or discount cost for funds borrowed or obtained during such Settlement Period, either from the issuance of commercial paper notes, the taking of loans or otherwise, by the Buyer for the purpose of maintaining or acquiring the Participation Interest, including in the computation of such cost any dealer's commissions or fees and any and all other fees which are attributable to such borrowing and are specified from time to time in writing by the Buyer to the Seller. "Credit Agreement" shall mean the Amended and Restated Credit Agreement dated as of October 8, 1993 among the Buyer, the Banks and the Agent, as the same has been amended and may from time to time hereafter be amended, supplemented or otherwise modified and in effect. "Credit Loss Reserve" shall mean, with respect to any Settlement Period, the product of (i) the Credit Loss Reserve Percentage for such Settlement Period and (ii) the positive result of (a) the aggregate Account Balances of all Eligible Receivables in the Receivables Pool as of the last day of the Accounting Period most recently completed, less (b) the Settlement Period Reserve for such Settlement Period, less (c) the Servicer's Compensation Reserve for such Settlement Period, less (d) the sum, without duplication, of (1) the aggregate (determined as of the last day of the Accounting Period most recently completed) for all Obligors of the excess, if any, of the aggregate Account Balances of all Eligible Receivables owing by a single Obligor (calculated prior to any adjustment for unapplied cash received from such Obligor in the case of an Obligor whose Receivables are outstanding under a Contract with PCS) over the Concentration Limit in effect with respect to such Obligor and (2) the aggregate amount by which the Account Balance of Eligible Receivables owing under all Contracts with PCS exceeds (A) eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as PCS has, or is a wholly-owned subsidiary of an entity which has, short-term ratings of at least A-1 and P-1 from S&P and Moody's respectively or (B) six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period if clause (A) is not applicable. "Credit Loss Reserve Percentage" shall mean, with respect to any Settlement Period, the greater of (i) 18% and (ii) the product of (a) 1.5, and (b) the Loss Ratio with respect to such Settlement Period, and (c) the Loss Horizon Ratio with respect to such Settlement Period. "Days Sales Outstanding" shall mean, (i) on the Closing Date, the number of days in the period ending on the Closing Date and commencing on such earlier date such that the aggregate amount of net sales of the Seller during such period is equal to the aggregate Account Balance of all Eligible Receivables outstanding on the Closing Date and (ii) at any other time of determination, the number of days in the period ending on the last day of the most recently ended Accounting Period and commencing on such earlier date such that the aggregate amount of net sales of the Seller during such period is equal to the aggregate Account Balance of all Eligible Receivables outstanding on such last day. "Default Ratio" shall mean, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the aggregate Account Balance of all Receivables which became Defaulted Receivables during the full Accounting Period most recently completed in conformity with the Seller's Normal Credit Policies, and the denominator of which is the aggregate amount of net sales of the Seller during the fourth full Accounting Period preceding the full Accounting Period most recently completed; PROVIDED that any such determination which utilizes in the denominator information regarding the sales of the Seller during any Accounting Period prior to November 1994 shall have both its numerator and its denominator calculated on the basis of the gross amount charged by the Seller to the Obligors, rather than the net amount due to the Seller from the Obligors. "Defaulted Receivable" shall mean a Purchased Receivable (a) the Obligor in respect of which is not entitled to any further extensions of credit, by reason of any default or nonperformance by such Obligor, under the terms of the Seller's Normal Credit Policies, (b) which has become uncollectible or has been written off the books of the Seller by reason of such Obligor's inability to pay, as determined by the Buyer or the Servicer, in either case in accordance with the Seller's Normal Credit Policies, or (c) in respect of which an Event of Bankruptcy has occurred with respect to the related Obligor or (d) which is unpaid for more than 90 days past the date on which it was due. "Deferred Purchase Price" shall mean the amount calculated pursuant to Section 5.06 hereof. "Depositary" shall mean Bankers Trust Company. "Dilution Factors" shall mean credits, cancellations, cash discounts, warranties, allowances, Disputes, rebates, charge backs, pay-cuts, reject write-offs, returned or repossessed goods, and other allowances, adjustments and deductions (including, without limitation, any special or other discounts or any reconciliations) that are given to an Obligor in accordance with the Seller's Normal Credit Policies. "Dispute" shall mean any dispute, deduction, claim, offset, defense, counterclaim, set-off or obligation of any kind, contingent or otherwise, relating to a Receivable, including, without limitation, any dispute relating to goods or services already paid for. "Dollar", "Dollars" and the symbol "$" shall mean lawful money of the United States of America. "Duff" shall mean Duff & Phelps, Inc. "Eckerd Credit Agreement" shall have the meaning assigned to such term in Section 4.02(i) hereof. "Eligible Receivable" shall mean any Receivable which: (a) together with the related Contract, duly complies with all applicable Laws and other legal requirements, whether Federal, state or local, including, without limitation, usury laws, the Federal Consumer Credit Protection Act, the Fair Credit Billing Act, the Federal Truth in Lending Act, and Regulation Z of the Board of Governors of the Federal Reserve System; (b) constitutes an "account" or a "general intangible" as defined in the UCC and the jurisdiction whose Law governs the perfection of the Buyer's Participation Interest in such Receivable; (c) was originated in connection with an extension of credit by the Seller in the ordinary course of the Seller's business pursuant to the Seller's third party prescription drug program to an Obligor whose application for the extension of credit was processed by the Seller in accordance with the Seller's Normal Credit Policies, and which Obligor is located in the United States and is not an Affiliate of the Seller; (d) arises from a Contract and has been billed, or will be billed to the related Obligor, or in respect of which the related Obligor is otherwise liable, in accordance with the terms of such Contract; (e) constitutes a legal, valid, binding and irrevocable payment obligation of the related Obligor, enforceable in accordance with its terms; (f) provides for payment in Dollars by the related Obligor no later than 45 days after the invoice date of such Receivable; (g) is payable into a Permitted Lockbox or Lockbox Account or, with respect to Medicaid Receivables, directly to the Seller or into a Medicaid Collection Account; (h) is not, at the time the Participation Interest is first purchased therein or a Reinvestment therein is made by the Buyer hereunder, a Defaulted Receivable; (i) was not originated in or subject to the Laws of a jurisdiction whose Laws would make such Receivable, the related Contract or the sale of the Participation Interest in such Receivable to the Buyer hereunder unlawful, invalid or unenforceable; (j) immediately prior to it becoming a Purchased Receivable, is owned solely by the Seller free and clear of all Liens; (k) no rejection or return of the goods or services which give rise to such Receivable has occurred and all goods and services in connection therewith have been finally performed or delivered to and accepted by the recipient thereof without Dispute; (l) is not subject to any contractual right of set-off; (m) is an obligation representing part or all of the sales price of merchandise or services; and (n) is not an obligation of an Obligor designated as ineligible in the sole discretion of the Buyer. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Bankruptcy" shall mean, for any Person: (a) if such Person shall fail generally to, or admit in writing its inability to, pay its debts as they become due; or (b) a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (under the Bank Conservation Act, as amended, or otherwise) or other similar official of such Person or for any substantial part of its property, or for the winding-up or liquidation of its affairs; or (c) the commencement by such Person of a voluntary case under any applicable bankruptcy, insolvency or other similar Law now or hereafter in effect, or such Person's consent to the entry of an order for relief in an involuntary case under any such Law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator (under the Bank Conservation Act, as amended, or otherwise) or other similar official of such Person or for any substantial part of its property, or any general assignment for the benefit of creditors, or, if a corporation or similar entity, any corporate action in furtherance of any of the foregoing; or (d) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or conservator in any insolvency, readjustment of debt, marshalling of assets and liabilities, or similar proceedings, shall have been entered against such Person. "Expiration Date" shall mean the earliest of (i) January 20, 1996, which shall be extended thereafter on the last Business Day of each March, June, September and December during the term of this Agreement, beginning in June, 1995, to the 24th day in the calendar month which is three months after the month in which the then scheduled Expiration Date falls unless, prior to the first Business Day of each March, June, September and December, as the case may be, either the Buyer notifies the Seller that it does not desire to offer to extend its Purchase Obligation, or the Seller notifies the Buyer that it does not desire to continue to sell interests in the Receivables to the Buyer, PROVIDED that as of June 30, 1995, the Expiration Date shall, unless the Buyer or the Seller notifies the other party to the contrary, be extended to June 24, 1996; PROVIDED FURTHER, that the new scheduled Expiration Date shall in no event result in a remaining term of the Purchase Obligation that exceeds 360 days, (ii) the date of termination of the commitment of the Surety Bond Provider under the Insurance Agreement, and (iii) the date of termination of the commitment of the Banks under the Credit Agreement. "GAAP" shall mean generally accepted accounting principles in the United States of America, applied on a consistent basis and applied to both classification of items and amounts, and shall include, without limitation, the official interpretations thereof by the Financial Accounting Standards Board, its predecessors and successors. "Holdings" shall mean Eckerd Holdings II, Inc., a Delaware corporation and a wholly-owned subsidiary of the Seller. "Insurance Agreement" shall mean the Insurance and Reimbursement Agreement dated as of October 8, 1993 between the Surety Bond Provider and the Buyer, as the same may from time to time be amended, supplemented or otherwise modified and in effect. "Insurer" shall have the meaning ascribed to such term in Section 8.02(e) hereof. "Investment" shall mean, on each date of determination, the sum of (i) the Net Investment and (ii) the Deferred Purchase Price, if any, as determined on the Closing Date or as set forth on the most recently delivered Settlement Statement. "Law" shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "Lien", in respect of the property of any Person, shall mean any ownership interest of any other Person, any mortgage, deed of trust, hypothecation, pledge, lien, security interest, grant of a power to confess judgment, preference, right to priority payment, charge or other encumbrance or security arrangement of any nature whatsoever, including, without limitation, any conditional sale or title retention arrangement, and any assignment, deposit arrangement, consignment or lease intended as, or having the effect of, security, or the filing of any financing statement in connection with any of the foregoing. "Liquidation Day" shall mean each day which occurs on or after (i) the date designated in a notice given by the Buyer to the Seller stating that the conditions contained in Section 4.03 hereof are not satisfied, (ii) the Expiration Date, (iii) the first date on which a Termination Event has occurred and the Buyer has given notice to the Seller that it is terminating its obligations pursuant to Section 10.02(a) hereof or (iv) the date on which the Seller gives written notice to the Buyer that the Seller no longer wishes to sell interests in the Receivables Pool to the Buyer or permit Reinvestments to be made; PROVIDED, HOWEVER, there shall be no Liquidation Day after the Net Investment shall equal zero and the Seller shall have no remaining payment obligations to the Buyer under this Agreement. "Liquidation Period" shall mean one or more consecutive Liquidation Days. "Lockbox Account" shall mean an account established by the Seller with a Permitted Lockbox Bank for the purpose of depositing payments made by Obligors, other than payments made by Obligors on account of Medicaid Receivables. "Lockbox Servicing Agreement" shall mean an agreement relating to lockbox services in connection with a Lockbox Account which gives the Buyer the right under certain circumstances to take control of the related Lockbox Account, which is in form and substance satisfactory to the Buyer, and which has been executed and delivered to the Buyer by a Permitted Lockbox Bank. "Loss Ratio" shall mean, with respect to any Settlement Period, the greatest average Default Ratio determined for any three consecutive full Accounting Periods during the twelve full Accounting Periods immediately preceding the first day of such Settlement Period. "Loss Horizon Ratio" shall mean, with respect to any Settlement Period, a fraction the numerator of which is the aggregate amount of net sales of the Seller resulting in the creation of Receivables during the four full Accounting Periods immediately preceding the first day of such Settlement Period, and the denominator of which is the aggregate outstanding balance of all Eligible Receivables as of the last day of the Accounting Period most recently completed. "Maximum Net Investment" shall mean $75,000,000 unless otherwise increased with the consent of the Buyer or reduced as provided in Section 2.03 hereof. "Medicaid" shall mean, in any state, the hospital insurance program created by that state's statutes in accordance with Title XIX of the Social Security Act. "Medicaid Collection Account" shall mean any FDIC-insured account maintained by the Seller in the name of the Seller with a Permitted Lockbox Bank in accordance with the provisions hereof and under the ownership and control of the Seller, exclusively for the deposit upon receipt by the Seller of all payments made by Obligors on account of the Medicaid Receivables. "Medicaid Receivables" shall mean, with respect to any state, a Receivable the Obligor of which is the state and, to the extent provided by law, the United States, acting through the state Medicaid agency, and which arises out of charges properly reimbursable to the Seller under Medicaid. "Mellon Bank" shall mean Mellon Bank, N.A., a national banking association. "Moody's" shall mean Moody's Investors Service, Inc. "Net Investment" shall mean (a) on the Closing Date, an amount equal to the Purchase Price (not including the Deferred Purchase Price, if any) paid for the Participation Interest on the Closing Date, and (b) on any other day, an amount equal to the sum of (i) the amount calculated pursuant to (a) above, plus (ii) amounts paid to the Seller pursuant to Section 5.01 hereof since the Closing Date as an increase in the Net Investment, less (iii) all Collections and other amounts paid to the Buyer and not reinvested (which shall not include any amounts paid to the Buyer as Settlement Period Amount or fees) pursuant to Sections 2.03(b), 5.01, 5.03(d), 5.03(e) or 5.04 hereof since the Closing Date. In the event that any amount received by the Buyer constituting any portion of Collections is rescinded or must otherwise be returned or restored for any reason to any Person, the Net Investment shall be increased by the amount of Collections so rescinded, returned or restored. "Non-Medicaid Receivables" shall mean, Purchased Receivables, other than Medicaid Receivables, together with any and all rights to receive payments due thereon, and all proceeds thereof in any way derived, whether directly or indirectly. "Notice of Assignment" shall mean each notice of assignment delivered by or on behalf of the Seller to any insurer or third party intermediary that is an Obligor in respect of the Receivables, which notice of assignment shall notify such Obligor of the Buyer's Participation Interest in the Receivables and request such Obligor's acknowledgment thereof and consent thereto. "Notification Obligor" shall have the meaning assigned to such term in Section 8.02(e) hereof. "Obligor" shall mean, for any Receivable, each and every Person under a Contract who is obligated to make payments to the Seller on such Contract as a result of a purchase of goods or services, whether or not such goods or services were provided to such Person. "Office" shall mean, when used in connection with the Buyer, its office located at 225 Liberty Street - 8th Floor, New York, New York 10080, or when used in connection with the Seller, its office located at 8333 Bryan Dairy Road, Largo, Florida 34647, or at such other office or offices of the Buyer or the Seller or branch, subsidiary or Affiliate of either thereof as may be designated in writing from time to time by the Buyer to the Seller or the Seller to the Buyer, as appropriate. "Official Body" shall mean any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Paid" shall mean Paid Prescription, a pharmacy benefit company headquartered in Montvale, New Jersey. "Participation Interest" shall mean, at any time, an undivided percentage ownership interest equal to the Buyer's Allocation at such time in all then outstanding Receivables included in the Receivables Pool, including, without limitation, all Collections, and all collateral security, insurance policies, letters of credit and surety bonds given on behalf of Obligors to secure or support payment of such Receivables, and any proceeds of any of the foregoing. "PCS" shall mean Pharmaceutical Card System (currently known as PCS Health System), a pharmacy benefit company headquartered in Scottsdale, Arizona. "Permitted Lockbox" shall mean a post office box maintained by the Permitted Lockbox Bank for the purpose of receiving payments made by Obligors. "Permitted Lockbox Bank" shall mean (i) NationsBank of Florida, N.A. and (ii) any commercial bank at which a Lockbox Account or a Medicaid Collection Account is maintained, the short-term unsecured debt obligations of which are rated at least A-1 by S&P, at least P-1 by Moody's and, if rated by Duff, at least D-1 by Duff, appointed from time to time by the Seller and approved by the Buyer. "Person" shall mean an individual, corporation, partnership (general or limited), trust, business trust, unincorporated association, joint venture, joint-stock company, Official Body, or any other entity of whatever nature. "Potential Termination Event" shall mean any event or condition which, with the giving of notice, the passage of time or both, would constitute a Termination Event. "Program Fee" shall mean the rate per annum set forth in a separate letter agreement between the Seller and the Buyer. "Purchase Availability Amount" shall mean, as of any date, an amount equal to the excess, if any, of (i) the Maximum Net Investment as of such date over (ii) the Net Investment as of such date. "Purchase Availability Fee" shall mean the fee set forth in a separate letter agreement between the Seller and the Buyer. "Purchase Documents" shall mean this Agreement, the Certificate of Participation and such other agreements, documents and instruments entered into and delivered by the Seller in connection with the transactions contemplated by this Agreement. "Purchase Notice" shall mean each notice delivered pursuant to Section 4.03(c) hereof, in such form and with such detail as the Buyer may require from time to time. "Purchase Obligation" shall have the meaning ascribed to such term in Section 2.01(a) hereof. "Purchase Price" shall mean, with respect to the purchase of the Participation Interest, the amount of cash consideration set forth on the Purchase Notice or otherwise paid by the Buyer for the Participation Interest on the Closing Date. "Purchased Receivable" shall mean a Receivable included in the Receivables Pool in which the Buyer has purchased and is maintaining the Participation Interest pursuant to the terms of this Agreement. "Rate of Collections" shall mean, for any Accounting Period, a fraction, expressed as a percentage, the numerator of which is equal to the total Collections in respect of all Receivables (including deemed Collections to the extent actually received by the Servicer pursuant to Section 5.07 hereof) during such Accounting Period, and the denominator of which is equal to the aggregate Account Balances of all Receivables on the last day of the immediately preceding Accounting Period. "Receivable" shall mean, with respect to any Contract, all receivables, contract rights, general intangibles, accounts, chattel paper, amounts due and to become due to the Seller arising under such Contract (including but not limited to finance charges accrued with respect to such amounts and fees), and all other rights, powers and privileges of the Seller arising thereunder or related thereto and in the merchandise and contracts relating thereto, assertable against any Person whatsoever, all security interests, guaranties and property securing or supporting payment thereof, all Records relating thereto and all proceeds and products of any of the foregoing. "Receivables Pool" shall mean, at any time, the group of Purchased Receivables then outstanding which have, on the Closing Date, been identified by the Seller as constituting a pool and each additional Receivable thereafter added to such pool. "Records" shall mean correspondence, memoranda, computer programs, tapes, discs, papers, books or other documents or transcribed information of any type whether expressed in ordinary or machine readable language. "Reference Rate" shall mean the rate of interest established by Mellon Bank in Pittsburgh, Pennsylvania from time to time as its reference rate; any change in the reference rate shall become effective as of the opening of business when such change occurs. The "Reference Rate" is not intended to be the lowest rate of interest charged by Mellon Bank in connection with extensions of credit to debtors. "Referral Agent" shall mean Mellon Bank, together with its successors or assigns. "Reinvestment" shall mean the purchase by the Buyer and the sale by the Seller of additional undivided percentage ownership interests in each and every Purchased Receivable utilizing the proceeds of Collections that were allocated to the Buyer for such purpose pursuant to Section 5.03(a) hereof. "Remainder" shall have the meaning assigned to such term in Section 5.03(a) hereof. "Responsible Officer" shall mean the chief executive officer, chief financial officer, treasurer, controller or the vice president/legal affairs of the Seller. "S&P" shall mean Standard & Poor's Ratings Group. "Security Agreement" shall mean the Security Agreement dated as of June 14, 1993, as amended and restated as of August , 3, 1994, among Eckerd Corporation, the "Guarantors" party thereto and Chemical Bank, as "Collateral Agent", as the same may from time to time be amended, supplemented or otherwise modified and in effect. "Seller Fiscal Year" shall mean the fiscal year, as used for accounting purposes, of the Seller. "Seller's Normal Credit Policies" shall mean the normal credit review policies and procedures established by the Seller (whether or not formally established by the Seller) in approving Obligors for credit and relating to the collection of Receivables, which policies and procedures have been approved by the Buyer. "Servicer" shall mean the Seller, or any Person other than the Seller or its Affiliates which, upon the termination of the Seller as Servicer, succeeds to the functions performed by the Seller as the servicer of the Purchased Receivables (other than with respect to the Medicaid Receivables) pursuant to a Complete Servicing Transfer and a Servicing Agreement. "Servicer's Compensation" shall have the meaning ascribed to such term in Section 6.06(e) hereof. "Servicer's Compensation Reserve" shall mean, with respect to any Settlement Period, the product of (i) the Servicer's Compensation with respect to the immediately preceding Settlement Period and (ii) two. "Servicing Agreement" shall mean any agreement between the Buyer and any Person, other than the Seller or its Affiliates, which contains provisions concerning the servicing of the Purchased Receivables (other than the servicing of the Medicaid Receivables) substantially similar to the provisions contained herein, including Sections 5.03, 5.04, 5.06, 6.01, 6.02, 6.04, 6.06 and 6.07 hereof, pursuant to which such Person performs servicing functions in respect of the Purchased Receivables (other than with respect to the Medicaid Receivables), and all agreements, instruments and documents attached thereto or delivered in connection therewith, as any of the same may from time to time be amended, supplemented or otherwise modified and in effect. "Settlement Date" shall mean the last day of each Settlement Period, which shall be the 20th calendar day (or if such 20th calendar day is not a Business Day, the next succeeding Business Day) after the last day of the Accounting Period most recently completed. "Settlement Period" shall mean (a) the period from and including the Closing Date to but excluding the first Settlement Date, and (b) thereafter, the period from and including the Settlement Date of the immediately preceding Settlement Period to but excluding the next Settlement Date; PROVIDED, HOWEVER, that any Settlement Period which would otherwise end on a day which is after the Expiration Date shall end on such Expiration Date. "Settlement Period Amount" shall mean, with respect to any Settlement Period, an amount equal to the sum of (i) the Cost of Funds for such Settlement Period and (ii) the product of (a) the Program Fee, (b) the Net Investment at the close of business on the first day of such Settlement Period, and (c) a fraction the numerator of which is the actual number of days in such Settlement Period and the denominator of which is 360. "Settlement Period Reserve" shall mean, with respect to any Settlement Period, the product of (i) the Settlement Period Amount with respect to the immediately preceding Settlement Period and (ii) two. "Settlement Statement" shall mean a statement, substantially in the form of Exhibit B hereto, which, among other things, will identify any and all Receivables included in the Receivables Pool as of the last day of the Accounting Period most recently completed, duly completed and executed by a Responsible Officer of the Seller and delivered to the Buyer pursuant to Section 5.01 hereof. "Social Security Act" shall mean the Social Security Act of 1935, 42 U.S.C. Sections 401 et seq., as the same may from time to time be amended, supplemented or otherwise modified and in effect. "Surety Bond" shall mean the surety bond issued by the Surety Bond Provider under the Insurance Agreement. "Surety Bond Provider" shall mean Capital Markets Assurance Corporation, as the issuer of the Surety Bond under the Insurance Agreement. "Termination Event" shall have the meaning ascribed to such term in Section 10.01 hereof. "Transaction Costs" shall have the meaning ascribed to such term in Section 11.01 hereof. "TRIFCO Security Agreement" shall mean the Amended and Restated Security Agreement dated as of October 8, 1993 among the Buyer, the Surety Bond Provider and the Collateral Agent, and consented and agreed to by the Agent and the Depositary, as the same has been amended and may from time to time hereafter be amended, supplemented or otherwise modified and in effect. "UCC" shall have the meaning ascribed to such term in Section 1.02 hereof. 1.02. INTERPRETATION AND CONSTRUCTION. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole. References in this Agreement to "determination" by the Buyer shall be conclusive absent manifest error and include good faith estimates by the Buyer (in the case of quantitative determinations) and good faith beliefs by the Buyer (in the case of qualitative determinations). The words "hereof", "herein", "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation hereof in any respect. Section, subsection and appendix references are to this Agreement unless otherwise specified. As used in this Agreement, the masculine, feminine or neuter gender shall each be deemed to include the others whenever the context so indicates. Terms not otherwise defined herein which are defined in the Uniform Commercial Code as in effect in the State of New York (the "UCC") on the date hereof shall have the respective meanings ascribed to such terms therein unless the context otherwise clearly requires. This Agreement shall be construed as a whole and in accordance with its fair meaning. ARTICLE II AGREEMENT TO PURCHASE AND SELL 2.01. PURCHASE LIMITS. Subject to the terms and conditions hereof, the Seller may at its option sell to the Buyer, and the Buyer agrees to purchase from the Seller (such agreement being referred to herein as the "Purchase Obligation"), at any time and from time to time on and after the date hereof and to but excluding the Expiration Date, undivided percentage ownership interests in the Receivables Pool by purchasing the Participation Interest. Subject to the terms and conditions hereof, the Buyer shall also (i) make Reinvestments by permitting the Servicer to cause Collections allocated to the Buyer to be applied to the purchase of additional undivided percentage ownership interests in the Receivables Pool, and (ii) increase its Net Investment in the Participation Interest on any Settlement Date at the request of the Seller (without regard to a minimum amount). The Buyer shall have no obligation to purchase the Participation Interest on the Closing Date, or to increase its Net Investment on any Settlement Date, or to permit a Reinvestment to be made on any day, to the extent that the amount of such purchase or increase or Reinvestment shall exceed the Purchase Availability Amount, or shall cause the Buyer's Allocation (after giving effect to such purchase or increase or Reinvestment) to exceed 100%. The Buyer shall not be obligated to increase the Maximum Net Investment. The Buyer shall not purchase the Participation Interest or increase the Net Investment on any Settlement Date if the Buyer cannot issue its commercial paper notes or short-term promissory notes or otherwise borrow in order to fund the Purchase Price of the Participation Interest or such increase in the Net Investment. The Buyer shall not make any such purchase or any Reinvestment or increase its Net Investment on any Settlement Date on or after the earlier to occur of (i) the Expiration Date, and (ii) the reduction of the Maximum Net Investment to zero pursuant to Section 2.03 hereof. 2.02. AMOUNT OF PURCHASES. The sale of the Participation Interest by the Seller to the Buyer on the Closing Date shall be for a minimum Purchase Price of $10,000,000. 2.03. REDUCTION OF THE MAXIMUM NET INVESTMENT AND NET INVESTMENT; TERMINATION OF THE AGREEMENT. (a) REDUCTION OF MAXIMUM NET INVESTMENT. The Maximum Net Investment shall be reduced to zero (i) on the Expiration Date, or (ii) in accordance with Section 10.02 hereof. In addition, upon written notice from the Seller to the Buyer, the Seller may reduce in whole or in part the Maximum Net Investment, effective as of the next Settlement Date on or after the thirtieth (30th) day following the date on which such notice is given; PROVIDED, HOWEVER, that (i) any partial reduction must be in an amount equal to $5,000,000 or any greater amount which is an integral multiple of $1,000,000, and (ii) if the Maximum Net Investment at the time of such notice is less than or equal to $15,000,000, the Seller may only elect to reduce the amount of the Maximum Net Investment to zero. Notwithstanding any other provision of this Agreement, the Maximum Net Investment may not at any time be reduced below the amount of the Net Investment at such time. (b) REDUCTION OF THE NET INVESTMENT. If at any time the Seller shall wish to cause the reduction of the Net Investment (but not to commence the permanent liquidation of the Participation Interest), the Seller may do so upon ten (10) days' prior written notice thereof to the Buyer (such notice to include the amount of such proposed reduction and the proposed date on which such reduction will commence, which shall not be earlier than ten (10) days prior to the next Settlement Date). On the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall refrain from making Reinvestments of Collections until the amount of such Collections not so reinvested shall equal the desired amount of reduction. The Servicer shall hold such unreinvested Collections in trust for the benefit of the Buyer, for payment to the Buyer on the Settlement Date for the Settlement Period in which such Collections are accumulated, and the Net Investment shall be reduced by the amount actually paid to the Buyer. The Seller shall use reasonable efforts to attempt to choose a reduction amount, and the date of the commencement thereof, so that such reduction shall commence and conclude in the same Settlement Period. The Seller shall pay to the Buyer an amount equal to any loss, cost or expense incurred by the Buyer as the result of the repayment of the Net Investment prior to the maturity date of any (x) loans made to the Buyer by third parties or (y) commercial paper notes or short-term promissory notes issued by the Buyer, in each case for the purpose of maintaining the Participation Interest. (c) TERMINATION OF THE AGREEMENT. This Agreement shall terminate at the later to occur of (i) the Expiration Date or (ii) when the Net Investment equals zero and no further purchases are to be made by the Buyer hereunder; PROVIDED, HOWEVER, that the covenants, representations, warranties and indemnities of the Seller to the Buyer contained herein or made pursuant hereto shall survive such termination. Upon such termination, the Buyer shall convey to the Seller, without recourse, its Participation Interest in all Purchased Receivables and shall deliver to the Seller all instruments and documents relating thereto. Upon such reconveyance the Deferred Purchase Price shall be deemed paid in full. 2.04. FEES PAYABLE TO THE BUYER. (a) PURCHASE AVAILABILITY FEE. The Seller agrees to pay to the Buyer, in consideration for the Purchase Obligation hereunder, from and including the date of execution of this Agreement to but excluding the Expiration Date, the Purchase Availability Fee in the amount set forth in a separate letter agreement between the Seller and the Buyer. The accrued Purchase Availability Fee shall be due and payable in accordance with Sections 5.03 and 5.04 hereof until the earlier of the Expiration Date and the date on which the Maximum Net Investment is reduced to zero pursuant to Section 2.03(a) hereof. To the extent the Purchase Availability Fee is not paid from Collections in accordance with Section 5.03 or 5.04 hereof, the Purchase Availability Fee shall be an absolute and unconditional obligation of the Seller. (b) FEES NON-REFUNDABLE. The fees to be paid to the Buyer pursuant to this Section 2.04 are non-refundable and shall not be refunded for any reason whatsoever, including, without limitation, the later reduction or termination of the Maximum Net Investment in whole or in part in accordance with the provisions of this Agreement. 2.05. FEES PAYABLE TO THE REFERRAL AGENT. The Seller shall on the date of execution of this Agreement pay to the Referral Agent for its own account an arrangement fee in the amount agreed to between the Seller and the Referral Agent. ARTICLE III BUYER'S ALLOCATION 3.01. BUYER'S ALLOCATION. The Buyer's Allocation on any day of determination shall be a percentage, not in excess of 100%, equal to the quotient of (i) the Investment, divided by (ii) the positive result of (a) the aggregate Account Balances of all Eligible Receivables included in the Receivables Pool on the date of determination before giving effect to Collections on such date, less (b) the sum, without duplication, of (1) the aggregate amount by which the Account Balance of Eligible Receivables of each Obligor (calculated prior to any adjustment for unapplied cash received from such Obligor in the case of an Obligor whose Receivables are outstanding under a Contract with PCS) exceeds the Concentration Limit for such Obligor and (2) the aggregate amount by which the Account Balance of Eligible Receivables owing under all Contracts with PCS exceeds (A) eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as PCS has, or is a wholly-owned subsidiary of an entity which has, short-term ratings of at least A-1 and P-1 from S&P and Moody's respectively or (B) six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period if clause (A) is not applicable. 3.02. FREQUENCY OF COMPUTATION OF THE BUYER'S ALLOCATION. The Buyer's Allocation shall be initially computed as of the opening of business of the Servicer on the Closing Date. Thereafter, until the Net Investment shall be reduced to zero, the Buyer's Allocation shall be automatically recomputed as of the close of business of the Servicer on each Business Day, and the Buyer's Allocation shall constitute the percentage ownership interest of the Buyer in the Receivables Pool on such date; PROVIDED, HOWEVER, that on and after a Liquidation Day and during the continuance of a Liquidation Period, the Buyer's Allocation shall be equal to the greater of (i) the Buyer's Allocation as computed on the first Business Day preceding the occurrence of such Liquidation Day, and (ii) the Buyer's Allocation computed on each Business Day after the occurrence of such Liquidation Day. The Buyer's Allocation shall be reduced to zero at such time as the Net Investment shall be reduced to zero, the Buyer shall have received all amounts in respect of accrued and unpaid Settlement Period Amounts and all other amounts payable to it pursuant to this Agreement, and the Servicer, provided the Seller is not the Servicer, shall have received the accrued Servicer's Compensation. ARTICLE IV CLOSING PROCEDURES 4.01. PURCHASE AND SALE PROCEDURES. (a) GENERAL. The sale of the Participation Interest hereunder shall, with respect to the Receivables Pool, transfer ownership to the Buyer of an undivided percentage ownership interest in each Receivable in the Receivables Pool, effective (i) as of the Closing Date, (ii) as of any Settlement Date on which the Net Investment therein is increased or (iii) as of the date of any Reinvestment thereafter, as the case may be. (b) INDEMNITY FOR FAILURE TO CLOSE. If the sale of the Participation Interest fails to occur on the Closing Date as specified in a Purchase Notice delivered pursuant to Section 4.03(c) hereof and agreed to by the Buyer pursuant to Section 4.04 hereof for any reason, or if any increase in the Net Investment reflected on any Settlement Statement delivered by the Seller to the Buyer fails to occur on the Settlement Date related to such Settlement Statement for any reason, the Seller shall reimburse the Buyer on demand for any loss, cost or expense (including loss of margin) incurred by the Buyer with respect to this Agreement, its obligations hereunder or its funding of the proposed Purchase Price or Net Investment increase (including, without limitation, any loss, cost or expense in obtaining, liquidating or employing deposits as loans from third parties or the loss, cost or expense of issuing its commercial paper notes or short-term promissory notes in order to fund such Purchase Price or Net Investment increase) until the earlier of (A) the Closing Date as specified in a subsequent Purchase Notice delivered pursuant to Section 4.03(a) hereof and agreed to by the Buyer pursuant to Section 4.04 hereof and (B) the date on which (i) the Buyer redeploys any funds committed to fund such Purchase Price or Net Investment increase at a rate of return greater than or equal to the Cost of Funds, or (ii) such commercial paper notes or short-term promissory notes become due and payable, as the case may be. The Buyer shall notify the Seller of the amount determined by the Buyer (which determination shall be conclusive and binding absent manifest error) to be necessary to compensate the Buyer for such loss, cost or expense. Such amount shall be due and payable by the Seller to the Buyer ten (10) Business Days after such notice is given. (c) The Buyer's Participation Interest shall be evidenced by a Certificate of Participation, and each increase or decrease in the Net Investment shall be evidenced by an entry on the grid annexed thereto. 4.02. CONDITIONS PRECEDENT TO THE FIRST PURCHASE. The obligation of the Buyer to purchase the Participation Interest from the Seller on the Closing Date shall be subject to the satisfaction of the conditions set forth in Section 4.03 hereof and the following further conditions, unless waived by the Buyer: (a) CORPORATE STANDING. The Buyer shall have received from the Seller (i) a certificate, dated a recent date relative to the Closing Date as determined by the Buyer, of the Secretary of State or other similar official as to its good standing under the Laws of its jurisdiction of incorporation, and (ii) certificates, dated a recent date relative to the Closing Date as determined by the Buyer, of the Secretary of State or other similar official of each jurisdiction in which it conducts business or owns substantial properties and where the failure to qualify as a foreign corporation would have a material adverse effect on its business, operations, properties or financial condition, as to its good standing under the the Laws of such jurisdictions. (b) OPINIONS OF COUNSEL; ACCOUNTANTS' LETTER. The Buyer shall have received from the Seller: (i) a favorable written opinion of Shackleford, Farrior, Stallings & Evans, P.A., counsel for the Seller, dated the Closing Date, in substantially the form attached hereto as Exhibit D, and of Vinson & Elkins L.L.P, special Texas counsel to the Seller, in form and substance satisfactory to the Buyer; and (ii) a letter from KPMG Peat Marwick, independent certified public accountants for the Seller, dated the Closing Date, in substantially the form attached hereto as Exhibit E. (c) FINANCING STATEMENTS, ETC. The Buyer shall have received executed copies, and (where applicable) evidence satisfactory to it of the completion, of all recordings, registrations, filings and notices as may be necessary or, in the opinion of the Buyer, desirable to evidence or perfect the ownership interests to be acquired by the Buyer hereunder, including, without limitation: (i) (x) proper financing statements on Form UCC-1 to be filed within 5 Business Days after the Closing Date, naming Mellon Bank as the assignor and the Seller as the assignee with respect to Mellon Bank's existing participation interest in the Receivables, proper financing statement amendments on Form UCC-3 to be filed within 5 Business Days after the Closing Date, reflecting the termination of Mellon Bank's existing participation interest in the Receivables, proper Financing Statements on Form UCC-1 to be filed within 5 Business Days after the Closing Date, naming Holdings as the assignor and the Seller as the assignee with respect to Holdings' interest, if any, in the Receivables, and proper financing statements on Form UCC-1 to be filed within 5 Business Days after the Closing Date, naming the Seller as the assignor and the Buyer as the assignee, (y) copies certified by a Responsible Officer of the Seller of the forms of all Notices of Assignment to be sent to Notification Obligors within 5 Business Days after the Closing Date and a list of the names and addresses of all Notification Obligors and (z) such other similar instruments or documents as may be necessary or, in the opinion of the Buyer, advisable under the Uniform Commercial Code or any comparable law of all appropriate jurisdictions to evidence or perfect the Buyer's Participation Interest; (ii) evidence of searches satisfactory to the Buyer listing all effective financing statements which name the Seller as debtor and/or assignor in the jurisdictions in which filings are made pursuant to subsection (i) above, together with copies of such financing statements, none of which shall cover any Purchased Receivables or the related Contracts; and (iii) any other document required by the terms of the related Contracts. (d) CERTIFICATE OF PARTICIPATION. The Buyer shall have received on or prior to the Closing Date a Certificate of Participation executed on behalf of the Seller by a Responsible Officer. (e) LOCKBOX AGREEMENTS. The Buyer shall have received on or prior to the Closing Date duly executed copies of Lockbox Servicing Agreements with each of one or more Permitted Lockbox Banks. (f) ARRANGEMENT FEE. The Seller shall have paid to the Referral Agent the arrangement fee required to be paid pursuant to Section 2.05 in the amount set forth in a separate letter agreement among the Seller, the Buyer and the Referral Agent. (g) PURCHASE NOTICE. The Buyer shall have received from the Seller, no less than four (4) Business Days prior to the Closing Date, a notice in substantially the form of Exhibit J (the "Purchase Notice"), together with such written documentation of the procedures utilized and calculations made in connection with the preparation of such Purchase Notice as the Buyer may request. (h) RESPONSIBLE OFFICER CERTIFICATE. The Buyer shall have received a certificate of a Responsible Officer of the Seller dated the Closing Date in substantially the form attached hereto as Exhibit C, and as to such other matters incident to the transactions contemplated by the Purchase Documents as the Buyer may reasonably request, in form and substance satisfactory to the Buyer. (i) CONSENT OF THE CREDIT BANKS. The Buyer shall have received evidence satisfactory to the Buyer that the "Required Lenders" as such term is defined in the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Seller, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A, (the "Eckerd Credit Agreement") have consented to this Agreement and the transactions contemplated hereby. (j) HOLDINGS CONSENT. The Buyer shall have received on or prior to the Closing Date the Consent and Acknowledgment duly executed by Holdings. 4.03. CONDITIONS PRECEDENT TO EACH PURCHASE AND REINVESTMENT. The obligation of the Buyer to purchase the Participation Interest from the Seller on the Closing Date, to make a Reinvestment on any date or to increase the Net Investment in the Receivables Pool on any Settlement Date is subject to the performance by the Seller of its obligations hereunder on or before the Closing Date, such date on which a Reinvestment will be made or Settlement Date and to the satisfaction of the following further conditions: (a) DETAILS, PROCEEDINGS AND DOCUMENTS. All legal details and proceedings in connection with the transactions contemplated by the Purchase Documents or the Receivables to be included in the Receivables Pool on the Closing Date or date of such Reinvestment or Settlement Date shall be in form and substance satisfactory to the Buyer, and the Buyer shall have received all such originals or certified copies or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Buyer. (b) REPRESENTATIONS AND WARRANTIES. On and as of such date (i) the representations and warranties of the Seller contained in Article VIII hereof shall be true and correct with the same force and effect as though made on and as of the Closing Date or date of Reinvestment or Settlement Date (except to the extent that such representations and warranties relate solely to an earlier date), (ii) the Seller shall be in compliance with the covenants contained in Article IX hereof, and (iii) no Termination Event or Potential Termination Event shall occur as a result of the purchase and sale of the Participation Interest in the Receivables Pool on the Closing Date or as a result of such Reinvestment or such increase in the Net Investment, or shall have occurred and be continuing or shall exist on the Closing Date or date of Reinvestment or Settlement Date. (c) ACKNOWLEDGMENT OF SERVICER. If there is a Servicer other than the Seller or the Buyer, the Buyer shall have received a copy of the Servicing Agreement together with an acknowledgment from the Servicer affirming that the Servicing Agreement is in full force and effect. 4.04. PURCHASE PRICE. Subject to the terms and conditions hereof, and relying upon the representations and warranties set forth herein, on the Closing Date and on each Settlement Date on which the Net Investment is increased, the Buyer shall purchase the Participation Interest in the Receivables Pool described in the Purchase Notice delivered by the Seller to the Buyer and agreed upon by the Buyer or increase the Net Investment as indicated in the related Settlement Statement, as the case may be. On the Closing Date or such Settlement Date, as the case may be, the Buyer shall make available to the Seller at its Office, or such other place as the Seller has notified the Buyer, the Purchase Price therefor or such increase in the Net Investment, as the case may be. 4.05. SALE WITHOUT RECOURSE. (a) The sale of the Participation Interest hereunder shall, subject to Section 5.06 hereof, be made without recourse to the Seller with respect to any loss arising from Defaulted Receivables, PROVIDED that nothing contained herein shall limit the rights of the Buyer provided in Articles V, VI, VII and XI hereof. (b) This Agreement also constitutes a security agreement under the UCC. The Seller hereby grants to the Buyer on the terms and conditions of this Agreement a first priority security interest in and against all of the Seller's right, title and interest in and to the entire amount of the Purchased Receivables and the proceeds thereof for the purposes of securing the rights of the Buyer under this Agreement. 4.06. NON-ASSUMPTION BY THE BUYER OF OBLIGATIONS. No obligation or liability of the Seller to any Obligor under any Purchased Receivable or Contract shall be assumed by the Buyer hereunder or under the Certificate of Participation, and any such assumption is hereby expressly disclaimed. The Buyer shall be indemnified by the Seller in accordance with Section 11.04 hereof in respect of any losses, claims, damages, liabilities, costs or expenses arising out of or incurred in connection with any Obligor's assertion of such obligation or liability against the Buyer. 4.07. CHARACTER OF RECEIVABLES ADDED TO RECEIVABLES POOLS. All Receivables of the Seller shall be included in the Receivables Pool immediately upon creation thereof. All Receivables shall comprise only one Receivables Pool. ARTICLE V SETTLEMENTS; ADJUSTMENTS 5.01. SETTLEMENT STATEMENTS. The Seller shall submit to the Buyer not less than two (2) Business Days' prior to each Settlement Date, a Settlement Statement signed by a Responsible Officer of the Seller dated such Settlement Date and including information in respect of the Receivables Pool as of the last day of the immediately preceding Accounting Period. The execution and delivery of any Settlement Statement shall constitute a representation and warranty by the Seller that the information contained therein is true and correct as of the date thereof. Such Settlement Statement shall be accompanied by such other information as the Buyer may reasonably request. The Net Investment shall be recalculated on each such Settlement Statement. If the Net Investment is to be increased on such Settlement Date, as reflected on such Settlement Statement, the Buyer shall make available to the Seller at its Office, or such other place as the Seller has notified to the Buyer, on such Settlement Date, the amount of such increase in the Net Investment, PROVIDED that such increase in the Net Investment shall not cause the Net Investment to exceed the Maximum Net Investment then in effect. If the Net Investment is to be decreased on such Settlement Date, as reflected on such Settlement Statement, the Seller shall make available to the Buyer at the Buyer's Office, or such other place as the Buyer has notified the Seller, on such Settlement Date, the amount of such decrease in the Net Investment, unless otherwise paid to the Buyer pursuant to Section 5.03(d). 5.02. RECEIVABLES STATUS. Upon ten (10) Business Days' notice from the Buyer, the Seller will furnish or cause to be furnished to the Buyer a written report, signed by a Responsible Officer of the Seller, containing such information as the Buyer may reasonably request (in such form as the Buyer may reasonably request), which shall include, without limitation, (a) the Account Balances of the related Contracts for all Purchased Receivables, together with all Collections, Dilution Factors, and other adjustments to such Receivables since the date of the last written report furnished to the Buyer, and an aging of all Contracts as of a date no later than the date of such notice; and (b) an analysis and explanation of significant variances, if any, between actual Collections of Purchased Receivables during such Settlement Period and historical collections experience. 5.03. NON-LIQUIDATION SETTLEMENTS. (a) DAILY SETTLEMENTS. On each day (other than a Liquidation Day) with regard to each Settlement Period, the Buyer shall be allocated an amount of Collections equal to the product of (i) the Buyer's Allocation, expressed as a decimal, and (ii) Collections, if any, with respect to the Purchased Receivables on such day. The Servicer shall hold in trust for the benefit of the Buyer out of such amount in respect of such Buyer's Allocation an amount equal to the Settlement Period Amount accrued through such day and not previously so held (whether or not accrued during the current Settlement Period), and (following such allocation) shall hold for its own account an amount, if available, equal to the Servicer's Compensation accrued through such day for the Participation Interest and not previously so held, and (following such allocation) shall hold for the account of the Buyer an amount, if available, equal to the Purchase Availability Fee accrued through such day and not previously so held. The remainder of such amount (the "Remainder") in respect of such Buyer's Allocation shall, subject to the final sentence of Section 5.03(d), be applied to reduce the Net Investment. After such reduction, and subject to the terms and conditions of this Agreement, the Servicer shall make a Reinvestment in the Receivables Pool in the amount of the Remainder, subject to Sections 2.01 and 4.03 hereof, and after giving effect to any allocation of new Receivables to the Receivables Pool, thereby increasing the Net Investment to the extent of such Reinvestment. Any portion of the Remainder not applied to a Reinvestment shall be held by the Servicer in accordance with subsection (d) below. The Remainder, or any portion thereof, which is applied to a Reinvestment, and any amount of Collections which were not allocated to the Buyer pursuant to the first sentence of this Section 5.03(a), shall be remitted by the Servicer to the Seller. Notwithstanding the foregoing, in the event that at the end of any Settlement Period the amounts held in trust for the benefit of the Buyer pursuant to the second sentence of this Section 5.03(a) and not previously paid to the Buyer are less than the accrued and unpaid Settlement Period Amount for such Settlement Period, then any amount which had been deemed to be a Remainder during such Settlement Period up to the amount of such deficit in the amount available to pay the Settlement Period Amount) shall be retroactively deemed to have been held in trust for the benefit of the Buyer pursuant to the second sentence of this Section 5.03(a) and such amount shall, if applied to a Reinvestment, be returned by the Seller to the Servicer. (b) SETTLEMENT DATES. On each Settlement Date (other than a Settlement Date with respect to a Settlement Period during which a Liquidation Day occurs), the Servicer shall pay to the Buyer and the Servicer the amounts held in trust for the benefit of the Buyer and the Servicer, respectively, pursuant to subsection (a) above and not previously paid to the Buyer and the Servicer, respectively. (c) DEEMED COLLECTIONS. If on any day the Account Balance of a Purchased Receivable is reduced as a result of any Dilution Factor with respect to such Purchased Receivable, the Seller shall be deemed to have received on such day a Collection of Purchased Receivables in the amount of such reduction. If on any day any of the representations and warranties of the Seller set forth in Section 8.02(b), (c) or (d) is no longer true or was not true when made with respect to such Purchased Receivable, or if any of the representations and warranties of the Seller set forth in Section 8.02(a) or (e) was not true when made, the Seller shall be deemed to have received on such day a Collection of such Purchased Receivable in full. (d) UNREINVESTED COLLECTIONS. Collections that are allocated to the Buyer in accordance with the first sentence of Section 5.03(a) and which constitute the Remainder, but which may not be immediately applied to Reinvestments for any reason, shall be so reinvested as soon as practicable without violating any provisions of this Agreement. To the extent and so long as such Collections may not be so reinvested, the Servicer shall hold such Collections in accordance with Section 5.07 hereof and shall pay such Collections to the Buyer on the Settlement Date for the Settlement Period in which such Collections are accumulated in accordance with Section 5.03(b), and the Net Investment shall be reduced in the amount paid to the Buyer only when in fact so paid. (e) MANDATORY PAYMENT. Notwithstanding anything to the contrary contained herein, if, on any Settlement Date prior to the occurrence of a Liquidation Day (after giving effect to all payments required to be made by the Seller or the Servicer to the Buyer pursuant to this Section 5.03 and any increase in the Net Investment effected on such day), the Buyer's Allocation shall exceed one hundred percent (100%), the Seller shall make a payment of an amount in immediately available funds to the Buyer as a reduction of the Net Investment such that, after giving effect to such payment, the Buyer's Allocation is equal to or less than one hundred percent (100%). 5.04. LIQUIDATION SETTLEMENTS. Notwithstanding the provisions of Sections 5.03(a) and (b) hereof, on each Liquidation Day with regard to each Settlement Period, the Servicer shall set aside and deposit within two (2) Business Days of receipt thereof into a bank account under the control of the Collateral Agent, an amount equal to the product of (i) the Buyer's Allocation, and (ii) Collections in respect of the Purchased Receivables for such Liquidation Day. The Collections allocated to the Buyer pursuant to this section shall be allocated on a daily basis (i) first, to the payment of any Settlement Period Amount accrued and owing to the Buyer, (ii) second, subject to Section 6.06(e), to the payment of any Servicer's Compensation accrued and owing to the Servicer, (iii) third, to make payment in respect of the Net Investment, (iv) fourth, to make payment in respect of any Purchase Availability Fee accrued and owing to the Buyer, and (v) fifth, to the payment of any other amount accrued and owing to the Buyer under this Agreement. Any amount of such Collections which were not allocated to the Buyer pursuant to the preceding sentence of this Section 5.04 on such Liquidation Day shall be remitted by the Servicer to the Seller. 5.05. ALLOCATION OF COLLECTIONS. (a) Except as required by Law or the underlying Contract, if any Obligor is obligated under one or more Purchased Receivables and also under one or more Contracts not constituting Purchased Receivables, then any payment received from or on behalf of such Obligor shall be applied (a) to a specific Contract if the Obligor designates such payment to be so applied, or (b) to the Purchased Receivables in the order in which payments are due thereunder if the application of such payment is not so designated. (b) Notwithstanding any other provision of this Agreement, the Buyer is not entitled to receive any portion of Collections once the Net Investment is reduced to zero and the Seller has no remaining payment obligations to the Buyer under this Agreement. 5.06. DEFERRED PURCHASE PRICE. (a) On the Closing Date, the Deferred Purchase Price shall be an amount equal to the sum of (i) the Credit Loss Reserve anticipated by the Buyer for the initial Settlement Period, plus (ii) the Settlement Period Reserve anticipated by the Buyer for the initial Settlement Period, plus (iii) the Servicer's Compensation Reserve anticipated by the Buyer for the initial Settlement Period. (b) In each Settlement Statement, the Servicer shall calculate the Deferred Purchase Price which shall be an amount equal to the sum of (i) the Credit Loss Reserve for the related Settlement Period, plus (ii) the Settlement Period Reserve for such Settlement Period, plus (iii) the Servicer's Compensation Reserve for such Settlement Period. 5.07. TREATMENT OF COLLECTIONS AND DEEMED COLLECTIONS. Any Collections deemed to be received pursuant to this Agreement shall be paid by the Seller to the Servicer in same day funds on the date of such deemed receipt. The Servicer shall hold or distribute all Collections deemed received pursuant to Sections 5.03 and 6.04 hereof to the same extent as if such Collections had actually been received. All Collections actually received by the Seller on any Liquidation Day which are not directly received in a Permitted Lockbox shall be transferred to a Lockbox Account (in the case of Non-Medicaid Receivables) or a Medicaid Collection Account (in the case of Medicaid Receivables) not later than two Business Days after such receipt. So long as the Servicer shall hold any Collections or deemed Collections required to be paid to the Buyer, it shall hold such Collections in trust and separate and apart from its own funds and shall clearly mark its records to reflect such trust. ARTICLE VI PROTECTION OF THE BUYER; ADMINISTRATION AND COLLECTIONS 6.01. MAINTENANCE OF INFORMATION AND COMPUTER RECORDS. The Seller will, or will cause the Servicer to, hold in trust and keep safely for the Buyer all evidence of the Buyer's right, title and interest in the Receivables Pool. The Seller will, or will cause the Servicer to, on or prior to the Closing Date, and with respect to all Receivables that are added to the Receivables Pool after the Closing Date, on each respective date such Receivables are added, place an appropriate code or notation in its Records in a manner mutually agreed upon by the Buyer and the Seller to indicate those Receivables which are or which will be included in the Receivables Pool. 6.02. PROTECTION OF THE INTERESTS OF THE BUYER. (a) The Seller will, or will cause the Servicer to, from time to time, do and perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statements, continuation statements, Certificates of Participation and notices of Certificates of Participation relating to the Participation Interest for filing under the provisions of the Uniform Commercial Code of any applicable jurisdiction, the execution, amendment or supplementation of any instrument of transfer, and the making of notations on the Records of the Seller) as may be requested by the Buyer in order to effect the purposes of this Agreement and the sale of the Participation Interest hereunder and to perfect the Buyer's right, title and interest in the Receivables Pool and all Collections with respect thereto against all Persons whomsoever. (b) To the fullest extent permitted by applicable Law, the Seller hereby irrevocably grants to the Buyer and the Referral Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to sign and file in the name of the Seller, or in its own name, financing statements and continuation statements and amendments thereto with respect to the Buyer's Participation Interest in the Purchased Receivables. (c) At any reasonable time and from time to time at the Buyer's reasonable request upon notice to the Seller or the Servicer, the Seller or the Servicer, as the case may be, shall permit such Person as the Buyer may designate to conduct audits or visit and inspect any of the properties of the Seller or the Servicer, as the case may be, to examine the Records, internal controls and procedures maintained by the Seller or Servicer, as the case may be, and take copies and extracts therefrom, and to discuss the Seller's or the Servicer's, as the case may be, affairs with its officers, employees and independent accountants. The Seller or the Servicer, as the case may be, hereby authorizes such officers, employees and independent accountants to discuss with the Buyer the affairs of the Seller or the Servicer, as the case may be. The Seller shall reimburse the Buyer for all reasonable fees, costs and expenses incurred by or on behalf of the Buyer in connection with the foregoing actions promptly upon receipt of a written invoice therefor. (d) The Buyer shall have the right to do all such acts and things as it may deem necessary to protect its interests, including, without limitation, confirmation and verification of Purchased Receivables. 6.03. MAINTENANCE OF THE LOCATION OF WRITINGS AND RECORDS. The Seller will at all times until completion of a Complete Servicing Transfer keep or cause to be kept at its Chief Executive Office or at an office of the Servicer designated in advance to the Buyer, separate and apart from all other Records, each writing or Record which evidences, and which is necessary or desirable to establish or protect, including such books of account and other Records as will enable the Buyer or its designee to determine at any time the status of, the Participation Interest of the Buyer in each Purchased Receivable; PROVIDED that any Records may be stored at other locations to the extent temporary location elsewhere is necessary in connection with litigation, repossession, other collection activities or other usual business purposes. The Seller shall at its own expense prepare and maintain its Records in a format which is mutually agreed upon by the Buyer and the Seller, which format cannot be changed by the Seller without the prior written consent of the Buyer. 6.04. INFORMATION. The Seller will, or will cause the Servicer to, furnish to the Buyer such additional information with respect to the Purchased Receivables (including but not limited to the Seller's Normal Credit Policies, and the Seller's credit policy manual, if any) as the Buyer may reasonably request. The Seller will also furnish to the Buyer all modifications, adjustments or supplements to the Seller's credit policy manual as in effect on the date hereof; PROVIDED, HOWEVER, that the Seller shall not, without the Buyer's prior written consent, alter its credit, enforcement and other policies as in effect from time to time if the effect of any alteration thereof would be to materially adversely affect the collectibility of the Purchased Receivables. If any such alteration made without the Buyer's consent is later determined by the Buyer to have had a material adverse effect on the collectibility of Purchased Receivables, then the Seller shall promptly revise such policies in order to prevent any such material adverse effect from occurring thereafter, and the Purchased Receivables that, in the sole judgment of the Buyer, became uncollectible due to such change shall be deemed collected and shall be treated as deemed Collections pursuant to Section 5.07 hereof. 6.05. PERFORMANCE OF UNDERTAKINGS UNDER THE PURCHASED RECEIVABLES; INDEMNIFICATION. The Seller will at all times observe and perform, or cause to be observed and performed, all obligations and undertakings to the Obligors arising in connection with each Purchased Receivable or related Contract and will not take any action or cause any action to be taken to impair the rights of the Buyer to its Participation Interest in the Purchased Receivables. The Buyer shall be indemnified by the Seller in accordance with Section 11.04 hereof in respect of any losses, claims, damages, liabilities, costs or expenses incurred or arising out of any action taken or caused to be taken by the Seller which impairs the Buyer's rights to its Participation Interest in the Purchased Receivables. 6.06. ADMINISTRATION AND COLLECTIONS; INDEMNIFICATION. (a) GENERAL. Until a Complete Servicing Transfer shall have occurred, the Seller will be the Servicer and will be responsible for the administration, servicing and collection of the Purchased Receivables; PROVIDED, HOWEVER, that upon written approval by the Buyer such duties may be delegated by the Seller to any of its Affiliates or a third party (without impairment of the Seller's obligations as Servicer). If and to the extent that the Seller or any of its Affiliates or any such third party is performing such functions, the Seller agrees to exercise or cause such Affiliate or third party to exercise the same degree of skill and care and apply the same standards, policies, procedures and diligence that it applies to the performance of the same functions with respect to accounts owned by the Seller. (b) ADMINISTRATION. The Servicer shall, to the maximum extent permitted by Law, have the power and authority, on behalf of the Buyer as part of the Servicer's administrative and servicing obligations hereunder, to take such action in respect of any such Purchased Receivable as the Servicer may deem advisable, including the resale of any repossessed, returned or rejected goods; PROVIDED, HOWEVER, that the Servicer may not under any circumstances compromise, rescind, cancel, adjust or modify (including by extension of time for payment or granting any discounts, allowances or credits) the Account Balance of the related Contract for any Purchased Receivable, except in accordance with the Seller's Normal Credit Policies or otherwise with the Buyer's prior written consent. (c) ENFORCEMENT PROCEEDINGS. In the event of a default under any Purchased Receivable before a Termination Event, the Servicer shall, at the Seller's expense, to the maximum extent permitted by Law, have the power and authority, on behalf of the Buyer as part of the Servicer's administrative and servicing obligations hereunder, to take any action in respect of any such Purchased Receivable as the Servicer may deem advisable; PROVIDED, HOWEVER, that the Servicer or the Seller, as the case may be, shall take no enforcement action (judicial or otherwise) with respect to such Purchased Receivable, except in accordance with the Seller's Normal Credit Policies or otherwise with the written consent of the Buyer. The Servicer or the Seller, as the case may be, will apply or will cause to be applied at all times before a Termination Event the same standards and follow the same procedures with respect to deciding to commence, and in prosecuting, litigation on such Purchased Receivables as is applied and followed with respect to like accounts not owned by the Buyer. In no event shall the Servicer or the Seller, as the case may be, be entitled to make or authorize any Person to make the Buyer a party to any litigation without the Buyer's express prior written consent. (D) OBLIGATIONS OF THE BUYER. The Buyer may, but shall have no obligation to, take any action or commence any proceeding to realize upon any Purchased Receivable, other than with respect to a Medicaid Receivable. At such time as the Servicer or the Seller, as the case may be, has any obligation to pursue the collection of Purchased Receivables and the Buyer possesses any documents necessary therefor, the Buyer agrees to furnish such documents to the Servicer or the Seller, as the case may be, to the extent and for the period necessary for the Servicer or the Seller, as the case may be, to comply with its obligations hereunder. (e) SERVICER'S COMPENSATION. The Servicer's Compensation for performing its responsibility as the servicer with respect to any Purchased Receivables on any day shall be equal to the quotient of (A) the product of (1) one-half of one percent (.50%), and (2) the Account Balances of Purchased Receivables on such day, divided by (B) 360. Subject to Section 6.07(a), the Servicer's Compensation shall be retained by the Servicer in accordance with Section 5.03 hereof or paid to the Servicer by the Buyer in the event Collections are applied in accordance with Section 5.04 hereof; PROVIDED, HOWEVER, that if the Seller or an Affiliate of the Seller is the Servicer, the Servicer's Compensation shall not be paid on or after any day on which a Termination Event shall have occurred and be continuing. (f) INDEMNITY. The Buyer shall be indemnified in accordance with Section 11.04 hereof in respect of any losses, claims, damages, liabilities, costs or expenses incurred or arising out of any action taken or caused to be taken by the Servicer under this Section 6.06. (g) COLLECTIONS. If, at any time, the Servicer receives any Collections in respect of Non-Medicaid Receivables, the Servicer shall hold such Collections for the benefit of the Buyer and shall not commingle any such amounts with any other funds or property held by the Servicer other than Collections in respect of Non-Medicaid Receivables, and the Servicer shall cause such Collections to be promptly deposited into a Lockbox Account. If, at any time, the Servicer receives any Collections in respect of Medicaid Receivables, the Servicer shall promptly cause such Collections to be deposited into a Medicaid Collection Account, and shall cause such Collections to be swept on a daily basis into a Lockbox Account. Nothing in this Section 6.06(g) shall affect the obligations of the Seller or the Servicer to apply all Collections received by the Seller or the Servicer pursuant to Section 5.03 or 5.04 hereof. 6.07. COMPLETE SERVICING TRANSFER. (a) GENERAL. If at any time a Termination Event shall have occurred and be continuing, the Buyer may by notice in writing to the Seller, terminate the Seller's capacity as Servicer in respect of the Purchased Receivables (other than with respect to the Medicaid Receivables) (such termination referred to herein as a "Complete Servicing Transfer"), notify Obligors of its interest in the Purchased Receivables (other than Obligors in respect of the Medicaid Receivables), take control of each Permitted Lockbox in respect of Non-Medicaid Receivables and each Lockbox Account, and exercise all other incidences of ownership in the Purchased Receivables (other than with respect to the Medicaid Receivables). After a Complete Servicing Transfer, the Buyer may administer, service and collect the Purchased Receivables (other than with respect to the Medicaid Receivables) itself, and in such event may retain the Servicer's Compensation for its own account, in any manner it sees fit, including, without limitation, by compromise, extension or settlement of such Purchased Receivables (other than with respect to the Medicaid Receivables). Alternatively, the Buyer may engage Mellon Bank or unaffiliated contractors to perform all or any part of the administration, servicing and collection of the Purchased Receivables (other than with respect to the Medicaid Receivables) and pay to Mellon Bank or such contractors all or a portion of the Servicer's Compensation in consideration thereof. (b) TRANSITION. The Seller, within ten (10) Business Days after receiving a notice pursuant to Section 6.07(a) hereof, shall, at the Seller's own cost and expense, deliver to the Buyer or its designated agent (i) a schedule of the Purchased Receivables indicating as to each such Purchased Receivable information as to the related Obligor, the Account Balance as of such date of the related Contract and the location of the evidences of such Purchased Receivable and related Contract, together with such other information as the Buyer may reasonably request and (ii) all evidence of such Purchased Receivables and related Contracts and such other Records related thereto (including, without limitation, true copies of any computer tapes and data in computer memories) as the Buyer may reasonably deem necessary to enable it to protect and enforce its rights to, or its position as owner of, the Participation Interest therein. After any such delivery, the Seller will not hold or retain any executed counterpart or any document evidencing such Purchased Receivables or related Contracts without clearly marking the same to indicate conspicuously that the same is not the original and that transfer thereof does not transfer any rights against the related Obligor or any other Person. (c) COLLECTIONS. If at any time there shall be a Complete Servicing Transfer, the Seller will cause to be transmitted and delivered directly to the Buyer or its designated agent, for the Buyer's own account, forthwith upon receipt and in the exact form received, all Collections (properly endorsed, where required, so that such items may be collected by the Buyer) on account of the Participation Interest in the Purchased Receivables. All such Collections consisting of cash shall not be commingled with other items or monies of the Seller for a period longer than the lesser of (i) two (2) Business Days or (ii) the number of days specified in Section 9-306(4)(d) of the Uniform Commercial Code as in effect in the jurisdiction whose Laws govern the rights of the Buyer in and to any such Collections. If the Buyer or its designated agent receives items or monies that are not payments on account of the Participation Interest, such items or monies shall be delivered promptly to the Seller after being so identified by the Buyer or its designated agent. The Seller hereby irrevocably grants the Buyer or its designated agent, if any, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller all steps with respect to any Purchased Receivable (other than with respect to the Medicaid Receivables) which the Buyer, in its sole discretion, may deem necessary or advisable to negotiate or otherwise realize on any right of any kind held or owned by the Seller or transmitted to or received by the Buyer or its designated agent (whether or not from the Seller or any Obligor) in connection with the Participation Interest in the Purchased Receivables (other than in connection with the Participation Interest in the Medicaid Receivables). The Buyer will provide such periodic accountings and other information related to disposition of funds so collected as the Seller may reasonably request. (d) COLLECTION AND ADMINISTRATION AT EXPENSE OF SELLER. The Seller agrees that, in the event of a Complete Servicing Transfer, it will reimburse the Buyer or the Referral Agent for all reasonable out-of-pocket expenses (including, without limitation, attorneys' and accountants' and other third parties' fees and expenses, expenses incurred by the Referral Agent's credit recovery group (or any successor), expenses of litigation or preparation therefor, and expenses of audits and visits to the offices of either Seller) incurred by the Buyer or the Referral Agent in connection with and following the transfer of functions following a Complete Servicing Transfer. (e) PAYMENTS BY OBLIGORS. At any time, and from time to time following a Complete Servicing Transfer, or if a Termination Event or Potential Termination Event shall have occurred and be continuing, the Seller shall permit such Persons as the Buyer may designate to open and inspect all mail received by the Seller at any of its offices, and to remove therefrom any and all Collections or other correspondence from Obligors or the Servicer in respect of Purchased Receivables. All Collections received by the Buyer shall be applied in accordance with Section 5.05 hereof. The Buyer shall be entitled to notify the Obligors of Purchased Receivables (other than Obligors in respect of Medicaid Receivables) to make payments directly to the Buyer of amounts due thereunder at any time and from time to time following the occurrence of (i) a Termination Event, (ii) a Complete Servicing Transfer, or (iii) a violation by the Seller of the provisions of Section 6.08 hereof. 6.08. LOCKBOXES. The Seller hereby agrees (i) to cause all Collections which may be sent by mail as payment on account of Purchased Receivables to be mailed by Obligors to Permitted Lockboxes and to be promptly deposited into a Lockbox Account (in the case of Non-Medicaid Receivables) or into a Medicaid Collection Account (in the case of Medicaid Receivables); (ii) to cause all Collections which are deposited in a Medicaid Collection Account to be swept on a daily basis into a Lockbox Account; (iii) to make or cause the Servicer to make the necessary bookkeeping entries to reflect such Collections on the Records pertaining to such Purchased Receivables; (iv) to apply or cause the Servicer to apply all such Collections as provided in this Agreement; and (v) not to amend or modify any term, with respect to the disposition of such Collections or any other amounts received by the Seller or the Servicer or any Permitted Lockbox Bank, of this Agreement, any Lockbox Servicing Agreement or any other agreement (including instructions with respect thereto) without the prior written consent of the Buyer to such amendment or modification. Notwithstanding any other provision hereof, Collections in respect of Medicaid Receivables and Non- Medicaid Receivables shall be payable into separate Permitted Lockboxes. ARTICLE VII REPURCHASES BY SELLER 7.01. REPURCHASES. If on the last day of a Settlement Period the Net Investment shall be equal to or less than five percent (5%) of the greatest amount of the Net Investment at any time prior to such last day, the Seller shall be entitled on such last day to repurchase the Participation Interest from the Buyer upon at least ten Business Days' prior written notice to the Buyer. 7.02. REPURCHASE PRICE. In the case of a repurchase pursuant to Section 7.01 hereof, the Seller shall, on the date of such repurchase, pay to the Buyer, as the repurchase price thereof, an amount equal to the sum of (i) the Net Investment as of such date, plus (ii) the Settlement Period Amount accrued and owing as of such date, plus (iii) if the Servicer is not the Seller, the Servicer's Compensation accrued and owing as of such date, plus (iv) all other amounts due to the Buyer hereunder, plus (v) any loss, cost or expense incurred by the Buyer as the result of the repayment of the Net Investment prior to the maturity date of any (a) loans made to the Buyer by third parties or (b) commercial paper notes or short-term promissory notes issued by the Buyer, in each case for the purpose of maintaining the Participation Interest. 7.03. REASSIGNMENT OF REPURCHASED RECEIVABLES. Upon receipt of the purchase price of the Participation Interest pursuant to Section 7.02 hereof, the Buyer shall reassign to the Seller the Buyer's Participation Interest in such Purchased Receivables, without recourse, representation or warranty (except for the warranty that upon the reassignment to the Seller of the Buyer's Participation Interest in such Purchased Receivables, no Lien created by the Buyer will affect the Purchased Receivables), by an assignment acceptable to the Buyer and the Seller. 7.04. OBLIGATIONS NOT AFFECTED. The obligations of the Seller to the Buyer under this Article VII shall not be affected by any invalidity, illegality or irregularity of any Purchased Receivable, the related Contract or the sale thereof, except and to the extent that any such invalidity, illegality or irregularity is caused solely by the gross negligence or willful misconduct of the Buyer. ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.01. GENERAL REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller, in addition to its other representations and warranties contained herein or made pursuant hereto, hereby represents and warrants to the Buyer with respect to itself, on and as of the date hereof and on and as of the Closing Date, each Settlement Date and each date on which a Reinvestment is made, that: (a) ORGANIZATION AND QUALIFICATION. The Seller is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. The Seller is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the ownership of its properties or the nature of its activities (including transactions giving rise to Receivables), or both, requires it to be so qualified or, if not so qualified, the failure to so qualify would not have a material adverse effect on its business, operations, properties or financial condition. (b) AUTHORIZATION. The Seller has the corporate power and authority to execute and deliver the Purchase Documents, to make the sales provided for herein, and to perform its obligations hereunder and thereunder. (c) EXECUTION AND BINDING EFFECT. Each of the Purchase Documents (except the Certificate of Participation) has been duly and validly executed and delivered by the Seller and (assuming the due and valid execution and delivery thereof by the Buyer), constitutes a legal, valid and binding obligation of the Seller enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar Laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity. When duly executed and delivered by the Seller under the provisions hereof, the Certificate of Participation will constitute a legal, valid and binding assignment by the Seller enforceable in accordance with the terms thereof and hereof, which will vest absolutely and unconditionally in the Buyer a valid Participation Interest in the Purchased Receivables purported to be assigned thereby, subject to no Liens whatsoever. Upon the filing of the financing statements and the delivery of the Notices of Assignment required under Section 4.02(c)(i)(x) hereof, the Buyer's Participation Interest will be perfected under Article Nine of the Uniform Commercial Code and other applicable laws in all appropriate jurisdictions, prior to and enforceable against all creditors of and purchasers from the Seller and all other Persons whatsoever. (d) AUTHORIZATIONS AND FILINGS. No authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Official Body is or will be necessary or, in the opinion of the Seller, advisable in connection with the execution and delivery of the Purchase Documents, the consummation of the transactions herein or therein contemplated or the performance of or the compliance with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof or thereof, or to ensure that the Buyer will have its Participation Interest in and to the Purchased Receivables perfected and prior to all other Liens (including competing ownership interests), other than (i) the filing of financing statements on Form UCC-1 and financing statement amendments on Form UCC-3 under the Uniform Commercial Code in the jurisdiction of the Seller's Chief Executive Office, Delaware and Texas, and (ii) the delivery of the Notices of Assignment to the appropriate Obligors. (e) ABSENCE OF CONFLICTS. Neither the execution and delivery of the Purchase Documents, nor the consummation of the transactions herein or therein contemplated, nor the performance of or the compliance with the terms and conditions hereof or thereof, will (i) violate any Law or (ii) conflict with or result in a breach of or a default under (A) the articles or certificate of incorporation or by-laws of the Seller, or (B) any agreement or instrument, including, without limitation, any and all indentures, debentures, loans or other agreements to which the Seller is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound which would have a material adverse effect on the financial position, business or operations of the Seller or result in rendering any indebtedness evidenced thereby due and payable prior to its maturity or result in the creation or imposition of any Lien pursuant to the terms of any such instrument or agreement upon any property (now owned or hereafter acquired) of the Seller. (f) LOCATION OF CHIEF EXECUTIVE OFFICE, ETC. As of the date hereof the Seller's Chief Executive Office is located at 8333 Bryan Dairy Road, Largo, Florida 34647. The Seller has only the Affiliates and operates only under the trade names identified in Exhibit F hereto, and has not changed its name, merged or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy) within the past ten (10) years, except as disclosed in Exhibit F hereto. (g) NO TERMINATION EVENT. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or a Potential Termination Event. (h) ACCURATE AND COMPLETE DISCLOSURE. No information, whether written or oral, furnished by the Seller to the Buyer pursuant to or in connection with this Agreement or any transaction contemplated hereby is false or misleading in any material respect as of the date as of which such information was furnished (including by omission of material information necessary to make such information not misleading). (i) NO PROCEEDINGS. There are no proceedings or investigations pending, or threatened, before any court, official body, regulatory body, administrative agency, or other tribunal or governmental instrumentality (A) asserting the invalidity of the Purchase Documents, (B) seeking to prevent the consummation of any of the transactions contemplated by the Purchase Documents, or (C) seeking any determination or ruling that might materially and adversely affect (i) the performance by the Seller or the Servicer of its obligations under this Agreement, or (ii) the validity or enforceability of the Purchase Documents or the Contracts, or Receivables representing in the aggregate one percent or more of the aggregate Account Balances of all Receivables. (j) BULK SALES ACT. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (k) FINANCIAL CONDITIONS. (x) The consolidated balance sheets of the Seller and its consolidated subsidiaries as at January 29, 1994 and the related statements of income and shareholders' equity of the Seller and its consolidated subsidiaries for the fiscal year then ended, certified by KPMG Peat Marwick, independent accountants, copies of which have been furnished to the Buyer, fairly present the consolidated financial position of the Seller and its consolidated subsidiaries as at such date and the consolidated results of the operations of the Seller and its consolidated subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied, and (y) since January 29, 1994, there has been no material adverse change in any such condition, business, business prospects or operations or in the Seller's ability to perform its obligations under this Agreement, except as described in Exhibit G. (l) LITIGATION. No injunction, decree or other decision has been issued or made by any court, government or agency or instrumentality thereof that prevents, and no threat by any Person has been made to attempt to obtain any such decision that would prevent, the Seller from conducting a significant part of its business operations, and there is no litigation, investigation or proceeding of the type referred to in Section 9.01(j), except as described in Exhibit H. (m) MARGIN REGULATIONS. The use of all funds acquired by the Seller under this Agreement will not conflict with or contravene any of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, as the same may from time to time be amended, supplemented or otherwise modified. 8.02. REPRESENTATIONS AND WARRANTIES OF THE SELLER WITH RESPECT TO RECEIVABLES. By selling the Participation Interest to the Buyer (including by Reinvestment and by any increase in the Net Investment), the Seller represents and warrants to the Buyer as of the date of each such sale (in addition to its other representations and warranties contained herein or made pursuant hereto) that: (a) ACCOUNT BALANCES; PURCHASE NOTICE. The Account Balances of the related Contracts for the Purchased Receivables are the respective amounts therefor which will be set forth in the Purchase Notice or Settlement Statement, as the case may be, and all information set forth on such Purchase Notice or Settlement Statement, as the case may be, is true and correct as of the Closing Date or Settlement Date, respectively. (b) ASSIGNMENT. The Certificate of Participation vests in the Buyer all the right, title and interest of the Seller in and to the Purchased Receivables (to the extent of the Participation Interest), and constitutes a valid sale thereof, enforceable against all creditors of and purchasers from the Seller. (c) NO LIENS. This Agreement constitutes a "Permitted Receivables Purchase Agreement" as defined in the Eckerd Credit Agreement as the same may from time to time be further amended, supplemented or otherwise modified and in effect. Any Lien on any Receivable created pursuant to the terms of the Security Agreement shall cease when the Buyer acquires an undivided percentage ownership interest in such Receivable (which Receivable shall thereupon constitute a Purchased Receivable) in accordance with the terms of this Agreement. Each Purchased Receivable, together with the related Contract and all purchase orders and other agreements related to such Purchased Receivable, is and will be owned by the Seller free and clear of any Lien, except the Lien created hereby and by the TRIFCO Security Agreement, and when the Buyer acquires an undivided percentage ownership interest in such Purchased Receivable it shall have acquired an undivided percentage ownership interest to the extent of the Participation Interest in such Purchased Receivable and in the Collections with respect thereto free and clear of any Lien, except the Lien created hereby and by the TRIFCO Security Agreement. The Seller has not sold, pledged, assigned, transferred or subjected to a Lien any of the Purchased Receivables, other than the assignment of the Participation Interest therein to the Buyer in accordance with the terms of this Agreement. (d) ELIGIBLE RECEIVABLES. Each Receivable included in the Receivables Pool the Account Balance of which is reflected in the computation of the Buyer's Allocation is an Eligible Receivable. (e) NOTICE AND CONSENT PROCEDURES. The Seller will send or cause to be sent, within 5 Business Days after the Closing Date, a Notice of Assignment to each insurer, health maintenance organization or other similar third-party intermediary that is an Obligor on a Non-Medicaid Receivable (any such person, a "Notification Obligor") and will request that a Confirmation be delivered to the Seller by such Notification Obligor. A list of the Notification Obligors to whom such Notices of Assignment will be sent is attached hereto as Exhibit L. The Seller agrees to use its best efforts to ensure that the Buyer promptly receives Confirmations in respect of all such Notices of Assignment. The Buyer shall have the right to elect, by notice in writing to the Seller, to instruct the Seller to compute the Buyer's Allocation by excluding from the amount of Eligible Receivables an amount equal to the amount of Eligible Receivables owed by any Notification Obligor that has a written contract or other written arrangement with the Seller which prohibits assignment of any rights of the Seller under such contract or arrangement without the consent of such Notification Obligor which has not returned a Confirmation relating to the Notice of Assignment received by it on or prior to the one hundred twentieth day after the Closing Date. (f) CONCENTRATION LIMIT. The Account Balances which are reflected in the computation of the Buyer's Allocation do not exceed the applicable Concentration Limit or the limit applicable in respect of PCS under Section 3.01(ii)(b)(2). ARTICLE IX COVENANTS 9.01. AFFIRMATIVE COVENANTS OF THE SELLER. In addition to its other covenants contained herein or made pursuant hereto, the Seller covenants to the Buyer as follows: (a) NOTICE OF TERMINATION EVENT. Promptly upon becoming aware of any Termination Event or Potential Termination Event, the Seller shall give the Buyer notice thereof, together with a written statement of a Responsible Officer setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by the Seller. (b) NOTICE OF MATERIAL ADVERSE CHANGE. Promptly upon becoming aware thereof, the Seller shall give the Buyer notice of any material adverse change in the business, operations or financial condition of the Seller which reasonably could affect adversely the collectibility of the Purchased Receivables or the ability to service such Purchased Receivables. In order to verify compliance with this Section 9.01(b), the Seller shall furnish the following to the Buyer: (i) as soon as practicable and in any event within 45 days following the close of each fiscal quarter, excluding the last fiscal quarter, of each fiscal year of the Seller during the term of this Agreement, an unaudited consolidated balance sheet of the Seller as at the end of such quarter and unaudited consolidated statements of income and changes in financial position of the Seller for such quarter and for the fiscal year through such quarter, setting forth in comparative form the corresponding figures for the corresponding quarter of the preceding fiscal year, together with notes thereto as are required to be included therein in accordance with GAAP, all in reasonable detail and certified by the principal financial officer of the Seller, subject to adjustments of the type which would occur as a result of a year-end audit, as having been prepared in accordance with GAAP; and (ii) as soon as practicable and in any event within 90 days after the close of each fiscal year of the Seller during the term of this Agreement, a consolidated balance sheet of the Seller as at the close of such fiscal year and consolidated statements of income and changes in financial position of the Seller for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail and certified (with respect to the consolidated financial statements) by independent certified public accountants of recognized standing selected by the the Seller and satisfactory to the Buyer, whose certificate or opinion accompanying such financial statements shall not contain any qualification, exception or scope limitation not satisfactory to the Buyer. (c) PRESERVATION OF CORPORATE EXISTENCE. The Seller shall preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Buyer hereunder or (ii) the ability of the Seller (in its capacity as Seller or Servicer) to perform its obligations hereunder. (d) COMPLIANCE WITH LAWS. The Seller shall comply in all material respects with all Laws applicable to it, its business and properties, and the Purchased Receivables. (e) ENFORCEABILITY OF OBLIGATIONS. The Seller shall ensure that, with respect to each Purchased Receivable, the obligation of any related Obligor to pay the unpaid balance of such Purchased Receivable in accordance with the terms of the related Contract remains legal, valid, binding and enforceable against such Obligor, except as otherwise permitted by Section 6.06(b) hereof. (f) BOOKS AND RECORDS. The Seller shall maintain and implement administrative and operating procedures (including, without limitation, the ability to recreate Records evidencing the Purchased Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, Records and other information reasonably necessary or advisable for the collection of all Purchased Receivables (including, without limitation, Records adequate to permit the identification of all Collections and adjustments to each existing Purchased Receivable) at its Chief Executive Office, except as provided in Section 6.03 hereof. (g) FULFILLMENT OF OBLIGATIONS. The Seller will duly observe and perform, or cause to be observed or performed, all obligations and undertakings on its part to be observed and performed under or in connection with the Purchased Receivables, including its obligations as initial Servicer, and will do nothing to impair the rights, title and interest of the Buyer in and to its Participation Interest in the Purchased Receivables. (h) CUSTOMER LIST. The Seller shall at all times maintain (or cause the Servicer to maintain) current lists (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to Purchased Receivables, including the name, address, telephone number of each such Obligor, and the terminal plan numbers associated with such Obligor. The Seller shall deliver or cause to be delivered a copy of such list to the Buyer as soon as practicable following the Buyer's request. (I) COPIES OF REPORTS, FILINGS, OPINIONS, ETC. (1) The Seller will furnish to the Buyer, as soon as practicable after the issuance, sending or filing thereof, copies of all press releases, proxy statements, financial statements, reports and other communications which the Seller sends to its security holders or any nationally recognized statistical rating agency, and copies of all regular, periodic and special reports which the Seller files with the Securities and Exchange Commission or with any securities exchange or commission. (2) Together with each Settlement Statement, the Seller shall cause the Servicer to prepare and forward to the Buyer (i) a Third Party Activity and Aging Analysis Accounting Period report in substantially the form of Exhibit I hereto, relating to the Receivables Pool, as of the close of business on the last day of the most recently completed Accounting Period and (ii) a listing by Obligor of all Purchased Receivables together with an aging of such Purchased Receivables as of the last day of the most recently completed Accounting Period. (3) The Seller shall furnish to the Buyer promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which the Seller files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the Department of Labor, or which the Seller receives therefrom. (4) The Seller agrees that, on or before January 31, 1996, the Buyer shall cause a firm of nationally recognized independent certified public accountants (who may render other services to the Servicer or the Seller) to furnish a report to the Buyer and the Referral Agent to the effect that they have applied certain procedures agreed upon with the Servicer and Buyer and examined certain documents and records relating to the servicing of the Receivables under this Agreement and that, based upon such agreed-upon procedures, nothing has come to the attention of such accountants that caused them to believe that the servicing (including, without limitation, the allocation of the Collections) has not been conducted in compliance with the terms and conditions of Article V and Section 6.08 of this Agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement; and in addition, each report shall set forth the agreed upon procedures performed. (j) LITIGATION. As soon as possible, and in any event within three (3) Business Days of the Seller's knowledge thereof, the Seller shall give the Buyer notice of (i) any litigation, investigation or proceeding which may exist at any time which could have a material adverse effect on the business, operations, property or financial condition of the Seller or impair the ability of the Seller to perform its obligations under this Agreement and (ii) any material adverse development in previously disclosed litigation. (k) TOTAL SYSTEMS FAILURE. The Servicer shall promptly notify the Buyer of any total systems failure and shall advise the Buyer of the estimated time required to remedy such total systems failure and of the estimated date on which a Purchase Notice or Settlement Statement, as the case may be, can be delivered. Until a total systems failure is remedied, the Servicer (i) will furnish to the Buyer such periodic status reports and other information relating to such total systems failure as the Buyer may reasonably request and (ii) will promptly notify the Buyer if the Servicer believes that such total systems failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, the action proposed to be taken in response thereto, and a revised estimate of the date on which a Purchase Notice or Settlement Statement, as the case may be, can be delivered. The Servicer shall promptly notify the Buyer when a total systems failure has been remedied. (l) NOTICE OF RELOCATION. The Seller shall give the Buyer sixty (60) days' prior written notice of any relocation of its Chief Executive Office if, as a result of such relocation, the applicable provisions of the Uniform Commercial Code of any applicable jurisdiction or other applicable Laws would require the filing of any amendment of any previously filed financing statement or continuation statement or of any new financing statement. The Seller will at all times maintain its Chief Executive Office within a jurisdiction in the United States in which Article Nine of the Uniform Commercial Code (1972 or later revision) is in effect. (m) FURTHER INFORMATION. The Seller will furnish or cause to be furnished to the Buyer such other information as promptly as practicable, and in such form and detail, as the Buyer may reasonably request. (n) TREATMENT OF PURCHASE. For accounting purposes, the Seller shall treat each purchase, each increase in the Net Investment and each Reinvestment made hereunder as a sale of an undivided percentage ownership interest in the Receivables Pool. The Seller shall also maintain its records and books of account in a manner which clearly reflects the sale of the Participation Interest to the Buyer and the Buyer's Investment therein. (o) FEES AND EXPENSES. The Seller agrees to pay the Buyer all filing fees, stamp taxes and expenses, including the fees and expenses set forth in Section 11.01 hereof, if any, which may be incurred on account of or arise out of this Agreement and the documents and transactions entered into in connection with this Agreement. (p) ADMINISTRATIVE AND OPERATING PROCEDURES. The Seller shall maintain and implement administrative and operating procedures adequate to permit the identification of the Receivables Pool and all Collections and adjustments attributable to the Receivables Pool. (q) NEW CONTRACTS. The Seller shall cause each contract entered into after the Closing Date with any Insurer in respect of Non-Medicaid Receivables to permit the assignment of payments hereunder pursuant to the terms of this Agreement. In the alternative, the Seller shall promptly (A) notify the Buyer of any Notification Obligor which becomes an Obligor after the Closing Date pursuant to a written contract or arrangement which purports to prohibit the assignment of any rights of the Seller under such contract or arrangement without the consent of such Obligor, and (B) deliver, or cause to be delivered, to such Notification Obligor a Notice of Assignment and use its best efforts to obtain a Confirmation with respect thereto. (r) COLLECTIONS. If, at any time, the Seller receives any Collections in respect of Non-Medicaid Receivables, the Seller shall hold such Collections for the benefit of the Buyer and shall not commingle any such amounts with any other funds or property held by the Seller other than Collections in respect of Non-Medicaid Receivables, and the Seller shall cause such Collections to be deposited within two Business Days into a Lockbox Account. If, at any time, the Seller receives any Collections in respect of Medicaid Receivables, the Seller shall promptly deposit into a Medicaid Collection Account all such Collections, and shall cause such Collections to be swept on a daily basis into a Lockbox Account. Nothing in this Section 9.01(r) shall affect the obligations of the Seller or the Servicer to apply all Collections received by the Seller or the Servicer pursuant to Section 5.03 or 5.04 hereof. The Seller shall, on each day on which Collections with respect to Medicaid Receivables are deposited into the Medicaid Collections Account, transfer, or cause to be transferred, all such Collections so deposited to a Lockbox Account. (s) FILINGS AND NOTICES. The Seller shall complete all filings of UCC financing statements and financing statement amendments and the sending of Notices of Assignment to all Notification Obligors in accordance with Sections 4.02(c)(i)(x) and 8.02(e) within 5 Business Days after the Closing Date. 9.02. NEGATIVE COVENANTS OF THE SELLER. The Seller covenants that it will not, without the prior written consent of the Buyer: (a) ACCOUNTING FOR AND TREATMENT OF THE SALES. Prepare any financial statements for financial accounting or reporting purposes which shall account for the transactions contemplated hereby in any manner other than as a sale of the Participation Interest in the Purchased Receivables to the Buyer. (b) NO RESCISSIONS OR MODIFICATIONS. Rescind or cancel any Purchased Receivable or related Contract or modify any terms or provisions thereof, except in accordance with the Seller's Normal Credit Policies or otherwise with the prior written consent of the Buyer. (c) NO LIENS. Cause any of the Purchased Receivables to be sold, pledged, assigned or transferred or to be subject to a Lien (including the Lien created pursuant to the terms of the Security Agreement), other than the sale and assignment of the Participation Interest therein to the Buyer and the Liens created in connection with the transactions contemplated by this Agreement and the TRIFCO Security Agreement. (d) MERGERS, ACQUISITIONS, SALES, ETC. Merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, assign, lease, sublease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of any asset (whether now owned or hereafter acquired) or any capital stock of any Subsidiary (this and other capitalized terms which are used in this Section 9.02(d) but which are not defined in Section 1.01 hereof are used as defined in the Eckerd Credit Agreement as in effect on the date hereof, which defined terms are set forth in Exhibit M hereto), or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other Person (other than in connection with an acquisition of the stock, or all or substantially all the assets, of any Person whose assets consist solely of equipment or real estate that do constitute an independent business organization); provided, however, that the foregoing shall not prohibit: (i) sales, transfers and other dispositions of used or surplus equipment, vehicles and other assets in the ordinary course of business; (ii) sales of inventory in the ordinary course of business; (iii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (A) any wholly- owned Subsidiary or Acquired Entity may merge into the Seller in a transaction in which the Seller is the surviving corporation, and (B) any wholly-owned Subsidiary or Acquired Entity may merge into or consolidate with any other wholly-owned Subsidiary or Acquired Entity in a transaction in which the surviving entity is a wholly-owned Subsidiary and no person other than the Seller or a wholly-owned Subsidiary receives any consideration ; (iv) sales of assets after the Closing Date so long as (A) the aggregate Net Proceeds of all such sales does not exceed $35,000,000 (of which sales with Net Proceeds of no more than $10,000,000 may be made in any twelve-month period) and (B) prior to the consummation of each such sale, a Responsible Officer of the Seller certifies to the Buyer that such sale is at a price equal to or greater than the then fair market value of such asset; (v) the purchase or other acquisition of any assets acquired in connection with any Permitted Acquisitions; (vi) the sale of the facility and real estate described in item 6 of Schedule 4.22(a) of the Eckerd Credit Agreement; (vii) the lease or sublease of all or part of any interest, including a leasehold interest, of the Seller or any Subsidiary in real property or the assignment of any lease of real property of the Seller or any Subsidiary, provided that (A) such lease, sublease or assignment is on commercially reasonable terms, (B) such lease or sublease could not and will not be characterized by the lessor or lessee thereunder as a capital lease under GAAP, (C) the leasing or subleasing of such real property or the assignment of such lease shall not have an adverse material effect, individually or in the aggregate, upon the conduct of the Seller's or any Subsidiary's business or the value or use of the real property encumbered by such lease or sublease, (D) in the case of a lease in respect of any real property owned by the Seller or any Subsidiary (other than a retail store and the distribution center located in Clearwater, Florida), the lease shall be of an immaterial portion of such real property and (E) in the case of a lease or sublease in respect of a retail store, the decision to lease or sublease such retail store is made on a basis that is consistent with the practices of the Seller or such Subsidiary prior to the date hereof with respect to the leasing or subleasing of retail stores; and (viii) sales of equipment of Equipment Lessors pursuant to the Equipment Agency Arrangements. (e) NO CHANGES. Change its name, identity or corporate structure in any manner which would, could or might make any financing statement or continuation statement filed in connection with this Agreement or the transactions contemplated hereby seriously misleading within the meaning of Section 9-402(7) of the Uniform Commercial Code of any applicable jurisdiction or other applicable Laws unless it shall have given the Buyer at least sixty (60) days' prior written notice thereof. (f) PAYMENT INSTRUCTIONS. Add any bank as a Permitted Lockbox Bank, terminate any bank listed on Exhibit K hereto as a Permitted Lockbox Bank, change any Lockbox Account listed on Exhibit K hereto, or make any change in its instructions to Obligors regarding payments to be made to the Seller or payments to be made to any Permitted Lockbox, unless the Buyer shall have received ten (10) Business Days' prior notice of such addition, termination or change and, with respect to the addition of any Permitted Lockbox Bank, a Lockbox Servicing Agreement executed by such Permitted Lockbox Bank shall have been delivered to the Buyer. (g) NO MODIFICATION OF RECEIVABLES. Change the terms of the payor contracts and agreements relating to the Purchased Receivables or the Seller's Normal Credit Policies with respect to the origination and servicing thereof (including, without limitation, the amount and timing of finance charges, fees and write-offs) in any respect which may have a material adverse effect on the Buyer or the collectibility of Purchased Receivables. (h) MEDICAID COLLECTION ACCOUNTS. Terminate, or permit any other Person to terminate, any Medicaid Collection Account, modify the conditions upon which such Medicaid Collection Account was established or establish any other Medicaid Collection Account, without the consent of the Buyer. (i) CHANGE OF CONTROL. Cause, or permit any Person to cause, a Change of Control. ARTICLE X TERMINATION 10.01. TERMINATION EVENTS. A "Termination Event" shall mean the occurrence and continuance of one or more of the following events or conditions: (a) either the Seller or the Servicer, as the case may be, shall fail to remit or fail to cause to be remitted to the Buyer on any Settlement Date any Collections or other amounts required to be remitted to the Buyer on such Settlement Date; or (b) the Seller shall fail to deposit or pay or fail to cause to be deposited or paid when due any other amount due hereunder; or (c) any representation, warranty, certification or statement made by the Seller under this Agreement or in any agreement, certificate, report, appendix, schedule or document furnished by the Seller to the Buyer pursuant to or in connection with this Agreement shall prove to have been false or misleading in any respect material to this Agreement or the transactions contemplated hereby as of the time made or deemed made (including by omission of material information necessary to make such representation, warranty, certification or statement not misleading), and the Seller shall not have taken corrective measures satisfactory to the Buyer with respect thereto prior to the Settlement Date immediately succeeding the date on which the Buyer notifies the Seller thereof; or (d) the Seller shall fail to obtain the prior consent of the Buyer to any action or provision as to which such consent is required by the terms of this Agreement, or shall default or fail in the performance of its covenant in Section 9.01(s); or (e) the Seller shall default or fail in the performance or observance of any other covenant, agreement or duty applicable to it contained herein and such default or failure shall continue for thirty (30) days after either (i) any Responsible Officer of the Seller becomes aware thereof or (ii) notice thereof to the Seller by the Buyer; or (f) a default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money in excess of $5,000,000 of, or guaranteed by, the Seller or any Affiliate thereof, which default if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice) would permit acceleration of the maturity of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration and any notice of default required to permit acceleration shall have been given; or (g) the average Default Ratio for any three consecutive Accounting Periods during the period of twelve full Accounting Periods immediately preceding the date of determination shall exceed four percent (4%); or (h) a Permitted Lockbox Bank shall default or fail in the performance or observance of any agreement or duty applicable to it under the Lockbox Servicing Agreement executed by it and such default or failure shall continue for two (2) Business Days after notice thereof to such Permitted Lockbox Bank and within such period another Permitted Lockbox with another Permitted Lockbox Bank is not established by the Seller, if so requested by the Buyer; or (i) (1) Litigation (including, without limitation, derivative actions), arbitration or governmental proceedings except as set forth on Exhibit H attached hereto is pending against the Seller or any Affiliate thereof, or (2) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration or governmental proceedings so disclosed, which (in the case of either clause (1) or clause (2)) in the reasonable opinion of the Buyer is likely to materially adversely affect the financial position or business of the Seller or any Affiliate thereof or impair the ability of the Seller to perform its obligations under this Agreement; or (j) there shall have occurred any event which materially adversely affects the collectibility of a material amount of the Purchased Receivables, or there shall have occurred any other event which materially adversely affects the ability of the Servicer to collect Purchased Receivables or the ability of the Servicer to perform hereunder, or the warranty in Section 8.01(k)(y) shall not be true at any time; or (k) an Event of Bankruptcy shall occur with respect to (i) the Seller, or (ii) one or more Affiliates of the Seller which, in the opinion of the Buyer, would be reasonably likely to have a material adverse effect on the business, financial condition or operations of the Seller; or (l) the Account Balances for Purchased Receivables that are outstanding more than 120 days as reported on the Third Party Activity and Aging Analysis in the form of Exhibit I shall exceed 13% of the aggregate Account Balance for all Purchased Receivables; or (m) less than 95% of the Collections received during any Accounting Period shall have been paid by the related Obligors directly into a Permitted Lockbox, a Lockbox Account or a Medicaid Collection Account; provided that Collections in respect of Medicaid Receivables shall be excluded from this calculation until the fourth Accounting Period after the Closing Date; or (n) the Rate of Collections for any Accounting Period shall be less than 75%; or (o) the Buyer or the Receivables Pool shall be deemed to have become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (p) there shall have occurred a Change in Control; or (q) this Agreement and the Certificate of Participation shall for any reason cease to either (1) evidence the transfer to the Buyer (or its assignees or transferees) of legal and equitable right, title and interest to, and ownership of, an undivided percentage ownership interest in the Purchased Receivables and Collections with respect thereto to the extent of the Participation Interest, or (2) create a valid and perfected first priority security interest (as defined in the UCC) in favor of the Buyer in the Purchased Receivables and Collections with respect thereto. 10.02. CONSEQUENCES OF A TERMINATION EVENT. (a) If a Termination Event specified in Section 10.01 hereof shall occur and be continuing, the Buyer may, by notice to the Seller, terminate its obligation to increase the Net Investment and to make Reinvestments hereunder, and in the case of a Termination Event under Section 10.01(k) the obligation of the Buyer to purchase the Participation Interest (including by Reinvestment) hereunder shall be automatically terminated without any action on the part of the Buyer. Any such termination shall reduce the Maximum Net Investment in effect from time to time thereafter to the amount of the Net Investment at such time. (b) Upon any termination of the Buyer's obligation to purchase the Participation Interest and to make Reinvestments pursuant to this Section 10.02, the Buyer shall have, in addition to all rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the Uniform Commercial Code of the applicable jurisdiction and under other applicable Laws, which rights shall be cumulative. (c) The parties hereto acknowledge that this Agreement is, and is intended to be, a contract to extend financial accommodations to the Seller within the meaning of Section 365(e)(2)(B) of the Federal Bankruptcy Code (11 U.S.C. 365(e)(2)(B)) (or any amended or successor provision thereof or any amended or successor code). ARTICLE XI MISCELLANEOUS 11.01. EXPENSES. The Seller agrees, promptly upon receipt of a written invoice, to pay or cause to be paid, and to save the Buyer and the Referral Agent harmless against liability for the payment of, all reasonable out-of-pocket expenses (including, without limitation, attorneys', accountant's and other third parties' fees and expenses, any filing fees, expenses of litigation or preparation therefor, audit expenses and expenses incurred by officers or employees of the Buyer, but excluding salaries and similar overhead costs of the Buyer and the Referral Agent which are incurred notwithstanding the execution and performance of this Agreement) incurred by or on behalf of the Buyer and the Referral Agent from time to time (a) arising in connection with the development, audit, delivery, collection, preparation, printing, execution, amendment, restatement, performance, administration and interpretation of the Purchase Documents, or transactions undertaken pursuant to or in connection herewith or therewith (including, without limitation, the perfection or protection of the Buyer's Participation Interest in the Purchased Receivables and the Receivables Pool), (b) relating to any requested amendments, waivers or consents to the Purchase Documents, (c) arising in connection with the Buyer's or the Referral Agent's enforcement or preservation of rights under the Purchase Documents, or (d) arising in connection with any litigation or preparation for litigation involving the Purchase Documents, which, including all amounts payable under Section 11.03, shall be referred to in this Agreement as "Transaction Costs". 11.02. PAYMENTS. All payments to be made to the Buyer or the Seller hereunder shall be payable at 11:00 a.m., New York time, on the day when due, at the payee's Office in Dollars in immediately available funds. To the extent permitted by Law, any amounts due from the Seller hereunder which are not paid when due shall bear interest for each day from the day due until paid, payable on demand, at a rate per annum equal to three percent (3%) above the Reference Rate. 11.03. INDEMNITY FOR TAXES, RESERVES AND EXPENSES. If after the date hereof the adoption of any Law or guideline or any amendment or change in the administration, interpretation or application of any existing or future Law or guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any request or directive of any Official Body (whether or not having the force of Law): (a) subjects an Affected Party to any tax or changes the basis of taxation with respect to the Purchase Documents, the Participation Interest, the Purchased Receivables or payments of amounts due hereunder or under the Purchased Receivables (including, without limitation, any sales, gross receipts, general corporate, personal property, privilege or license taxes, and including claims, losses and liabilities arising from any failure to pay or delay in paying any such tax (unless such failure or delay results solely from such Affected Party's gross negligence or willful misconduct), but excluding taxes on the overall net income of such Affected Party), or (b) imposes, modifies or deems applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets held by, credit extended by, deposits with or for the account of, or other acquisition of funds by, an Affected Party, or (c) shall change the amount of capital maintained or requested or directed to be maintained by an Affected Party, or (d) imposes upon an Affected Party any other condition or expense (including, without limitation, (i) loss of margin and (ii) reasonable attorneys' fees and expenses, expenses incurred by officers or employees of the Referral Agent's credit recovery group (or any successor thereto) and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to the Purchase Documents, the Participation Interest, the Purchased Receivables or the purchase, maintenance or funding of the purchase of the Participation Interest in any Receivables by an Affected Party, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, reduce the rate of return on capital, or impose any expense (including loss of margin) upon, an Affected Party with respect to this Agreement, the obligations hereunder or the funding of purchases hereunder, the Affected Party may notify the Seller of the amount of such increase, reduction, or imposition, and the Seller shall pay to such Affected Party the amount so notified to the Seller by such Affected Party (which determination shall be conclusive) necessary to compensate such Affected Party for such increase, reduction or imposition. Such amounts shall be due and payable by the Seller to such Affected Party ten (10) Business Days after such notice is given. Notwithstanding the foregoing, the Seller shall not be obligated to pay any amount under this Section 11.03 in respect of any period prior to the 90th day before the date on which such Affected Party notifies the Seller of such increase, reduction or imposition; except to the extent that such increase, reduction or imposition was imposed with retroactive effect for any such earlier period. 11.04. INDEMNITY. (a) The Seller agrees to indemnify, defend and save harmless the Buyer, the Referral Agent, their respective directors, officers, shareholders, employees, agents and each legal entity, if any, who controls the Buyer or the Referral Agent (each, an "Indemnified Party"), forthwith on demand, from and against any and all losses, claims, damages, liabilities, costs and expenses (including, without limitation, all attorneys' fees and expenses, expenses incurred by their respective credit recovery groups (or any successors thereto) and expenses of settlement, litigation or preparation therefor) which an Indemnified Party may incur or which may be asserted against such Indemnified Party by any Person (including, without limitation, any Obligor or any other Person whether on its own behalf or derivatively on behalf of the Seller) (all of the foregoing being collectively referred to as "Losses"), excluding, however, (a) Losses to the extent resulting from the gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise provided in this Agreement) for Defaulted Receivables, (c) any Losses with respect to any tax, reserve, capital charge or expense related thereto (indemnification with respect to such Losses being provided as and to the extent provided in Section 11.03), or (d) Losses to the extent that such Losses resulted from an act or omission of the Servicer, if the Servicer is not the Seller or an Affiliate of the Seller, arising from or incurred in connection with (i) any breach of a representation, warranty or covenant by the Seller made or deemed made hereunder or in connection herewith or the transactions contemplated herewith, or (ii) any suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based on statute, regulation or order, on tort, on contract or otherwise, before any local, state or federal court, arbitrator or administrative, governmental or regulatory body, which arises out of or relates to the Purchase Documents, the Participation Interest in the Purchased Receivables or related Contracts, or the use of the proceeds of the sale of the Participation Interest in the Receivables pursuant hereto or the transactions contemplated hereby (all Losses, after giving effect to the limitations set forth in clauses (a) through (d) above, being hereinafter referred to as "Indemnified Amounts") . (b) Without limitation of the generality of Section 11.04(a), the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the creation of the Participation Interest in any Purchased Receivable which is not at the date of the creation of such Participation Interest an Eligible Receivable; (ii) reliance on any representation or warranty made or deemed made by the Seller (or any of its respective Responsible Officers) or any statement made by any Responsible Officer of the Seller under or in connection with this Agreement which shall have been incorrect in any material respect when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation; (iv) the failure to vest in the Buyer an undivided percentage interest, to the extent of the Participation Interest, in the Purchased Receivables and Collections in respect thereof, free and clear of any Lien; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or under any other applicable law with respect to the assignment of the Participation Interest; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Purchased Receivable (including, without limitation, a defense based on such Purchased Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Purchased Receivable or the furnishing or failure to furnish such merchandise or services; (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions of this Agreement; (viii) any products liability claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; or (ix) the failure to have delivered, or any delay in delivering, Notices of Assignment to the appropriate Obligors under any applicable law with respect to the assignment of the Participation Interest in the Non-Medicaid Receivables. (c) Promptly upon receipt by any Indemnified Party hereunder of notice of the commencement of any suit, action, claim, proceeding or governmental investigation, such Indemnified Party shall, if a claim in respect thereof is to be made against the Seller hereunder, notify the Seller in writing of the commencement thereof. The Seller may participate in the defense of any such suit, action, claim, proceeding or investigation at its expense, and no settlement thereof shall be made without the approval of the Seller and the Indemnified Party. The approval of the Seller will not be unreasonably withheld or delayed. (d) The indemnity contained in this Section 11.04 shall survive the termination of this Agreement. 11.05. HOLIDAYS. Except as may be provided in this Agreement to the contrary, if any payment due hereunder shall be due on a day which is not a Business Day, such payment shall instead be due the next following Business Day. 11.06. RECORDS. All amounts calculated or due hereunder shall be determined from the records of the Buyer, which determinations shall be conclusive absent manifest error. 11.07. AMENDMENTS AND WAIVERS. The Buyer and the Seller may from time to time enter into agreements amending, modifying or supplementing this Agreement, and the Buyer, in its sole discretion, may from time to time grant waivers of the provisions of this Agreement or consents to a departure from the due performance of the obligations of the Seller under this Agreement. Any such agreement, waiver or consent must be in writing and shall be effective only to the extent specifically set forth in such writing. Any waiver of any provision hereof, and any consent to a departure by the Seller from any of the terms of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given and if such amendment, waiver or departure would have a material adverse effect on the rights or obligations of the Agent, the Referral Agent, the Collateral Agent or the Surety Bond Provider, such amendment, departure or waiver shall not be effective until consented to by the affected party. The Buyer will not execute any such agreement, waiver or consent unless any necessary consents by such third parties have been obtained. 11.08. NO IMPLIED WAIVER; CUMULATIVE REMEDIES. No course of dealing and no delay or failure of the Buyer in exercising any right, power or privilege under the Purchase Documents shall affect any other or future exercise thereof or the exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies of the Buyer under the Purchase Documents are cumulative and not exclusive of any rights or remedies which the Buyer would otherwise have. 11.09. NO DISCHARGE. The obligations of the Seller under the Purchase Documents shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of the Purchase Documents or applicable Law, including, without limitation, any failure to set-off or release in whole or in part by the Buyer of any balance of any deposit account or credit on its books in favor of the Seller or any waiver, consent, extension, indulgence or other action or inaction in respect of any thereof, or (b) any other act or thing or omission or delay to do any other act or thing which would operate as a discharge of the Seller as a matter of Law. 11.10. NOTICES. All notices under Section 10.02 hereof shall be given to the Seller by telephone or facsimile, confirmed by first-class mail (which shall be effective when telephoned or sent by facsimile) or by first-class mail, express mail or courier (which shall be effective when deposited in the mail or delivered to the courier), in all cases with charges prepaid. All other notices, requests, demands, directions and other communications (collectively "notices") under the provisions of this Agreement shall be in writing (including telexed or facsimile communication) unless otherwise expressly permitted hereunder and shall be sent by first-class mail, express mail, or by telex or facsimile with confirmation in writing mailed first- class mail, in all cases with charges prepaid, and any such properly given notice shall be effective when received. All notices shall be sent to the applicable party at the address stated on the signature page hereof or in accordance with the last unrevoked written direction from such party to the other parties hereto. 11.11. SEVERABILITY. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 11.12. GOVERNING LAW. THIS AGREEMENT AND THE CERTIFICATES OF PARTICIPATION SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (NOTWITHSTANDING SECTION 9-103 OF THE UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK), EXCLUDING ITS CONFLICT OF LAWS RULES. The Seller hereby consents to the jurisdiction of the courts of the State of New York and the courts of the United States located in the State of New York for the purpose of adjudicating any claim or controversy arising in connection with this Agreement, and for such purpose, to the extent it may lawfully do so, waives any objection to such jurisdiction or to venue therein. 11.13. PRIOR UNDERSTANDINGS. This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and supersedes all prior understandings and agreements, whether written or oral. 11.14. SURVIVAL. All representations and warranties of the Seller contained herein or made in connection herewith or in connection with the Certificate of Participation shall survive the making thereof, and shall not be waived by the execution and delivery of this Agreement or the Certificate of Participation, any investigation by the Buyer, the purchase, repurchase or payment of the Participation Interest in any Purchased Receivable, or any other event or condition whatsoever (other than a written waiver complying with Section 11.07 hereof). All obligations of the Seller to make payments to, or to indemnify, the Buyer or to repurchase the Participation Interest in Purchased Receivables from the Buyer shall survive the payment of all Purchased Receivables, the termination of the Purchase Obligation and the termination of all other obligations of the Seller hereunder and shall not be affected by reason of an invalidity, illegality or irregularity of any Purchased Receivable. The covenants and agreements contained in or given pursuant to this Agreement (including, without limitation, those contained in Article IX) shall continue in full force and effect until the termination of the Purchase Obligation, discharge of the Participation Interest in the Purchased Receivables and discharge of all other obligations of the Seller hereunder. 11.15. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 11.16. SET-OFF. In case a Termination Event shall occur and be continuing, the Buyer and, to the fullest extent permitted by Law, the holder of any assignment of the Buyer's rights hereunder (including, without limitation, each Bank and the Surety Bond Provider) shall each have the right, in addition to all other rights and remedies available to it, without notice to the Seller, to set-off against and to appropriate and apply to any amount owing by the Seller hereunder which has become due and payable, any debt owing to, and any other funds held in any manner for the account of, the Seller by the Buyer or by any holder of any assignment, including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Seller with the Buyer or any holder of any assignment. Such right shall exist whether or not such debt owing to, or funds held for the account of, the Seller is or are matured other than by operation of this Section 11.16 and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to the Buyer or any holder of any assignment. Nothing in this Agreement shall be deemed a waiver or prohibition or restriction of the Buyer's or any such holder's rights of set-off or other rights under applicable Law. 11.17. TIME OF ESSENCE. Time is of the essence in this Agreement. 11.18. PAYMENTS SET ASIDE. To the extent that the Seller or any Obligor makes a payment to the Buyer or the Buyer exercises its rights of set-off and such payment or set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or is required to be refunded, rescinded, returned, repaid or otherwise restored to the Seller, such Obligor, a trustee, a receiver or any other Person under any Law, including, without limitation, any bankruptcy law, any state or federal law, common law or equitable cause, the obligation or part thereof originally intended to be satisfied shall, to the extent of any such restoration, be reinstated, revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred. The provisions of this Section 11.18 shall survive the termination of this Agreement. 11.19. NO PETITION. The Seller agrees that it will not institute against, or join any other Person in instituting against, the Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other similar proceeding under the laws of the United States or any state or territory of the United States. The provisions of this Section 11.19 shall survive the termination of this Agreement. 11.20. NO RECOURSE. The obligations of the Buyer under this Agreement are solely the corporate obligations of the Buyer. No recourse shall be had for the payment of any amount owing in respect to this Agreement or for the payment of any fee hereunder or for any other obligation or claim arising out of or based upon this Agreement against Merrill Lynch Money Markets Inc. ("Merrill"), against any stockholder, employee, officer, director or incorporator of the Buyer or against the Referral Agent or any stockholder, employee, officer, director, incorporator or affiliate thereof. For purposes of this paragraph, the term "Merrill" shall mean and include Merrill and all Affiliates thereof and any employee, officer, director, incorporator, shareholder or beneficial owner of any of them; PROVIDED, HOWEVER, that the Buyer shall not be considered to be an affiliate of Merrill or the Referral Agent. IN WITNESS WHEREOF, the parties hereto, by their duly authorized signatories, have executed and delivered this Agreement as of the date first above written. THREE RIVERS FUNDING CORPORATION By____________________________ Title:________________________ Address: c/o Merrill Lynch & Co. Merrill Lynch World Headquarters World Financial Center - South Tower 225 Liberty Street - 8th Floor New York, New York 10080 Attention: Mr. Martin J.McInerney Telephone: (212) 236-7200 Facsimile: (212) 236-7584 ECKERD CORPORATION By____________________________ Title:________________________ Address: 8333 Bryan Dairy Road Largo, Florida 34647 Attention: Martin W. Gladysz, Vice President - Treasurer Telephone: (813) 399-6315 Facsimile: (813) 399-6468 EXHIBIT A to Receivables Purchase Agreement CERTIFICATE OF PARTICIPATION ECKERD CORPORATION having offices located at 8333 Bryan Dairy Road, Largo, Florida (the "Seller") hereby acknowledges that THREE RIVERS FUNDING CORPORATION (the "Buyer"), having offices located at 225 Liberty Street, New York, New York, is the owner of a Participation Interest in the Receivables designated and described on the attached Schedule I, which constitute a Receivables Pool pursuant to and in accordance with the Receivables Purchase Agreement dated as of January __, 1995, as the same may from time to time be amended, supplemented or otherwise modified and in effect (the "Receivables Purchase Agreement"), entered into between the Buyer and the Seller. The purchase of the Participation Interest by the Buyer and each increase in the Net Investment shall be recorded on the grid attached hereto or on a continuation thereof which shall be attached hereto; PROVIDED that the failure of the Buyer to make any recordation on the grid shall not adversely affect the rights of the Buyer in the Participation Interest and the Buyer's rights to receive the Cost of Funds in respect of the Net Investment. The Buyer's undivided percentage ownership interest at any time shall be calculated in accordance with Article III of the Receivables Purchase Agreement. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Receivables Purchase Agreement. IN WITNESS WHEREOF, the undersigned have executed this Certificate on the _____ day of ____________, 199_. ECKERD CORPORATION By __________________________ Authorized Signatory CERTIFICATE OF PARTICIPATION GRID AMOUNT OF INCREASE PURCHASE IN NET AMOUNT OF NET NOTATION DATE PRICE INVESTMENT REPAYMENT INVESTMENT MADE BY ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ EXHIBIT B to Receivables Purchase Agreement FORM OF SETTLEMENT STATEMENT EXHIBIT C to Receivables Purchase Agreement RESPONSIBLE OFFICER'S CERTIFICATE I, Robert E. Lewis, the undersigned Assistant Secretary of Eckerd Corporation (the "Company"), a Delaware corporation, DO HEREBY CERTIFY that: 1. Attached hereto as Exhibit A is a true and complete copy of the Certificate of Incorporation of the Company as in effect on the date hereof. 2. Attached hereto as Exhibit B is a true and complete copy of the By-laws of the Company as in effect on the date hereof. 3. Attached hereto as Exhibit C is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company January 19, 1995, authorizing the execution, delivery and performance of each of the documents mentioned therein, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 4. The below-named persons have been duly qualified as and at all times since January 1, 1995, to and including the date hereof, have been officers or representatives of the Company holding the respective offices or positions below set opposite their names and the signatures below set opposite their names are their genuine signatures: NAME OFFICE SIGNATURES Frank A. Newman President ________________ Samuel G. Wright Senior Vice President/ Finance ________________ Martin A. Gladysz Vice President/ Treasurer ________________ Robert E. Lewis Vice President/ General Counsel/ Assistant Secretary ________________ 5. The representations and warranties of the Company contained in Section 8.01 of the Receivables Purchase Agreement dated as of January __, 1995 between the Company and Three Rivers Funding Corporation are true and correct as if made on the date hereof. WITNESS my hand and seal of the Company as of this ____ day of January, 1995. ______________________________ Assistant Secretary ECKERD CORPORATION I, the undersigned, Vice President/Treasurer of the Company, DO HEREBY CERTIFY that Robert E. Lewis is the duly elected Assistant Secretary of the Company and the signature above is his genuine signature. WITNESS my hand as of this day of January, 1995. _______________________________ Vice President ECKERD CORPORATION EXHIBIT D to Receivables Purchase Agreement FORM OF OPINION OF SHACKLEFORD, FARRIOR, STALLINGS & EVANS, P.A. EXHIBIT E to Receivables Purchase Agreement FORM OF LETTER FROM KPMG PEAT MARWICK EXHIBIT F to Receivables Purchase Agreement INFORMATION REGARDING AFFILIATES AND TRADE NAMES AFFILIATES Merrill Lynch Capital Partners, Inc. and its affiliates Clorwood Distributors, Inc. Eckerd Consumer Products, Inc. Eckerd Fleet, Inc. Eckerd Holdings II, Inc. Eckerd's Westbank, Inc. Eckerd Tobacco Company, Inc. E.I.T., Inc. P.C.V., Inc. E.T.B., Inc. Life Care Medical Products, Inc. TRADE NAMES ECKERD DRUGS ECKERD ECKERD EXPRESS PHOTO (OR) EXPRESS PHOTO ECKERD EXPRESS PRINT 60 (OR) EXPRESS PRINT 60 ECKERD OPTICAL FORMER NAMES 1. Eckerd Corporation was formerly known as Jack Eckerd Corporation. Name change occurred in 1993. Jack Eckerd Corporation was formerly known as Eckerd Holdings, Inc. Name change occurred in 1986. Eckerd Holdings acquired the old Jack Eckerd Corporation in a merger that occurred in 1986. 2. EDS Holdings, Inc. was merged into Eckerd Corporation in 1993. EXHIBIT G to Receivables Purchase Agreement MATERIAL ADVERSE CHANGES IN THE SELLER'S FINANCIAL CONDITION None. EXHIBIT H to Receivables Purchase Agreement LITIGATION AGAINST THE SELLER None. EXHIBIT I to Receivables Purchase Agreement FORM OF THIRD PARTY ACTIVITY AND AGING ANALYSIS EXHIBIT J to Receivables Purchase Agreement ECKERD CORPORATION PURCHASE NOTICE Three Rivers Funding Corporation World Financial Center - South Tower 225 Liberty Street - 8th Floor New York, New York 10080 Mellon Bank, N.A., as Referral Agent One Mellon Bank Center Pittsburgh, Pennsylvania 15258 January __, 1995 Gentlemen: Reference is hereby made to the Receivables Purchase Agreement dated as of January __, 1995 (the "Agreement") between Eckerd Corporation (the "Seller") and Three Rivers Funding Corporation (the "Buyer"). This Notice is delivered to you pursuant to Section 4.03(c) of the Agreement. Capitalized terms used herein and not defined shall have the meanings assigned to them in the Agreement. The Seller hereby requests that the initial Purchase be made by the Buyer on January __, 1995 at a Purchase Price equal to $__________, such Purchase Price determined as set forth in Schedule A attached hereto and made a part hereof. The Seller hereby certifies and warrants that on the date on which the Purchase requested hereby is made (and the Seller, by accepting the payment of the Purchase Price relating to such Purchase, will be deemed to have certified on such date that) (i) the representations and warranties of the Seller contained in Article VIII of the Agreement are true and correct on and as of the date of such Purchase as though made on and as of such date, (ii) the Seller is in compliance with the covenants set forth in Article IX of the Agreement and (iii) no Termination Event or Potential Termination Event shall occur as a result of, or shall exist on the date of, such Purchase. The Seller agrees that if, prior to the time that the Purchase requested hereby is made, any matter certified to herein will not be true and correct at such time as if then made, it will immediately so notify the Buyer and the Referral Agent. The Seller has caused this notice to be executed and delivered, and the certifications and warranties contained herein to be made, by its duly authorized officer this _____ day of January __, 1995. ECKERD CORPORATION By:______________________ Authorized Signatory EXHIBIT K to Receivables Purchase Agreement LIST OF PERMITTED LOCKBOX BANKS MEDICAID COLLECTION LOCKBOX PERMITTED NAME OF BANK ADDRESS ACCOUNT # ACCOUNT # LOCKBOX # EXHIBIT L to Receivables Purchase Agreement LIST OF NOTIFICATION OBLIGORS TO WHOM NOTICES OF ASSIGNMENT ARE TO BE DELIVERED EXHIBIT M to Receivables Purchase Agreement ECKERD CREDIT AGREEMENT DEFINITIONS RELATING TO SECTION 9.02(D) EXHIBIT N to Receivables Purchase Agreement FORM OF CONSENT AND ACKNOWLEDGMENT BY HOLDINGS January 26, 1995 THREE RIVERS FUNDING CORPORATION c/o Merrill Lynch & Co. Merrill Lynch World Headquarters World Financial Center - South Tower 225 Liberty Street - 8th Floor New York, New York 10080 RE: RECEIVABLES PURCHASE AGREEMENT DATED AS OF JANUARY 26, 1995 Ladies and Gentlemen: Reference is made to the Receivables Purchase Agreement dated as of January 26, 1995 (the "Purchase Agreement") between Eckerd Corporation (the "Seller") and Three Rivers Funding Corporation (the "Buyer"). Capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Purchase Agreement. Eckerd Holdings II, Inc. ("Holdings") and the Seller hereby represent, acknowledge and agree, notwithstanding that each of the Seller and Holdings may be named parties to certain of the Contracts, that each of Seller and Holdings do now and shall for all purposes and at all times consider all of the Contracts, and the Receivables now or hereafter existing in respect thereof, to be owned solely by the Seller, and do not now and shall not at any time nor for any purpose consider Holdings to have any right, title or interest in and to any of the Contracts and Receivables. Notwithstanding the immediately preceding sentence, if any Person shall at any time assert that Holdings shall have any right, title or interest in and to any Receivable(s) or Contract(s), Holdings shall be deemed to have transferred, and does hereby transfer, to the Seller all of Holdings' right, title and interest in and to the Receivables and the Contracts. Holdings hereby acknowledges receipt of an executed copy of the Purchase Agreement and agrees that such copy constitutes adequate notice of all matters contained therein and consents to the execution and delivery of the same and the performance of all of the transactions provided for therein, including, without limitation, the sale, assignment and transfer, from time to time, by the Seller to the Buyer pursuant to the Purchase Agreement of Participation Interests with respect to the Receivables. Holdings hereby expressly understands that the Seller will sell to the Buyer undivided percentage ownership interests in the Receivables. Each of the Seller and Holdings hereby expressly agrees to take such actions and execute such documents and instruments in furtherance of the matters described herein as may be requested by the Buyer. Holdings does not currently have, and will not establish hereafter, any lockbox or bank account to which Collections in respect of Receivables are sent or deposited. If any such Collections are received by Holdings, Holdings will transfer such Collections to the Seller immediately upon receipt for application in accordance with the Purchase Agreement. This Consent shall be binding upon Holdings, the Seller and their respective successors and assigns and shall inure to the benefit of and be enforceable by the Buyer and its respective successors and assigns. No term or provision of this Consent may be amended, changed, waived, discharged or terminated orally, but only by an instrument signed by Holdings, the Seller and the Buyer. No failure, delay or forbearance on the part of the Buyer in exercising any right, power and privilege hereunder shall operate as a waiver thereof, nor as an acquiescence in any breach, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise or any other right, power or privilege. All rights, powers and remedies of the Buyer hereunder are cumulative and may be enforced concurrently and from time to time and are not exclusive of any other rights, powers or remedies provided by law or otherwise. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Consent and the rights and obligations in respect hereof shall be governed by and construed and interpreted in accordance with, the laws of the State of New York. Without limiting any other rights that the Buyer or any Affiliate thereof and each of their respective officers, directors, employees and agents (each, an "Indemnified Party") may have under the the Purchase Agreement or under applicable law, Holdings hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses, liabilities, expenses, damages and costs (including reasonable attorneys' fees and expenses) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Consent, including any misrepresentation herein or any breach or violation hereof, except for Indemnified Amounts resulting from the gross negligence or willful misconduct of any Indemnified Party. The obligations and liabilities of Holdings contained in this paragraph shall remain in full force and effect until all amounts due to the Buyer and the Servicer (if the Servicer is not the Seller or an affiliate thereof) under the Purchase Agreement are satisfied and paid in full. IN WITNESS WHEREOF, Holdings has caused this Consent to be duly executed and delivered by a proper and duly authorized officer as of the date and year first above written. ECKERD HOLDINGS II, INC. By________________________ Authorized Signature Consented and Agreed: ECKERD CORPORATION By_____________________________ Authorized Signature THREE RIVERS FUNDING CORPORATION By_____________________________ Authorized Signature RECEIVABLES PURCHASE AGREEMENT TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS; CONSTRUCTION 1.01 Certain Definitions 1.02 Interpretation and Construction ARTICLE II AGREEMENT TO PURCHASE AND SELL 2.01 Purchase Limits 2.02 Amount of Purchases 2.03 Reduction of the Maximum Net Investment and Net Investment; Termination of the Agreement 2.04 Fees Payable to the Buyer 2.05 Fees Payable to the Referral Agent ARTICLE III BUYER'S ALLOCATION 3.01 Buyer's Allocation 3.02 Frequency of Computation of the Buyer's Allocation ARTICLE IV CLOSING PROCEDURES 4.01 Purchase and Sale Procedures 4.02 Conditions Precedent to the First Purchase 4.03 Conditions Precedent to Each Purchase and Reinvestment 4.04 Purchase Price 4.05 Sale Without Recourse 4.06 Non-Assumption by the Buyer of Obligations 4.07 Character of Receivables Added to Receivables Pools ARTICLE V SETTLEMENTS; ADJUSTMENTS 5.01 Settlement Statements 5.02 Receivables Status 5.03 Non-Liquidation Settlements 5.04 Liquidation Settlements 5.05 Allocation of Collections PAGE 5.06 Deferred Purchase Price 5.07 Treatment of Collections and Deemed Collections ARTICLE VI PROTECTION OF THE BUYER; ADMINISTRATION AND COLLECTIONS 6.01 Maintenance of Information and Computer Records 6.02 Protection of the Interests of the Buyer 6.03 Maintenance of the Location of Writings and Records 6.04 Information 6.05 Performance of Undertakings Under the Purchased Receivables; Indemnification 6.06 Administration and Collections; Indemnification 6.07 Complete Servicing Transfer 6.08 Lockboxes ARTICLE VII REPURCHASES BY SELLER 7.01 Repurchases 7.02 Repurchase Price 7.03 Reassignment of Repurchased Receivables 7.04 Obligations Not Affected ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.01 General Representations and Warranties of the Seller 8.02 Representations and Warranties of the Seller With Respect to Each Sale of Receivables ARTICLE IX COVENANTS 9.01 Affirmative Covenants of the Seller 9.02 Negative Covenants of the Seller ARTICLE X TERMINATION 10.01 Termination Events 10.02 Consequences of a Termination Event PAGE ARTICLE XI MISCELLANEOUS 11.01 Expenses 11.02 Payments 11.03 Indemnity for Taxes, Reserves and Expenses 11.04 Indemnity 11.05 Holidays 11.06 Records 11.07 Amendments and Waivers 11.08 No Implied Waiver; Cumulative Remedies 11.09 No Discharge 11.10 Notices 11.11 Severability 11.12 Governing Law 11.13 Prior Understandings 11.14 Survival 11.15 Counterparts 11.16 Set-Off 11.17 Time of Essence 11.18 Payments Set Aside 11.19 No Petition 11.20 No Recourse EXHIBITS A Form of Certificate of Participation B Form of Settlement Statement C Form of Certificate of a Responsible Officer, required pursuant to Section 4.02(h) D Form of Opinion of Shackleford, Farrior, Stallings & Evans, P.A., counsel for the Seller E Form of Letter from KPMG Peat Marwick, certified public accountants F Information required pursuant to Section 8.01(f) G Material Adverse Changes, required pursuant to Section 8.01(k) H Litigation, required pursuant to Section 8.01(l) I Form of Third Party Activity and Aging Analysis to be prepared pursuant to Section 9.01(i)(2) J Form of Purchase Notice K List of Permitted Lockbox Banks L List of Addressees to whom Notices of Assignment will be delivered M Eckerd Credit Agreement definitions relating to Section 9.02(d) N Form of Consent and Acknowledgment by Holdings RECEIVABLES PURCHASE AGREEMENT dated as of January 26, 1995 Between ECKERD CORPORATION as Seller and THREE RIVERS FUNDING CORPORATION as Buyer EXHIBIT M to Receivables Purchase Agreement ECKERD CREDIT AGREEMENT DEFINITIONS RELATING TO SECTION 9.02(D) ABR Borrowing shall mean a Borrowing comprised of ABR Loans. ABR Loan shall mean any ABR Term Loan or ABR Revolving Loan. ABR Revolving Loan shall mean any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. ABR Spread shall have the meaning specified in the definition of the term Applicable Rate Percentage . ABR Term Loan shall mean any Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. Acquired EBITDA with respect to any Acquired Entity for any period shall mean (a) the sum of (i) Acquired Net Income of such Acquired Entity for such period, (ii) all Federal, state, local and foreign taxes deducted in determining such Acquired Net Income, (iii) interest expense deducted in determining such Acquired Net Income and (iv) depreciation, amortization and other noncash charges deducted in determining such Acquired Net Income, less (b) any noncash income included in determining such Acquired Net Income. Acquired Entity shall mean, with respect to any Acquisition, (a) the Person to be purchased or otherwise acquired in such Acquisition or (b) the assets to be purchased, leased or otherwise acquired in such Acquisition. Acquired Interest Expense shall mean, with respect to any Acquired Entity for any period, the gross interest expense of such Acquired Entity for such period determined in accordance with GAAP. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by such Acquired Entity with respect to Rate Protection Agreements. Acquired Lease Expense shall mean, with respect to any Acquired Entity for any period, with respect to any operating leases of such Acquired Entity, all amounts paid or accrued during such period under such operating leases (whether or not constituting rental expense) by such Acquired Entity. Acquired Net Income with respect to any Acquired Entity for any period shall mean the aggregate net income (or net deficit) of such Acquired Entity for such period, which shall be equal to the gross revenues for such Acquired Entity during such period less the aggregate for such Acquired Entity of, without duplication, (a) cost of goods sold, (b) interest expense, (c) operating expenses, (d) selling, general and administrative expenses, (e) taxes, (f) depreciation, depletion and amortization of properties and (g) any other items that are treated as expense under GAAP, all computed in accordance with GAAP; provided, however, that the term "Acquired Net Income" shall exclude (i) gains and losses from the sale of assets other than in the ordinary course of business and (ii) any write-up in the value of any asset. Acquisition shall mean (a) any purchase or other acquisition, in one transaction or a series of related transactions, of all the common stock of any Person or (b) any purchase, lease or other acquisition, in one transaction or a series of related transactions, of all or part of the assets of any Person ; provided, however, that the term "Acquisition" shall not include the purchase or acquisition of, or any expenditure towards the purchase or acquisition of, (i) inventory acquired in the ordinary course of business for resale to customers or (ii) (A) prescription files so long as the aggregate amount expended in any fiscal year to acquire prescription files does not exceed $2,000,000, (B) inventory acquired for resale to customers or (C) Capital Expenditures unless, in the case of clause (ii), such purchase, acquisition or expenditure is made in connection with the acquisition of (x) all the common stock of any on-going business, (y) all or substantially all the assets of any on-going business or (z) one or more drugstores. Acquisition Fixed Charge Coverage Ratio shall mean, for any period in connection with the Acquisition of any Acquired Entity, the ratio of (a) the sum of (i) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period plus Lease Expense (but only to the extent of the amount of such Lease Expense that was deducted in calculating such EBITDA) for such period less Capital Expenditures for such period, (ii) Acquired EBITDA of such Acquired Entity for such period plus Acquired Lease Expense of such Acquired Entity (but only to the extent of the amount of such Acquired Lease Expense that was deducted in calculating such Acquired EBITDA) for such period and (iii) Acquired EBITDA of any previously acquired Entity (but only to the extent that such Acquired EBITDA is allocable to such period) plus Acquired Lease Expense of any previously acquired Entity (but only to the extent of the amount of such Acquired Lease Expense that was deducted in calculating such Acquired EBITDA) to (b) the sum of (i) Interest Expense for such period, (ii) Acquired Interest Expense of such Acquired Entity for such Period, (iii) Acquired Interest Expense of any previously acquired Entity (but only to the extent that such Acquired Interest Expense is allocable to such period), (iv) cash income taxes paid by the Borrower and the Subsidiaries on a consolidated basis during such period, (v) Lease Expense for such period, (vi) Acquired Lease Expense of such Acquired Entity for such Period, (vii) Acquired Lease Expense of any previously acquired Entity (but only to the extent that such Acquired Lease Expense is allocable to such period), (viii) the Term Loan Repayment Amounts scheduled to be paid during such period and (ix) scheduled payments during such period of the principal of permitted Indebtedness of the Borrower and the Subsidiaries other than the Loans. Adjusted LIBO Rate shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. For purposes hereof, the term LIBO Rate shall mean the average of the respective rates per annum at which dollar deposits approximately equal in principal amount to each Reference Lender's portion of such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered to the principal London office of such Reference Lender in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. Administrative Fees shall have the meaning assigned to such term in Section 2.05(b). Administrative Questionnaire shall mean an Administrative Questionnaire in the form of Exhibit C. Affiliate shall mean, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified. Alternate Base Rate shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, the term Prime Rate shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term Base CD Rate shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. The term Three-Month Secondary CD Rate shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotia ble certificate of deposit dealers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. Applicable Percentage of any Participating Lender shall mean the percentage of the aggregate Revolving Credit Commitments represented by such Participating Lender's Revolving Credit Commitment. Applicable Rate Percentage shall mean on any date, with respect to the Commitment Fee, Eurodollar Loans or ABR Loans, as the case may be, the lowest applicable percentage set forth in the table below based upon the Funded Debt to EBITDA Ratio for the four-fiscal-quarter period ending on the last day of the immediately preceding fiscal quarter for which the certificate referred to in the next succeeding paragraph has been received by the Administrative Agent, as set forth in the following table; provided, however, that the Applicable Rate Percentages in respect of the Commitment Fee, the LIBOR Spread and the ABR Spread for the period from and including the Restatement Date to but excluding the date of receipt by the Lenders of the Borrower's financial statements for the fiscal quarter ending October 29, 1994, shall be the Applicable Rate Percentages specified for Level IV in the table below: COMMITMENT FEE/LIBOR SPREAD/ABR SPREAD (Basis Points Per Annum) Funded Debt to EBITDA Ratio Commitment Fee LIBOR Spread ABR Spread Level I Less than or equal to 2.50 25.00 75.00 0.00 Level II Less than or equal to 3.00 but greater than 2.50 37.50 100.00 0.00 Level III Less than or equal to 3.50 but greater than 3.00 37.50 125.00 25.00 Level IV Greater than 3.50 50.00 150.00 50.00 For purposes of the foregoing, (a) any change in the Applicable Rate Percentages based on the Funded Debt to EBITDA Ratio shall be effective for all purposes on and after the date of receipt by the Administrative Agent of the certificate described in Section 6.04(d) for the most recently ended fiscal quarter and (b) notwithstanding the foregoing provision of clause (a), no reduction in the above Applicable Rate Percentages shall be effective if any Event of Default or Default shall exist and be continuing. Any change in the LIBOR Spread or the ABR Spread due to a change in the applicable Level shall apply to all Eurodollar Rate Loans made on or after the commencement of the period (and to ABR Loans that are outstanding at any time during the period) commencing on the effective date of such change in applicable Level and ending on the date immediately preceding the effective date of the next such change in applicable Level. Notwithstanding the foregoing, at any time during which the Borrower has failed to deliver the certificate described in Section 6.04(d) in accordance with the provisions thereof, (a) the LIBOR Spread shall be deemed to be that of Level IV with respect to Eurodollar Loans made on and after the date on which the failure to deliver such certificate occurred until such date as the Administrative Agent shall receive such certificate in accordance with the provisions of Section 6.04(d), which change in the LIBOR Spread shall become effective with respect to Eurodollar Loans made on and after the date on which such certificate was received, (b) the ABR Spread shall be deemed to be that of Level IV until such time as the Administrative Agent shall receive such certificate in accordance with the provisions of Section 6.04(d) and (c) the Commitment Fee shall be deemed to be that of Level IV until such time as the Administrative Agent shall receive such certificate in accordance with the provisions of Section 6.04(d). Assessment Rate shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Administrative Agent as the then-current net annual assessment rate that will be employed in determining amounts payable by the Administrative Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Administrative Agent's domestic offices. Assignment and Acceptance shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. BA Disbursement shall mean, with respect to any Bankers' Acceptance, any payment of the face amount of such Bankers' Acceptance made by the Primary Fronting Bank to the holder thereof upon the maturity thereof. BA Discount Rate shall mean, with respect to any Bankers' Acceptance, the current quoted discount rate for bankers' acceptances of the Primary Fronting Bank on the date of the origination of such Bankers' Acceptance for bankers' acceptances in an amount substantially equal to the face amount of such Bankers' Acceptance and having the same maturity as such Bankers' Acceptance. BA Documents shall mean, with respect to any Bankers' Acceptance, such documents and agreements as the Primary Fronting Bank may reasonably require in connection with the creation of such Bankers' Acceptance. BA Exposure shall mean, at any time, the sum of (a) the maximum aggregate amount that is, or at any time thereafter may become, payable by the Primary Fronting Bank under all Bankers' Acceptances then outstanding and (b) the aggregate amount of BA Disbursements for which the Primary Fronting Bank or the Lenders, as the case may be, have not been reimbursed by the Borrower at such time. Bankers' Acceptance shall mean a bill of exchange or draft denominated in dollars (a) drawn (i) in the case of a Clean Bankers' Acceptance, by the Borrower, (ii) in the case of a Trade Banker's Acceptance, in the name of the beneficiary of the related Trade Letter of Credit and (iii) in each case, in the ordinary course of the Borrower's business and accepted by the Primary Fronting Bank on the Primary Fronting Bank's form of draft in effect from time to time, (b) in the case of a Clean Bankers' Acceptance, for a face amount of $1,000,000 or any integral multiple of $250,000 in excess thereof and (c) for a term (i) in the case of a Clean Bankers' Acceptance, of not less than 30 days or more than 120 days and (ii) in the case of a Trade Bankers' Acceptance, of not less than 20 or more than 120 days. Bankers' Acceptance Request shall mean a request made pursuant to Section 3.02 in the form of Exhibit K. Board shall mean the Board of Governors of the Federal Reserve System of the United States. Borrowing shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. Business Day shall mean any day (other than a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; provided, however, that, when used in connection with a Eurodollar Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. Capital Expenditures shall mean, for any period, the sum of all amounts that would, in accordance with GAAP, be included as additions to property, plant and equipment and other capital expenditures on a consolidated statement of cash flows for the Borrower and the Subsidiaries during such period (including the amount of assets leased under any Capital Lease Obligation). Notwithstanding the foregoing, the term Capital Expenditures shall not include capital expenditures in respect of the reinvestment of insurance proceeds and condemnation proceeds received by the Borrower or any Subsidiary in connection with the disposition of the Borrower's or such Subsidiary's assets or properties in the nature of a casualty or condemnation, if (as contemplated in the definition of the term Prepayment Event ) such reinvestment (including, in the case of insurance proceeds, reinvestment in the form of restoration or replacement of damaged property) shall have resulted in the event giving rise to the receipt of such amounts not being considered a Prepayment Event as contemplated in the definition of such term. Capital Lease Obligations of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. A Change in Control shall be deemed to have occurred if (a) any Person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Commission as in effect on the date hereof) other than ML Capital Partners, Inc. and its Affiliates shall own directly or indirectly, beneficially or of record, shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) a change in the membership of the board of directors of the Borrower shall occur at any time during any twelve-month period such that, following such change, at least 30% of the members of the board of directors were not members of the board of directors at the beginning of such twelve-month period (but only if the election of such new members of the board of directors was not approved by a majority of the directors who were either sitting at the beginning of such twelve-month period or elected to the board of directors during such twelve-month period with the approval of a majority of the directors who were sitting at the beginning of such twelve-month period); or (c) any Person or group other than ML Capital Partners, Inc. and its Affiliates shall otherwise directly or indirectly Control the Borrower. Change in Liquidity From Receivables Programs shall mean, for any period, the net change from the first day of such period to the last day of such period in accounts receivable of the Borrower resulting from the sale of such accounts receivable by the Borrower and receipt by the Borrower of the cash proceeds of such sale pursuant to Permitted Receivables Purchase Agreements, calculated in accordance with GAAP applied on a basis consistent with the Borrower's audited consolidated financial statements for the fiscal year ended January 30, 1993. Clean Bankers' Acceptance shall mean (a) each Bankers' Acceptance that is not a Trade Bankers' Acceptance and (b) each Existing Clean Bankers' Acceptance; each Clean Bankers' Acceptance (other than an Existing Clean Bankers' Acceptance) shall be originated by the Primary Fronting Bank in accordance with Section 3.02(c). Code shall mean the Internal Revenue Code of 1986, or any successor statute thereto, as the same may be amended from time to time. Collateral shall mean all the Collateral as defined in any Security Document and shall also include the Lockbox Collateral and the Mortgaged Properties. Collateral Agent shall mean Chemical Bank, as Collateral Agent under the Security Documents, the Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement. Commitment shall mean, with respect to each Lender, such Lender's Term Loan Commitment and Revolving Credit Commitment. Commitment Fee shall have the meaning assigned to such term in Section 2.05(a). Common Stock shall mean the Voting Common Stock and the Non-Voting Common Stock. Confidential Information Memorandum shall mean the Confidential Information Memorandum of the Borrower dated June 1994. Consideration shall mean, with respect to any Acquisition, the aggregate consideration to be paid by the Borrower or any Subsidiary in connection with such Acquisition, including (a) any Indebtedness assumed or incurred by the Borrower or any Subsidiary in connection with such Acquisition and (b) any shares of the Borrower's capital stock or other equity securities, or any obligations convertible into or exchangeable for (or giving any Person a right, option or warrant to acquire) such securities or such convertible or exchangeable obligations, in each case issued by the Borrower in connection with such Acquisition. Control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms Controlling and Controlled shall have meanings correlative thereto. Credit Event shall have the meaning assigned to such term in Article V. Default shall mean any event or condition that upon notice, lapse of time or both would constitute an Event of Default. Default Rate shall have the meaning assigned to such term in Section 2.07. dollars or $ shall mean lawful money of the United States. EBITDA with respect to any Person for any period shall mean (a) the sum of (i) Net Income of such Person for such period, (ii) all Federal, state, local and foreign taxes deducted in determining such Net Income, (iii) interest expense deducted in determining such Net Income and (iv) depreciation, amortization and other noncash charges deducted in determining such Net Income, less (b) any noncash income included in determining such Net Income. 11-1/8% Subordinated Debenture Indenture shall mean the Subordinated Debenture Indenture dated as of May 1, 1986, between the Borrower and Bank of America, N.A., as trustee, as successor to Mellon Bank, N.A., relating to the 11-1/8% Subordinated Debentures, as such Subordinated Debenture Indenture may from time to time be amended or modified in accordance with Section 7.10. 11-1/8% Subordinated Debentures shall mean the 11-1/8% Subordinated Debentures due 2001 of the Borrower, as such 11-1/8% Subordinated Debentures may from time to time be amended or modified in accordance with Section 7.10. Equipment Agency Arrangements shall mean arrangements between the Borrower and one or more equipment lessors (the "Equipment Lessors") pursuant to which (a) the Borrower, acting as the Equipment Lessor's agent or otherwise, orders and/or pays for equipment to be used in the Borrower's business, (b) the Equipment Lessor reimburses the Borrower for any such payment and (c) the Equipment Lessor leases such equipment to the Borrower. Equipment Lessor shall have the meaning assigned to such term in the definition of the term "Equipment Agency Arrangements". Equity Issuance shall mean any issuance or sale by the Borrower of any shares of its capital stock or other equity securities, or any obligations convertible into or exchangeable for (or giving any Person a right, option or warrant to acquire) such securities or such convertible or exchangeable obligations, other than (a) sales or issuances of Common Stock to management or key employees of the Borrower or any of its Subsidiaries under any employee stock option or stock purchase plan in existence from time to time, not to exceed in the aggregate $6,000,000 in any fiscal year or (b) issuances or sales of any securities by any Subsidiary to a Subsidiary that is a Guarantor or to the Borrower or by the Borrower to any Subsidiary that is a Guarantor; provided, however, that the term Equity Issuance shall not include any issuance or sale of Common Stock to any Person that is not an Affiliate of the Borrower to the extent that the consideration for such issuance or sale is a drugstore or any assets thereof or all or substantially all the capital stock of any corporation that engages exclusively in a business or businesses substantially similar to one or more lines of business in which the Borrower or any Subsidiary is principally engaged on the date hereof. Equity Issuance Balance shall mean (a) 100% of the Net Proceeds from any Equity Issuance minus (b) the aggregate amount of such Net Proceeds that has been applied by the Borrower (or placed in the Repurchase Account pursuant to Section 2.13(d) to be applied by the Borrower) to redeem or repurchase 11-1/8% Subordinated Debentures pursuant to Section 7.09(a)(iii)(B). ERISA shall mean the Employee Retirement Income Security Act of 1974, or any successor statute, as the same may be amended from time to time. ERISA Affiliate shall mean any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and which is treated as a single employer under Section 414 of the Code. Eurodollar Borrowing shall mean a Borrowing comprised of Eurodollar Loans. Eurodollar Loan shall mean any Eurodollar Term Loan or Eurodollar Revolving Loan. Eurodollar Revolving Loan shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. Eurodollar Term Loan shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. Event of Default shall have the meaning assigned to such term in Article VIII. Existing Clean Bankers' Acceptance shall mean each bill of exchange or draft denominated in dollars that (a) was drawn by the Borrower in the ordinary course of the Borrower's business, (b) was accepted by NationsBank, (c) is outstanding on the Restatement Date and (d) is listed in part I of Schedule 1.01(a). Existing Standby Letter of Credit shall mean each standby letter of credit that (a) was issued by NationsBank for the account of the Borrower, (b) is outstanding on the Restatement Date and (c) is listed in part II of Schedule 1.01(a). Existing Trade Bankers' Acceptance shall mean each bill of exchange or draft denominated in dollars that (a) was drawn by the beneficiary of a related commercial documentary letter of credit in the ordinary course of the Borrower's business, (b) was accepted by NationsBank, (c) is outstanding on the Restatement Date and (d) is listed in part III of Schedule 1.01(a). Existing Trade Letter of Credit shall mean each commercial documentary letter of credit that (a) was issued by NationsBank for the account of the Borrower, (b) is outstanding on the Restatement Date and (c) is listed in part IV of Schedule 1.01(a). Facilities shall mean, collectively, the Term Facility and the Revolving Facility. Federal Funds Effective Rate shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. Fees shall mean the Administrative Fees, the Commitment Fees, the LC/BA Fees, the fees specified in Section 2.05(c) and the fees specified in Section 3.09. Financial Officer of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation. Fixed Charge Coverage Ratio shall mean, for any period, the ratio of (a) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period plus Lease Expense (but only to the extent of the amount of such Lease Expense that was deducted in calculating such EBITDA) for such period less Capital Expenditures for such period to (b) the sum of (i) Interest Expense for such period, (ii) cash income taxes paid by the Borrower and the Subsidiaries on a consolidated basis during such period, (iii) Lease Expense for such period, (iv) the Term Loan Repayment Amounts scheduled to be paid during such period and (v) scheduled payments during such period of the principal of permitted Indebtedness of the Borrower and the Subsidiaries other than the Loans. Fronting Banks shall mean (a) with respect to Letters of Credit (other than IRB Letters of Credit) and Bankers' Acceptances, the Primary Fronting Bank, and (b) with respect to IRB Letters of Credit, the IRB Fronting Bank. Funded Debt shall mean all Indebtedness of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, excluding Indebtedness described in clause (i) of the definition of such term. Funded Debt to EBITDA Ratio shall mean, with respect to any fiscal period, the ratio of (a) Funded Debt on the last day of such period to (b) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period. Funding I Lease shall mean (a) the sale and master operating leaseback of 72 store premises pursuant to the Lease Agreement dated as of January 15, 1987, as amended to the date hereof, among JEC Funding, Inc., as lessor, and the Borrower as lessee, and (b) the documents related thereto. Funding II Lease shall mean (a) the capital lease of store premises pursuant to the Lease Agreement dated as of March 31, 1989, among JEC Facilities Funding II, Inc., as lessor, and the Borrower, as lessee, and (b) the documents related thereto. GAAP shall mean generally accepted accounting principles in the United States. Governmental Authority shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. Guarantee of or by any Person shall mean any obligation, contingent or otherwise (whether or not denominated as a guarantee), of such person guaranteeing any Indebtedness of any other person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business. Guarantee Agreement shall mean the Guarantee Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Guarantors and the Collateral Agent. Guarantor shall mean each Subsidiary that shall be one of the initial parties to the Guarantee Agreement and any other Person that shall become a Guarantor pursuant to Section 6.10 or clause (q) of Article VIII. IC Florida shall mean Pharmacy Dynamics Group, Inc., a Florida corporation. IC Holdings shall mean Insta-Care Holdings, Inc., a Florida corporation. IC Holdings Convertible Debentures shall mean the Convertible Debentures issued pursuant to the IC Holdings Management Subscription Agreement, as such Convertible Debentures may from time to time be amended or modified in accordance with Section 7.10. IC Holdings Employees shall mean (a) employees of IC Holdings or any of its subsidiaries and their estates, (b) the spouses, parents and issue of employees of IC Holdings or any of its subsidiaries and their estates and (c) trusts, corporations and partnerships, the beneficiaries, stockholders or partners of which include only the persons listed in clauses (a) and (b) above. IC Holdings Management Subscription Agreement shall mean the Subscription Agreement dated as of May 1, 1990, among IC Holdings and certain IC Holdings Employees pursuant to which such IC Holdings Employees have agreed to purchase IC Holdings Convertible Debentures, as such Subscription Agreement may from time to time be amended or modified in accordance with Section 7.10. IC Holdings Sale shall mean the sale, transfer or other disposition by the Borrower of the business and assets of IC Holdings or the capital stock of IC Holdings, whether by means of an initial public offering or otherwise. IC Holdings Sale Balance shall mean (a) 100% of the Net Proceeds from the IC Holdings Sale minus (b) the aggregate amount of such Net Proceeds that has been applied by the Borrower (or placed in the Repurchase Account pursuant to Section 2.13(c) to be applied by the Borrower) to redeem or repurchase 11-1/8% Subordinated Debentures pursuant to Section 7.09(a)(iii)(A). IC Texas shall mean Insta-Care Pharmacy Services Corp., a Texas corporation. IFS Sale and Leaseback shall mean the sale and leaseback transaction consummated by the Borrower on June 15, 1993, whereby the Borrower sold certain photographic processing equipment to Imaging Financial Services, Inc., a Delaware corporation, and entered into a lease in respect of such equipment. Inactive Subsidiary shall mean any subsidiary of the Borrower that (a) has assets with a total market value not in excess of $1,000 and (b) has not conducted any business or other operations during the prior 12-month period. Indebtedness of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind other than deposits or advances in the ordinary course of business, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued expenses arising in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed by such Person, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such Person as an account party to reimburse any bank or any other Person in respect of letters of credit or bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner. Indemnity, Subrogation and Contribution Agreement shall mean the Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Guarantors and the Collateral Agent. Institutional Investors shall mean the Institutional Investors that purchased class A stock and cumulative redeemable preferred stock pursuant to the Investor Stock Subscription Agreements. Interest Coverage Ratio shall mean, for any period, the ratio of (a) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period less Capital Expenditures during such period to (b) Interest Expense for such period. Interest Expense shall mean, for any period, the gross interest expense of the Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, excluding any fees and expenses payable or amortized during such period by the Borrower in connection with the Transactions. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by the Borrower with respect to Rate Protection Agreements. Interest Payment Date shall mean (a) with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part, (b) with respect to any Swingline Loan, the last day of the Interest Period applicable to such Swingline Loan and (c) with respect to any Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing and, in addition, the date of any refinancing or conversion of such Borrowing with or to a Borrowing of a different Type, provided that upon any conversion of an ABR Borrowing to a Eurodollar Borrowing on a day other than the last day of the Interest Period with respect to such ABR Borrowing, the Interest Payment Date for such ABR Borrowing shall be the last day of such Interest Period. Interest Period shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.10 or repaid or prepaid in accordance with Section 2.11, 2.12 or 2.13, and (c) as to any Swingline Loan, the period commencing on the date such Swingline Loan is made or on the last day of the immediately preceding Interest Period applicable to such Swingline Loan, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving Credit Maturity Date and (iii) any date on which the Swingline Lenders require the Lenders to purchase all or any portion of such Swingline Loan pursuant to Section 2.22(c); provided, however, that, if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. Investor Stock Subscription Agreements shall mean (a) the Subscription Agreement dated as of April 30, 1986, among the Borrower, the financial institutions identified therein, the Merrill Lynch Affiliate Investors and the Institutional Investors and (b) the Subscription Agreement dated as of April 30, 1986, between the Borrower and Morgan Capital Corporation, as such Subscription Agreements may from time to time be amended or modified in accordance with Section 7.10. IRB Fronting Bank shall mean any Lender designated as such by written notice to the Administrative Agent from the Borrower, which designation shall be effective upon receipt by the Managing Agents of an instrument, in form and substance satisfactory to the Managing Agents, whereby such Lender assumes the obligations of the IRB Fronting Bank hereunder. IRB Letter of Credit shall mean any Standby Letter of Credit issued by the IRB Fronting Bank in accordance with (a) Section 5.4 of the Lease Agreement dated as of November 1, 1986, between The Industrial Development Board of the City of Hammond, Inc. and the Borrower or (b) Section 5.4 of the Lease Agreement dated as of December 1, 1986, between Development Authority of Coweta County and the Borrower, and any extensions and replacements thereof, as such Standby Letter of Credit may from time to time be amended, supplemented or modified. LC/BA Commitment shall mean at any time an amount equal to the lesser of (a) $155,000,000, as the same may be reduced from time to time pursuant to Section 3.08, and (b) the Revolving Credit Commitment at such time. The LC/BA Commitment shall automatically and permanently terminate on the LC/BA Maturity Date. LC/BA Exposure shall mean, at any time of determination, the sum of (a) the Trade LC Exposure, (b) the Standby LC Exposure and (c) the BA Exposure at such time. LC/BA Fee shall have the meaning given such term in Section 3.04. LC/BA Maturity Date shall mean the fifth Business Day prior to the Revolving Credit Maturity Date. LC Disbursement shall mean any payment or disbursement made by a Fronting Bank under or pursuant to a Letter of Credit. Lease Expense shall mean, for any period, with respect to any operating leases of the Borrower and the Subsidiaries, all amounts paid or accrued during such period under such operating leases (whether or not constituting rental expense) by the Borrower and the Subsidiaries on a consolidated basis. Leasehold Mortgage shall mean any Mortgage that is a leasehold mortgage. Letter of Credit Application shall mean a commercial or standby letter of credit application, as applicable, in the relevant Fronting Bank's customary form, as such form may be modified from time to time by such Fronting Bank. Letters of Credit shall mean Trade Letters of Credit and Standby Letters of Credit. LIBOR Spread shall have the meaning specified in the definition of the term Applicable Rate Percentage . Lien shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, assignments for security (whether collateral or otherwise), hypothecation, encumbrance, lease, sublease, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. Loan Documents shall mean this Agreement, the Notes, the Letters of Credit, the Bankers' Acceptances, the BA Documents, the Security Documents, the Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement. Loans shall mean the Revolving Loans and the Term Loans. Lockbox Agreements shall mean any lockbox agreements among the Borrower, the Collateral Agent and a Sub-Agent (as defined in each Lockbox Agreement), substantially in the form of Annex 1 to the Security Agreement. Lockbox Collateral shall have the meaning assigned to such term in each of the Lockbox Agreements. Management Investors shall mean the officers of the Borrower who purchased Class A Stock and Class B Stock pursuant to the Management Subscription Agreement. Management Subscription Agreement shall mean, collectively, (a) the Management Subscription Agreement dated as of April 30, 1986, (b) the Management Subscription Agreement dated as of June 30, 1987, and (c) the Management Subscription Agreement dated as of November 1, 1987, in each case, among the Borrower and the Management Investors and pursuant to which the Management Investors purchased Class A Stock and Class B Stock, as such agreements may from time to time be amended or modified in accordance with Section 7.10. Margin Stock shall have the meaning given such term under Regulation U. Material Adverse Effect shall mean (a) a materially adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, or the material agreements of the Borrower and the Subsidiaries, taken as a whole, (b) material impairment of the ability of the Borrower or any Subsidiary to perform any of its obligations under any Loan Document to which it is or will be a party or (c) material impairment of the rights of or benefits available to the Administrative Agent, the Fronting Banks, the Collateral Agent or the Lenders under any Loan Document. Merrill Lynch Affiliate Investors shall mean the Affiliates of Merrill Lynch & Co., Inc. on April 30, 1986, who purchased class A stock and cumulative redeemable preferred stock pursuant to the Investor Stock Subscription Agreements. Mortgaged Properties shall mean the owned real properties of the Borrower specified on Schedule 1.01(b). Mortgages shall mean the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents (including the Assignments of Leases and Rents), modifications and other security documents delivered pursuant to Section 5.02(k) or Section 6.10, each (except in the case of any Leasehold Mortgage) substantially in the form of Exhibit I. Multiemployer Plan shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. Net Income with respect to any Person for any period shall mean the aggregate net income (or net deficit) of such Person and its subsidiaries determined on a consolidated basis for such period, which shall be equal to gross revenues for such Person and its subsidiaries determined on a consolidated basis during such period less the aggregate for such Person and its subsidiaries determined on a consolidated basis during such period of, without duplication, (a) cost of goods sold, (b) interest expense, (c) operating expenses, (d) selling, general and administrative expenses, (e) taxes, (f) depreciation, depletion and amortization of properties and (g) any other items that are treated as expense under GAAP, all computed in accordance with GAAP; provided, however, that the term Net Income shall exclude (i) gains and losses from the sale of assets other than in the ordinary course of business and (ii) any write-up in the value of any asset. Net Proceeds shall mean, with respect to any Prepayment Event, the IC Holdings Sale or any Equity Issuance, (a) the gross proceeds (including, if applicable, insurance proceeds, condemnation awards and payments from time to time in respect of installment obligations) received by or on behalf of the Borrower or any of its Subsidiaries in respect of such Prepayment Event, the IC Holdings Sale or such Equity Issuance, less (b) the sum of (i) in the case of a Prepayment Event under clause (a) or (b) of the definition thereof or the IC Holdings Sale, the amount, if any, of all taxes (other than income taxes) payable by the Borrower or any of its Subsidiaries in connection with such Prepayment Event or the IC Holdings Sale and the Borrower's good-faith best estimate of the amount of all income taxes payable in connection with such Prepayment Event or the IC Holdings Sale (to the extent that such amount shall have been set aside for the purpose of paying such income taxes), (ii) in the case of a Prepayment Event under clause (a) of the definition thereof or the IC Holdings Sale, (A) the amount of any reasonable reserve established in accordance with GAAP against any liabilities associated with the assets sold or disposed of and retained by the Borrower or any of its Subsidiaries, provided that the amount of any subsequent reduction of such reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be Net Proceeds of a Prepayment Event or the IC Holdings Sale occurring on the date of such reduction, and (B) the amount applied to repay any Indebtedness (other than the Loans and the Swingline Loans) to the extent such Indebtedness is required by its terms to be repaid as a result of such Prepayment Event or the IC Holdings Sale and (iii) reasonable and customary fees, commissions and expenses and other costs paid by the Borrower or any of its Subsidiaries in connection with such Prepayment Event, the IC Holdings Sale or Equity Issuance (other than those payable to the Borrower or any subsidiary of the Borrower), in each case only to the extent not already deducted in arriving at the amount referred to in clause (a) above. Net Working Capital shall mean, with respect to any Person and its subsidiaries on a consolidated basis at any date, (a) the sum of inventory (calculated using a first-in-first-out accounting method), current receivables (including trade receivables and current rent receivables) and prepaid expenses minus (b) the sum of accrued expenses currently payable and trade payables, as each of such items would appear on a consolidated balance sheet of such Person and its subsidiaries as of the date of determination in accordance with GAAP. 9-1/4% Senior Subordinated Note Indenture shall mean the Senior Subordinated Note Indenture dated as of November 1, 1993, between the Borrower and State Street Bank and Trust Company of Connecticut, National Association , as trustee, as such Senior Subordinated Note Indenture may from time to time be amended or modified in accordance with Section 7.10. 9-1/4% Senior Subordinated Notes shall mean the 9-1/4% Senior Subordinated Notes due 2004 of the Borrower, as such 9-1/4% Senior Subordinated Notes may from time to time be amended or modified in accordance with Section 7.10. 1993 Credit Agreement shall mean the Credit Agreement dated as of June 14, 1993, among the Borrower, the Lenders listed therein, Chemical Bank and NationsBank, as Managing Agents and Swingline Lenders, and Chemical Bank, as Administrative Agent. Non-Voting Common Stock shall mean the Borrower's Non-Voting Common Stock (Series I), par value $.01 per share. Notes shall mean the Term Notes, the Revolving Credit Notes and the Swingline Notes. Obligations shall mean all obligations defined as Obligations in the Guarantee Agreement and the Security Documents. Outstanding Bankers' Acceptances shall mean at any time the Bankers' Acceptances outstanding at such time. Outstanding Clean Bankers' Acceptances shall mean at any time the Clean Bankers' Acceptances outstanding at such time. Outstanding Letters of Credit shall mean at any time the Letters of Credit outstanding at such time. Outstanding Standby Letters of Credit shall mean at any time the Standby Letters of Credit outstanding at such time. Outstanding Trade Bankers' Acceptances shall mean at any time the Trade Bankers' Acceptances outstanding at such time. Outstanding Trade Letters of Credit shall mean at any time the Trade Letters of Credit outstanding at such time. Participating Lender shall mean at any time any Lender with a Revolving Credit Commitment at such time. PBGC shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. Perfection Certificate shall mean the Perfection Certificate, substantially in the form of Annex 2 to the Security Agreement, prepared by the Borrower. Permitted Acquisition shall mean any Acquisition by the Borrower or any of its Subsidiaries of any Acquired Entity engaged in one or more lines of business substantially similar to those in which the Borrower or any Subsidiary is principally engaged as of the Restatement Date, so long as (a) the Consideration to be paid by the Borrower or any Subsidiary in connection with such Acquisition does not exceed $50,000,000 and (b) the sum of (i) the Consideration to be paid by the Borrower or any Subsidiary in connection with such Acquisition and (ii) the aggregate Consideration paid by the Borrower or any Subsidiary in connection with all prior Permitted Acquisitions that were consummated in the fiscal year in which such Acquisition will occur does not exceed $100,000,000. Notwithstanding the immediately preceding sentence, no Acquisition for which the Consideration to be paid by the Borrower or any Subsidiary exceeds $15,000,000 shall be deemed to be a Permitted Acquisition unless the Borrower shall, not less than ten days prior to the consummation of such Acquisition, (a) furnish to the Lenders written notice of such Acquisition and the Consideration to be paid in connection therewith, (b) furnish to the Lenders a certificate, certified by one of the Borrower's Financial Officers, setting forth in reasonable detail (i) the calculation of Acquired EBITDA, Acquired Interest Expense, Acquired Lease Expense and Acquired Net Income with respect to such Acquired Entity and (ii) the calculation of the ratios specified in clause (c) below and (c) furnish to the Lenders a certificate, certified by one of the Borrower's Financial Officers, stating that, after giving pro forma effect to such Acquisition as if it had been consummated on the last day of the Borrower's most recently completed period of four consecutive fiscal quarters for which a certificate has been delivered pursuant to Section 6.04(d), (i) the ratio of (A) Funded Debt on the last day of such period to (B) the sum of (x) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period, (y) Acquired EBITDA of such Acquired Entity for such period and (z) Acquired EBITDA of any previously acquired Acquired Entity (but only to the extent that such Acquired EBITDA is allocable to such period) would be less than or equal to the ratio set forth in Section 7.11 as being applicable to such period, (ii) the ratio of (A) the sum of (x) EBITDA of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period less Capital Expenditures during such period, (y) Acquired EBITDA of such Acquired Entity for such period and (z) Acquired EBITDA of any previously acquired Acquired Entity (but only to the extent that such Acquired EBITDA is allocable to such period) to (B) the sum of (x) Interest Expense for such period, (y) Acquired Interest Expense of such Acquired Entity for such period and (z) Acquired Interest Expense of any previously acquired Acquired Entity (but only to the extent that such Acquired Interest Expense is allocable to such period) would be greater than or equal to the ratio set forth in Section 7.12 as being applicable to such period and (iii) the Acquisition Fixed Charge Coverage Ratio for such period shall be greater than or equal to 1.10 to 1.00. Permitted Investments shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within six months from the date of acquisition thereof by the Borrower or any Subsidiary; (b) without limiting the provisions of paragraph (d) below, investments in commercial paper maturing within six months from the date of acquisition thereof by the Borrower or any Subsidiary and having, at such date of acquisition, a credit rating of A1 from Standard & Poor's Corporation or P1 from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, bankers' acceptances and time deposits maturing within six months from the date of acquisition thereof by the Borrower or any Subsidiary issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, (i) any domestic office of either Managing Agent or (ii) any domestic office of any other commercial bank of recognized standing organized under the laws of the United States of America or any state thereof which is rated (or the senior debt securities of the holding company of such commercial bank are rated) in one of the three highest grades by Standard & Poor's Corporation or Moody's Investors Service, Inc., or another nationally recognized rating agency if neither of such two named rating agencies shall rate such bank; (d) investments in commercial paper maturing within six months from the date of acquisi- tion thereof by the Borrower or any Subsidiary and issued by (i) the holding company of either Managing Agent or (ii) the holding company of any other commercial bank of recognized standing organized under the laws of the United States of America or any state thereof that has commercial paper rated in one of the three highest grades by Standard & Poor's Corporation or Moody's Investors Service, Inc., or another nationally recognized rating agency if neither of such two named rating agencies shall rate such bank; (e) repurchase agreements maturing within six months from the date of acquisition thereof by the Borrower or a Subsidiary with (i) any Lender (of Affiliate thereof), (ii) any bank or trust company referred to in paragraph (c) or (d) above or (iii) Broadway National Bank, in each case, for, and fully collateralized by a perfected security interest in, underlying securities of the type referred to in paragraph (a) above, provided that, in the case of any such repurchase agreements with Broadway National Bank, the aggregate amount of the repurchase obligations thereunder shall not at any time exceed $2,000,000. (f) investments in Merrill Lynch Institutional Fund, Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, Merrill Lynch Institutional Tax-Exempt Fund, American Express Daily Dividends Fund and American Express Government and Agencies Fund. (g) other investment instruments approved in writing by the Required Lenders and offered by financial institutions that have a combined capital and surplus and undivided profits of not less than $250,000,000. Permitted Receivables Purchase Agreements shall mean, collectively, (a) the Receivables Purchase Agreement dated as of March 29, 1990, as amended and restated as of May 16, 1991, and as further amended as of June 14, 1993, and as the expiration date thereof may be extended from time to time, between the Borrower and Mellon Bank, N.A., providing for the transfer to Mellon Bank, N.A. of an undivided interest in a pool of Third Party Receivables, (b) any agreement providing for the transfer by the Borrower of Third Party Receivables that is entered into with the prior written consent of the Required Lenders and (c) any other agreements providing for the transfer by the Borrower of Third Party Receivables in a true sale transaction, on terms no less favorable to the Borrower and the Lenders than the receivables purchase agreement described in clause (a) above, in each case if and to the extent permitted by Section 7.05(e). Person shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. Plan shall mean any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code that is maintained for employees of the Borrower or any ERISA Affiliate. Pledge Agreement shall mean the Pledge Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Borrower, the Guarantors and the Collateral Agent. Prepayment Account shall have the meaning assigned to such term in Section 2.13(h). Prepayment Event shall mean (a) any sale, transfer or other disposition of any business units, assets or other properties of the Borrower or any of its Subsidiaries (including dispositions in the nature of casualties (to the extent covered by insurance) or condemnations), (b) any sale and leaseback of any asset or the mortgaging of any real property other than pursuant to a Mortgage (or a modification thereof) by the Borrower or any of its Subsidiaries or (c) the issuance or incurrence by the Borrower or any of its Subsidiaries of any Indebtedness (other than any indebtedness that the Borrower or any Subsidiary is permitted to incur pursuant to Section 7.01), or the issuance or sale by the Borrower or any of its Subsidiaries of any debt securities or any obligations convertible into or exchangeable for, or giving any person or entity any right, option or warrant to acquire from the Borrower or any of its Subsidiaries any Indebtedness (other than any indebtedness that the Borrower or any Subsidiary is permitted to incur pursuant to Section 7.01), or any such debt securities or any such convertible or exchangeable obligations. Notwithstanding the foregoing, the term Prepayment Event shall not include: (i) sales, transfers and other dispositions of business units, assets and other properties on commercially reasonable terms permitted pursuant to Section 7.05(a) with Net Proceeds not exceeding in the aggregate $6,000,000 in any fiscal year, provided that at any time when the Net Proceeds of any such sale, transfer and other disposition, together with the aggregate Net Proceeds of all other such sales, transfers and other dispositions during the same fiscal year, shall exceed $6,000,000 in any fiscal year, a Prepayment Event shall be deemed to have occurred, and the resultant prepayment in connection with such Prepayment Event shall equal the amount by which the aggregate Net Proceeds of such sales, transfers and dispositions exceeds $6,000,000; (ii) sales of inventory, used or surplus equipment, vehicles and other assets in the ordinary course of business; (iii) the receipt of insurance or condemnation proceeds in respect of the loss, damage, destruction or taking of any asset of the Borrower or any such Subsidiary, provided that (A) the aggregate amount of insurance or condemnation proceeds received by the Borrower and the Subsidiaries in connection with the event that resulted in the loss, damage, destruction or taking of such asset are less than $5,000,000, (B) such proceeds are reinvested in equipment, vehicles or other assets (other than inventory that does not replace lost, damaged, destroyed or taken inventory) used in the Borrower's principal lines of business within 180 days after the receipt thereof, (C) if such proceeds are equal to or exceed $1,000,000, the Borrower, pending such reinvestment, promptly applies such proceeds towards the payment of Swingline Loans or Revolving Loans or deposits such proceeds so received and unreinvested in a cash collateral account established with the Collateral Agent for the benefit of the Secured Parties and (D) at the time such proceeds are received by the Borrower or any of its Subsidiaries, no Default or Event of Default shall have occurred and be continuing; (iv) the IC Holdings Sale; or (v) sales, transfers or other dispositions to Equipment Lessors of equipment purchased by the Borrower, as agent for such Equipment Lessor, pursuant to Equipment Agency Arrangements. Primary Fronting Bank shall mean NationsBank. Rate Protection Agreements shall mean interest rate cap agreements, interest rate swap agreements and other agreements or arrangements entered into by the Borrower to provide protection to the Borrower against fluctuations in interest rates. Receivables Subsidiary means any bankruptcy-remote subsidiary of the Borrower created for the purpose of purchasing accounts receivable from the Borrower and the Subsidiaries pursuant to a Permitted Receivables Purchase Agreement. Reference Lenders shall mean the principal London offices of the Managing Agents and, as long as it is a Lender, Union Bank of Switzerland. Register shall have the meaning given such term in Section 10.04(d). Regulation G shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. Regulation U shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. Regulation X shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. Repurchase Account shall have the meaning assigned to such term in Section 2.13(c). Reportable Event shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code). Required Lenders shall mean, at any time, Lenders holding Loans, a share of the used LC/BA Commitments and unused Commitments representing greater than 50% of the sum of (a) the aggregate principal amount of the Loans at such time, (b) the LC/BA Exposure at such time and (c) the aggregate unused Commitments at such time. Responsible Officer of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. Restatement Date shall mean the date of the execution of this Agreement. Revolving Credit Borrowing shall mean a Borrowing comprised of Revolving Loans. Revolving Credit Commitment shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth in clause (b) of Section 2.01, as the same may be reduced from time to time pursuant to Section 2.09. Revolving Credit Maturity Date shall mean July 29, 2000. Revolving Credit Note shall mean a promissory note of the Borrower, substantially in the form of Exhibit A-1, evidencing Revolving Loans. Revolving Credit Utilization shall mean, at any time of determination, the sum of (a) the aggregate principal amount of Revolving Loans outstanding at such time, (b) the aggregate principal amount of Swingline Loans outstanding at such time and (c) the LC/BA Exposure at such time. Revolving Facility shall mean the aggregate of the Lenders' Revolving Credit Commitments. Revolving Loans shall mean the revolving loans made by the Lenders to the Borrower pursuant to clause (b) of Section 2.01. Each Revolving Loan shall be a Eurodollar Revolving Loan or an ABR Revolving Loan. Secured Parties shall have the meaning assigned to such term in the Security Agreement. Security Agreement shall mean the Security Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Borrower, the Guarantors and the Collateral Agent. Security Documents shall mean the Mortgages (including the Assignment of Leases and Rents and any leasehold mortgage), the Security Agreement, the Pledge Agreement, the Lockbox Agreements, the Trademark Security Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 6.10. Standby LC Exposure shall mean, at any time of determination, the sum of (a) the aggregate undrawn amount of all Standby Letters of Credit outstanding at such time and (b) the aggregate amount that has been drawn under any Standby Letters of Credit but for which the Fronting Banks or the Lenders, as the case may be, have not been reimbursed by the Borrower at such time. Standby Letter of Credit shall mean (a) each irrevocable letter of credit issued pursuant to Section 3.01(a) under which a Fronting Bank agrees to make payments for the account of the Borrower, on behalf of the Borrower, in respect of obligations of the Borrower incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which the Borrower is or proposes to become a party in the ordinary course of the Borrower's business and (b) each Existing Standby Letter of Credit. Statutory Reserves shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum applicable reserve percentages, including any marginal, special, emergency or supplemental reserves (expressed as a decimal) established by the Board and any other banking authority to which the Administrative Agent is subject (a) with respect to the Base CD Rate (as such term is used in the definition of the term Alternate Base Rate ) for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to Regulation D of the Board. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. Stockholders' Agreement shall mean the Stockholders' Agreement dated as of April 30, 1986, among the Borrower, the Management Investors, the Institutional Investors and the Merrill Lynch Affiliate Investors, as such Stockholders' Agreement may be amended or modified from time to time in accordance with Section 7.10. Subordinated Debt Refinancing Indebtedness shall mean any Indebtedness incurred by the Borrower as contemplated in Section 7.01(j) in connection with the refinancing of the 11-1/8% Subordinated Debentures or the 9-1/4% Senior Subordinated Notes. subsidiary shall mean, with respect to any Person (herein referred to as the parent ), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held or (b) that is, at the time any determination is made, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Subsidiary shall mean any subsidiary of the Borrower other than an Inactive Subsidiary. Swingline Commitment Percentage shall mean (a) in the case of Chemical Bank in its capacity as a Swingline Lender, 50% and (b) in the case of NationsBank in its capacity as a Swingline Lender, 50%. Swingline Loans shall mean the swingline loans made by the Swingline Lenders pursuant to Section 2.22. Swingline Note shall mean a promissory note of the Borrower, substantially in the form of Exhibit A-3, evidencing the Swingline Loans. Term Borrowing shall mean a Borrowing comprised of Term Loans. Term Facility shall mean the aggregate amount of the Lenders' Term Loan Commitments. Term Loan Commitment shall mean, with respect to each Lender, the commitment of such Lender to make Term Loans hereunder as set forth in clause (a) of Section 2.01, as the same may be reduced from time to time pursuant to Section 2.09. Term Loan Maturity Date shall mean July 29, 2000. Term Loan Repayment Amounts shall have the meaning set forth in Section 2.11(a)(i). Term Loan Repayment Date shall have the meaning set forth in Section 2.11(a)(i). Term Loans shall mean the term loans made by the Lenders to the Borrower pursuant to clause (a) of Section 2.01. Each Term Loan shall be either a Eurodollar Term Loan or an ABR Term Loan. Term Note shall mean a promissory note of the Borrower substantially in the form of Exhibit A-2, evidencing Term Loans. Third Party Receivables shall mean the Accounts (as defined in the Security Agreement) owing to the Borrower arising from the sale by the Borrower of goods or services in the ordinary course of the pharmaceutical business of the Borrower and with respect to which the obligor is a Person other than the Person to whom such goods or services were sold. Trade BA Exposure shall mean, at any time, the sum of (a) the maximum aggregate amount that is, or at any time thereafter may become, payable by the Fronting Bank under all Trade Bankers' Acceptances then outstanding and (b) the aggregate amount of BA Disbursements in respect of Trade Bankers' Acceptances for which the Primary Fronting Bank or the Lenders, as the case may be, have not been reimbursed by the Borrower at such time. Trade Bankers' Acceptance shall mean (a) a Bankers' Acceptance originated by the Primary Fronting Bank upon the presentation to the Primary Fronting Bank of a time draft for payment under a Trade Letter of Credit by a beneficiary thereof and (b) each Existing Trade Bankers' Acceptance; each origination of a Trade Bankers' Acceptance (other than an Existing Trade Bankers' Acceptance) shall be in accordance with Section 3.02(e). Trade LC Exposure shall mean, at any time of determination, the sum of (a) the aggregate undrawn amount of all Trade Letters of Credit outstanding at such time and (b) the aggregate amount that has been drawn under any Trade Letters of Credit but for which the Primary Fronting Bank or the Lenders, as the case may be, have not been reimbursed by the Borrower at such time. Trade Letter of Credit shall mean (a) each commercial documentary letter of credit issued by the Primary Fronting Bank for the account of the Borrower pursuant to Section 3.01(a) for the purchase of goods in the ordinary course of business and (b) each Existing Trade Letter of Credit. Trademark Security Agreement shall mean the Trademark Security Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Borrower, the Guarantors and the Collateral Agent. Transactions shall have the meaning assigned to such term in Section 4.02. Type , when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term Rate shall include the Adjusted LIBO Rate and the Alternate Base Rate. Voting Common Stock shall mean the Borrowers' Common Stock, par value $.01 per share. Withdrawal Liability shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. EX-10.19 4 FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT dated as of March 31, 1995 (the "Amendment") between ECKERD CORPORATION (the "Seller") and THREE RIVERS FUNDING CORPORATION (the "Buyer"). WITNESSETH: WHEREAS, the Seller and the Buyer entered into that certain Receivables Purchase Agreement dated as of January 26, 1995 (the "Agreement"), pursuant to which the Seller has sold undivided ownership interests in Receivables, and may from time to time hereafter sell undivided ownership interests in Receivables, to the Buyer; and WHEREAS, the parties hereto desire to amend the Agreement in the manner and on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: I. DEFINITIONS 1. DEFINED TERMS. "Amendment Effective Date" means the first date on which this Amendment shall have been executed and delivered by all of the parties hereto and the conditions precedent set forth in Section IV hereof shall have been fulfilled. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Agreement. II. AMENDMENTS TO AGREEMENT. As of the Amendment Effective Date, the Agreement shall be amended as follows: 1. AMENDMENTS TO ARTICLE I. (a) The definition of "Concentration Limit" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Concentration Limit" shall mean, as of any date of determination, with respect to all of the Receivables owing from a single Obligor, together with Receivables owing from its Affiliates or subsidiaries, an amount equal to six percent (6.00%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period; PROVIDED, (i) that the Concentration Limit with respect to Receivables owing from Paid shall be an amount equal to eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as (A) Paid shall be a wholly-owned subsidiary of Merck & Co., Inc. and (B) Merck & Co., Inc. shall have short-term ratings of at least A-1 and P-1 from S&P and Moody's, respectively, and, if rated by Duff, at least D-1 from Duff, (ii) that the Concentration Limit in respect of each Obligor whose 2 Receivables are outstanding under a Contract with PCS shall be six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period prior to any adjustment for unapplied cash received from all such Obligors, and (iii) that the Buyer may, at any time in its sole discretion, reduce or increase the Concentration Limit for any Obligor through the delivery of a notice to the Seller. (b) The definition of "Credit Loss Reserve" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Credit Loss Reserve" shall mean, with respect to any Settlement Period, the product of (i) the Credit Loss Reserve Percentage for such Settlement Period and (ii) the positive result of (a) the aggregate Account Balances of all Eligible Receivables in the Receivables Pool as of the last day of the Accounting Period most recently completed, less (b) the Settlement Period Reserve for such Settlement Period, less (c) the Servicer's Compensation Reserve for such Settlement Period, less (d) the sum, without duplication, of (1) the aggregate (determined as of the last day of the Accounting Period most recently completed) for all Obligors of the excess, if any, of the aggregate Account Balances of all Eligible Receivables owing by a single Obligor (calculated prior to any adjustment for unapplied cash received from such Obligor in the case of an Obligor whose Receivables are outstanding under a Contract with PCS) over the Concentration Limit in effect with respect to such Obligor, (2) the aggregate amount by which the Account Balance of Eligible Receivables that are Medicaid Receivables exceeds the Medicaid Receivables Limit and (3) the aggregate amount by which the Account Balance of Eligible Receivables owing under all Contracts with PCS exceeds (A) eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as (I) PCS is a wholly-owned subsidiary of Eli Lilly and Company and (II) Eli Lilly and Company has short-term ratings of at least A-1 and P-1 from S&P and Moody's, respectively, and, if rated by Duff, at least D-1 from Duff, or (B) six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of 3 the last day of the most recently completed Accounting Period if either of the conditions specified in clauses (A)(I) and (A)(II) is not satisfied. (c) The definition of "Duff" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Duff" shall mean Duff & Phelps Credit Rating Co. (d) The definition of "Eligible Receivable" in Section 1.01 of the Agreement is hereby amended by deleting the word "and" from the end of clause (m) thereof, by redesignating clause (n) thereof as clause (o) thereof, and by adding a new clause (n) thereof as follows: (n) is not a receivable with respect to which the Obligor is an Official Body, unless such receivable is a Medicaid Receivable; and (e) The definition of "Insurer" in Section 1.01 of the Agreement is hereby deleted in its entirety. (f) The definition of "Purchase Notice" in Section 1.01 of the Agreement is hereby amended by deleting the reference to "4.03(c)" and substituting in its place "4.04". (g) The definition of "Purchase Obligation" in Section 1.01 of the Agreement is hereby amended by deleting "(a)" in the reference to "2.01(a)". (h) The definition of "Servicer" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Servicer" shall mean the Seller, or any Person other than the Seller or its Affiliates which, 4 upon the termination of the Seller as Servicer, succeeds to the functions performed by the Seller as the servicer of the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), pursuant to a Complete Servicing Transfer and a Servicing Agreement. (i) The definition of "Servicing Agreement" in Section 1.01 of the Agreement is hereby amended to read in its entirety as follows: "Servicing Agreement" shall mean any agreement between the Buyer and any Person, other than the Seller or its Affiliates, which contains provisions concerning the servicing of the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), substantially similar to the provisions contained herein, including Sections 5.03, 5.04, 5.06, 6.01, 6.02, 6.04, 6.06 and 6.07 hereof, pursuant to which such Person performs servicing functions in respect of the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), and all agreements, instruments and documents attached thereto or delivered in connection therewith, as any of the same may from time to time be amended, supplemented or otherwise modified and in effect. (j) Section 1.01 of the Agreement is hereby amended by adding each of the following definitions in its proper alphabetical position: "Code" shall mean the Internal Revenue Code of 1986, or any successor statute thereto, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that is a member of a group of which the Seller is a member and which is treated as a single employer under Section 414 of the Code. "Medicaid Receivables Limit" shall mean, as of any date of determination, with respect to the Receivables, an amount equal to twenty percent (20%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of 5 the last day of the most recently completed Accounting Period. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Seller or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Plan" shall mean any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code that is maintained for employees of the Seller or any ERISA Affiliate. "Reportable Event" shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code). "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I Subtitle E of Title IV of ERISA. 2. AMENDMENT TO SECTION 3.01. Section 3.01 of the Agreement is hereby amended to read in its entirety as follows: 3.01. BUYER'S ALLOCATION. The Buyer's Allocation on any day of determination shall be a percentage, not in excess of 100%, equal to the quotient of (i) the Investment, divided by (ii) the positive result of (a) the aggregate Account Balances of all Eligible Receivables included in the Receivables Pool on the date of determination before giving effect to Collections on such date, less (b) the sum, without duplication, of (1) the aggregate amount by which the Account Balance of Eligible Receivables of each Obligor (calculated prior to any adjustment for unapplied cash received from such Obligor in the case of an Obligor 6 whose Receivables are outstanding under a Contract with PCS) exceeds the Concentration Limit for such Obligor, (2) the aggregate amount by which the Account Balance of Eligible Receivables that are Medicaid Receivables exceeds the Medicaid Receivables Limit and (3) the aggregate amount by which the Account Balance of Eligible Receivables owing under all Contracts with PCS exceeds (A) eighteen percent (18%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period so long as (I) PCS is a wholly-owned subsidiary of Eli Lilly and Company and (II) Eli Lilly and Company has short-term ratings of at least A-1 and P-1 from S&P and Moody's, respectively, and, if rated by Duff, at least D-1 from Duff, or (B) six percent (6%) of the aggregate Account Balance of the Eligible Receivables in the Receivables Pool outstanding as of the last day of the most recently completed Accounting Period if either of the conditions specified in clauses (A)(I) and (A)(II) is not satisfied. 3. AMENDMENT TO SECTION 6.06. The first sentence of Section 6.06(d) of the Agreement is hereby amended to read in its entirety as follows: The Buyer may, but shall have no obligation to, take any action or commence any proceeding to realize upon any Purchased Receivable, including any of the Medicaid Receivables (to the extent permitted by applicable Law). 4. AMENDMENTS TO SECTION 6.07. Section 6.07 of the Agreement is hereby amended as follows: (a) Clause (a) of Section 6.07 of the Agreement is hereby amended to read in its entirety as follows: (a) GENERAL. If at any time a Termination Event shall have occurred and be continuing, the Buyer may by notice in writing to the Seller, terminate the Seller's capacity as Servicer in respect of the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law)(such termination referred to herein as a "Complete Servicing Transfer"), notify Obligors of its interest in the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), 7 take control of each Permitted Lockbox in respect of Non-Medicaid Receivables and each Lockbox Account, and each Medicaid Collection Account (to the extent permitted by applicable Law), and exercise all other incidences of ownership in the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law). After a Complete Servicing Transfer, the Buyer may itself administer, service and collect the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), and in such event may retain the Servicer's Compensation for its own account, in any manner it sees fit, including, without limitation, by compromise, extension or settlement of such Purchased Receivables, including such Medicaid Receivables (to the extent permitted by applicable Law). Alternatively, the Buyer may engage Mellon Bank or unaffiliated contractors to perform all or any part of the administration, servicing and collection of the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law), and pay to Mellon Bank or such contractors all or a portion of the Servicer's Compensation in consideration thereof. (b) The fourth sentence of clause (c) of Section 6.07 of the Agreement is hereby amended to read in its entirety as follows: The Seller hereby irrevocably grants the Buyer or its designated agent, if any, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller all steps with respect to any Purchased Receivable, including any of the Medicaid Receivables (to the extent permitted by applicable Law), which the Buyer, in its sole discretion, may deem necessary or advisable to negotiate or otherwise realize on any right of any kind held or owned by the Seller or transmitted to or received by the Buyer or its designated agent (whether or not from the Seller or any Obligor) in connection with the Participation Interest in the Purchased Receivables, including the Medicaid Receivables (to the extent permitted by applicable Law). 8 (c) The third sentence of clause (e) of Section 6.07 of the Agreement is hereby amended to read in its entirety as follows: The Buyer shall be entitled to notify the Obligors of Purchased Receivables, including Medicaid Receivables (to the extent permitted by applicable Law), to make payments directly to the Buyer of amounts due thereunder at any time and from time to time following the occurrence of (i) a Termination Event, (ii) a Complete Servicing Transfer, or (iii) a violation by the Seller of the provisions of Section 6.08 hereof. 5. AMENDMENT TO SECTION 8.02. Section 8.02 of the Agreement is hereby amended by amending clause (f) thereof to read in its entirety as follows: (f) CONCENTRATION LIMIT. The Account Balances which are reflected in the computation of the Buyer's Allocation do not exceed (i) the applicable Concentration Limit, (ii) the Medicaid Receivables Limit, or (iii) the limit applicable in respect of PCS under Section 3.01(ii)(b)(3). 6. AMENDMENTS TO SECTION 9.01. Section 9.01 of the Agreement is hereby amended as follows: (a) Subclause (3) of clause (i) of Section 9.01 of the Agreement is hereby deleted in its entirety and subclause (4) of clause (i) thereof is hereby redesignated as subclause (3). (b) Clause (q) of Section 9.01 of the Agreement is hereby amended to read in its entirety as follows: The Seller shall use its best efforts to cause each Contract entered into after the Closing Date with any Notification Obligor in respect of Purchased Receivables to contain provisions permitting the assignment of payments thereunder pursuant to the terms of this Agreement. The Seller shall promptly (A) notify the Buyer of any Notification Obligor which becomes an Obligor after the Closing Date pursuant to a written contract or arrangement which purports to prohibit the 9 assignment of any rights of the Seller under such contract or arrangement without the consent of such Obligor, and (B) deliver, or cause to be delivered, to each Notification Obligor which becomes an Obligor after the Closing Date a Notice of Assignment and use its best efforts to obtain a Confirmation with respect thereto; PROVIDED that a Notice of Assignment need not be delivered to a Notification Obligor if consent to the assignment of the Participation Interest in the Receivables to the Buyer is included in the related Contract. (c) A new clause (t) of Section 9.01 of the Agreement is hereby added as follows: (t) COMPLIANCE WITH ERISA. (1) The Seller shall comply in all material respects with the applicable provisions of ERISA and (2) furnish to the Buyer (i) as soon as possible after, and in any event within thirty (30) days after any Responsible Officer of the Seller or any ERISA Affiliate either knows or has reason to know that, any Reportable Event has occurred that alone or together with any other Reportable Event could reasonably be expected to result in liability of the Seller to the PBGC in an aggregate amount exceeding $1,000,000, (A) a copy of the notice of such event required to be given to the PBGC or, if notice is not so required, a statement of an officer of the Seller having responsibility over its employee benefits (a "Benefits Officer") setting forth in reasonable detail the nature of such event and the action proposed to be taken with respect thereto and (B) in the event that a notice is required to be given to the PBGC, as soon as practicable after the reasonable request of the Buyer following receipt a copy of such notice, a statement of a Benefits Officer of the type described in (A) above, (ii) promptly after receipt thereof, a copy of any notice the Seller or any ERISA Affiliate may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a trustee to administer any Plan or Plans, (iii) within ten (10) days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a Plan, a copy of such notice, and, as soon as practicable after the reasonable request of the Buyer, a statement of a Benefits Officer setting forth 10 in reasonable detail the nature of such failure and the action proposed to be taken with respect thereto and (iv) promptly and in any event within thirty (30) days after receipt thereof by the Seller or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Seller or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, in each case within the meaning of Title IV of ERISA. 7. AMENDMENT TO SECTION 11.07. Section 11.07 of the Agreement is hereby amended by adding a new sentence immediately preceding the last sentence reading as follows: In the case of each change of Law affecting any right of, or remedy available to, the Buyer with respect to the Medicaid Receivables, or affecting the sale, assignment, payment or collection of, or the granting of a security interest in, the Medicaid Receivables, the Seller shall, upon the Buyer's request, enter into an amendment to this Agreement to reflect such change of Law upon such terms and conditions as are reasonably requested by the Buyer. III. REPRESENTATIONS AND WARRANTIES The Seller hereby repeats and reaffirms at the Amendment Effective Date the representations and warranties of the Seller contained in the Agreement with the same force and effect as though such representations and warranties had been made as of the Amendment Effective Date; PROVIDED, that all references in such representations and warranties to the Agreement shall, at the Amendment Effective Date, refer to the Agreement as amended by this Amendment. 11 IV. CONDITIONS PRECEDENT The occurrence of the Amendment Effective Date shall be subject to the fulfillment of each of the following conditions: (a) Except as otherwise consented to by the Buyer in writing, the Seller shall be in compliance with all the terms and provisions set forth in the Agreement on its part to be observed or performed and no Termination Event shall have occurred and be continuing under the Agreement. (b) The representations and warranties of the Seller contained in Section III of this Amendment shall be true and correct as if made on and as of the Amendment Effective Date. (c) The Buyer shall have received from the Seller favorable written opinions of counsel to the Seller as to such matters as the Buyer shall reasonably request. V. MISCELLANEOUS. 1. AGREEMENTS TO REMAIN IN FULL FORCE AND EFFECT. The Seller and the Buyer hereby agree that, except as amended hereby, the Agreement shall remain in full force and effect and is hereby ratified, adopted and confirmed in all respects. All references to the Agreement in any other agreement or document shall hereafter be deemed to refer to the Agreement as amended hereby. 2. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, when taken together, shall constitute but one and the same Amendment. 12 3. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 4. SEVERABILITY OF PROVISIONS. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the ability or enforceability of such provision in any other jurisdiction. 5. CAPTIONS. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their representative officers thereunder duly authorized as of the date first above written. ECKERD CORPORATION By:_____________________________ Authorized Signatory THREE RIVERS FUNDING CORPORATION By:_____________________________ Authorized Signatory 13 EX-10.20 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 31, 1994 between ECKERD CORPORATION, a Delaware corporation (the "Company"), and the Eckerd Corporation Profit Sharing Plan, a trust organized under the laws of the state of Florida, for which NationsBank of Georgia, N.A. acts as trustee (the "Holder"). WHEREAS, the Holder is, at the date hereof, the owner of shares the Company's issued and outstanding shares of common stock, par value $.01 per share (the "Common Stock"), and the Company has irrevocably committed to deposit to the Holder an additional 128,000 shares of Common Stock (the "Committed Shares") during the period beginning January 28, 1995 and ending on January 31, 1997; and WHEREAS, the parties hereto desire to enter into this Agreement which sets forth the terms of certain registration rights applicable to the Registrable Securities (as defined below); NOW, THEREFORE, upon the premises and the mutual promises herein contained, and for good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties agree as follows: 1. Certain Definitions. As used in this Agreement, the following initially capitalized terms shall have the following meanings: (a) "Affiliate" means, with respect to any person, any other person who, directly or indirectly, is in control of, is controlled by or is under common control with the former person. (b) "Holder" means the Eckerd Corporation Profit Sharing Plan, which is the record holder of Registrable Securities. The term "Holder" does not include any Affiliate, transferee or assignee of the Eckerd Corporation Profit Sharing Plan, but does include a successor by operation of law to the Eckerd Corporation Profit Sharing Plan. (c) "Registration Expenses" means any and all expenses incident to the Company's performance or compliance with its obligations under this Agreement in connection with any registration of Registrable Securities pursuant to this Agreement including, without limitation, the following: (i) SEC filing fees; (ii) the fees, disbursements and expenses of the Company's counsel(s) and accountants in connection with the registration of the Registrable Securities to be disposed of under the Securities Act; (iii) the reasonable fees and disbursements of one counsel retained by the Holder in connection with a registration under Section 2 hereof; (iv) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Holder, underwriters and dealers and all expenses incidental to delivery of the Registrable Securities; (v) the cost of producing blue sky or legal investment memoranda; (vi) all expenses in connection with the qualification of the Registrable Securities to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters or the Holder in connection with such qualification and in connection with any blue sky and legal investments surveys; (vii) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Registrable Securities to be disposed of; (viii) all security engraving and security printing expenses, (ix) all fees and expenses payable in connection with the listing of the Registrable Securities on each securities exchange or inter-dealer quotation system on which a class of common equity securities of the Company is then listed and (x) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any. (d) "Registrable Securities" means the shares of Common Stock (as presently constituted) identified in Schedule A attached hereto and the Committed Shares (as and when deposited with the Plan), any stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged, and any other securities issued to holders of such Common Stock (or such shares into which or for which such shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, stock dividend, merger, consolidation or similar transactions or events, provided that once issued, any such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with the plan of distribution set forth in such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144, (iii) such securities are held by a person or entity other than the Holder, (iv) new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company to the Holder and the subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (v) such securities shall have ceased to be outstanding or (vi) the Termination Date shall occur. (e) "Rule 144" means Rule 144 promulgated under the Securities Act, or any successor rule of similar effect. (f) "SEC" means the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (g) "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute. (h) "Termination Date" means December 31, 1998 or such later date as mutually agreed in writing by the parties to this Agreement. 2. Demand Registration. (a) At any time prior to the Termination Date, upon written notice from the Holder in the manner set forth in Section 9(g) hereof requesting that the Company effect the registration under the Securities Act of any or all of the Registrable Securities held by the Holder, which notice shall specify the intended method or methods of disposition of such Registrable Securities, the Company shall use its best efforts to effect, in the manner set forth in Section 4, the registration under the Securities Act of such Registrable Securities for disposition in accordance with the intended method or methods of disposition stated in such request, provided that: (i) if, within 5 business days of receipt of a registration request pursuant to this Section 2(a), the Company is advised in writing (with a copy to the Holder requesting registration) by the managing underwriter of the proposed offering described below that, in such firm's good faith opinion, a registration at the time and on the terms requested would materially and adversely affect any immediately planned offering of securities by the Company that had been contemplated by the Company prior to receipt of notice requesting registration pursuant to this Section 2(a) (a "Transaction Blackout"), the Company shall not be required to effect a registration pursuant to this Section 2(a) until the earliest of (A) the abandonment of such offering, (B) 90 days after the completion of such offering, (C) the termination of any "hold back" period obtained by the underwriter(s) of such offering from any person in connection therewith or (D) 210 days after receipt by the Holder requesting registration of the managing underwriter's written opinion referred to above in this subsection (i); (ii) if, while a registration request is pending pursuant to this Section 2(a), the Company has determined in good faith that (A) the filing of a registration statement would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential or (B) the Company then is unable to comply with SEC requirements applicable to the requested registration, the Company shall not be required to effect a registration pursuant to this Section 2(a) until the earlier of (1) the date upon which such material information is otherwise disclosed to the public or ceases to be material or the Company is able to so comply with applicable SEC requirements, as the case may be, and (2) 90 days after the Company makes such good-faith determination; (iii) the Company shall not be obligated to file a registration statement relating to a registration request pursuant to this Section 2(a) within a period of six months after the effective date of any other registration statement of the Company, whether such registration statement was effected pursuant to this Section 2(a) or otherwise (other than registration statements on Form S-4 or Form S-8 or any succesor or similar forms); and (iv) the Company shall not be obligated to effect more than two registration statements in any calendar year pursuant to requests made under this Section 2(a). (b) Notwithstanding any other provision of this Agreement to the contrary, (i) a registration requested by a Holder pursuant to this Section 2 shall not be deemed to have been effected (and, therefore, not requested for purposes of subsection 2(a)), (A) unless the registration statement filed in connection therewith has become effective, (B) if after it has become effective such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by the Holder or (C) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied (other than by reason of some act or omission by such Holder) or waived by the underwriters; and (ii) a registration requested by a Holder pursuant to Section 2(a) and later withdrawn at the request of such Holder shall be deemed to have been effected for purposes of Section 2(a), whether withdrawn by the Holder prior to or after the effectiveness of such requested registration, unless (x) such request is withdrawn by the Holder prior to the filing of a registration statement with the SEC and (y) the Holder had not made and withdrawn a registration request in the prior twelve-month period. (c) In the event that any registration pursuant to this Section 2 shall involve, in whole or in part, an underwritten offering, the Holder shall have the right to designate an underwriter reasonably satisfactory to the Company as the lead managing underwriter of such underwritten offering and the Company shall have the right to designate one underwriter reasonably satisfactory to the Holder as a co-manager of such underwritten offering. (d) The Company shall have the right to cause the registration of additional securities for sale for the account of any person (including without limitation the Company and the parties to the Registration Rights Agreement dated as of April 30, 1986, as amended (the "1986 Registration Rights Agreement"), among the Company, the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Group (as such terms are defined therein)) in any registration of Registrable Securities requested by a Holder pursuant to Section 2(a); provided that the Company shall not have the right to cause the registration of such additional securities which are not Registrable Securities in a registration involving an underwritten offering if the Company and the Holder is advised in writing by the managing underwriter that, in such firm's opinion, the number of securities requested to be registered exceeds the number of securities which can be sold in an orderly manner in such underwritten offering within a price range acceptable to the Holder and the Company. To the extent so advised by such managing underwriter of the number of securities which can be sold in such underwritten offering, the Company will include in such registration (i) first, all Registrable Securities requested to be included in such registration by the Holder and (ii) second, the additional securities that the Company proposes to include in such registration. 3. Expenses. The Company agrees to pay all Registration Expenses in connection with any registration requested pursuant to Section 2(a) hereof, provided that the Holder will pay all underwriting discounts and commissions and transfer taxes, if any. 4. Registration and Qualification. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2 hereof, the Company shall: (a) prepare and file a registration statement under the Securities Act relating to the Registrable Securities to be offered as soon as practicable, but in no event later than 60 days after the date notice is given, and use its best efforts to cause the same to become effective within 120 days after the date notice is given; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for such period as the Holder shall request (which in no event shall exceed 120 days) and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during such period; (c) furnish to the Holder and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as the Holder or such underwriter may reasonably request in order to facilitate the public sale of the Registrable Securities; (d) use its best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as the Holder or any underwriter of such Registrable Securities shall request, and use its best efforts to obtain all appropriate registrations, permits and consents required in connection therewith, and do any and all other acts and things which may be necessary or advisable to enable the Holder or any such underwriter to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement; provided that the Company shall not for any such purpose be required to register or qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) (i) use its best efforts to furnish an opinion of counsel for the Company addressed to the underwriters and the Holder and dated the date of the closing under the underwriting agreement (if any) (or if such offering is not underwritten, dated the effective date of the registration statement), and (ii) use its best efforts to furnish a "cold comfort" letter addressed to the underwriters and to the Holder, if permissible under applicable accounting practices, and signed by the independent public accountants who have audited the Company's financial statements included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Holder may reasonably request; (f) immediately notify the Holder in writing (i) at any time when a prospectus relating to a registration pursuant to Section 2 hereof is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) of any request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case (i) or (ii) at the request of the Holder, prepare and furnish to the Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (g) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the Company's first quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (h) use its best efforts to list all such Registrable Securities covered by such registration on each securities exchange and inter-dealer quotation system on which a class of common equity securities of the Company is then listed; and (i) furnish unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by the Holder or the underwriters. In connection with any registration of Registrable Securities being effected pursuant to Section 2 hereof, the Company may require the Holder to furnish the Company with such information regarding the Holder and the distribution of the securities covered by such registration as the Company may from time to time reasonably request in writing. The Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in clause (f) of this Section 4, the Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until the Holder's receipt of the copies of the supplemented or amended prospectus contemplated by clause (f) of this Section 4 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in the Holder's possession of the prospectus relating to such Registrable Securities which was in effect prior to such amendment or supplement. In the event the Company shall give any such notice, the period mentioned in clause (b) of this Section 4 shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to clause (f) of this Section 4 to and including the date on which the Holder has received the copies of the supplemented or amended prospectus contemplated by clause (f) of this Section 4. 5. Underwriting; Due Diligence. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under Section 2 of this Agreement, the Company shall enter into an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contribution substantially to the effect and to the extent provided in Section 6 hereof and the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 4(e) hereof. The Holder shall be a party to any such underwriting agreement. Such underwriting agreement may contain such representations and warranties by the Holder as are customarily contained in underwriting agreements with respect to secondary distributions. The Holder agrees that it may not participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Registrable Securities on the basis provided in any underwriting arrangements approved by the Company and the Holder and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, the Company shall give the Holder and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified the Company's financial statements as shall be necessary, in the opinion of the Holder and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 6. Indemnification and Contribution. (a) In the event of any registration of Registrable Securities under the Securities Act pursuant to Section 2 of this Agreement, the Company agrees to indemnify and hold harmless, to the extent permitted by law, the Holder, its officers and directors, each underwriter of Registrable Securities so offered and each person, if any, who controls the Holder or any such underwriters within the meaning of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent) to which they or any of them may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) shall arise out of, or shall be based upon (a) any untrue statement or alleged untrue statement of a material fact contained in the registration statement under which such Registrable Securities were registered under the Securities Act or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Company shall have filed with the SEC any amendment thereof or supplement thereto), if used prior to the effective date of such registration statement, or contained in the prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Company shall have filed with the SEC any amendment thereof or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein in the light of the circumstances under which they were made, not misleading or (c) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company will reimburse the Holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, that the Company shall not be liable to the Holder or any such director, officer, underwriter or controlling person in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment thereof or supplement thereto or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Holder or any such director, officer, underwriter or controlling person, specifically stating that it is for use in the preparation thereof; and provided further, that the Company will not be liable to any person who participates as an underwriter in the offering or sale of Registrable Securities, if any, or any other person, if any, who controls such underwriter within the meaning of the Securities Act, under the indemnity agreement in this Section 6(a) with respect to any preliminary prospectus or the final prospectus or the final prospectus as amended or supplemented as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter or controlling person results from the fact that such underwriter sold Registrable Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, if the Company has previously furnished copies thereof to such underwriter and such final prospectus, as then amended or supplemented, has corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder or any director, officer, underwriter or controlling person and shall survive the transfer of such Registrable Securities by the Holder. (b) As a condition to including any Registrable Securities in any registration statement filed in accordance with Section 2 hereof and by exercising its registration rights under this Agreement, the Holder agrees to indemnify and hold harmless (in the same manner and to the same extent as set forth in clause (a) of this Section 6) the Company and its directors and officers and each person controlling the Company within the meaning of the Securities Act (and if requested by the underwriters, each underwriter who participates in the offering or sale of such Registrable Securities covered by the registration statement and each person, if any, who controls such underwriter within the meaning of the Securities Act but subject to the same provided further clause set forth in clause (a) of this Section 6 with respect to the underwriter's failure to deliver a final prospectus) with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives by or on behalf of the Holder specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company (or any underwriter, if requested) or any of its directors, officers, or controlling persons (or controlling persons of the underwriters, if requested) and shall survive the transfer of such Registrable Securities by the Holder. (c) As soon as possible after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding clauses of this Section 6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; provided that the indemnifying party shall not be entitled to so participate or so assume the defense if, in the indemnified party's reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists in respect of such claim. After notice from the indemnifying party to such indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; and provided further that the Holder and its officers, directors, and controlling persons or the Company and its officers, directors and controlling persons, as the case may be, shall have the right to employ one counsel to represent such indemnified parties if, in such indemnified parties' reasonable judgment, a conflict of interest between the indemnified parties and the indemnifying parties exists in respect of such claim, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party; and provided further that if, in the reasonable judgment of any of the indemnified parties, a conflict of interest between such indemnified parties and any other indemnified parties exists in respect of such claim, such indemnified parties shall be entitled to additional counsel or counsels and the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Indemnification similar to that specified in the preceding clauses of this Section 6 (with appropriate modifications) shall be given by the Company and the Holder of Registrable Securities with respect to any required registration or other qualification of securities under any state securities and blue sky laws. (e) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or (b) of this Agreement, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in Section 6(a) or (b), in such proportion as shall be appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the indemnifying party on the one hand or the indemnified party on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(e) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 6(e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 6(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided in Section 6(c) if the indemnifying party has assumed the defense of any such action in accordance with the provisions thereof) which is the subject of this Section 6(e). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Promptly after receipt by an indemnified party under this Section 6(e) of notice of the commencement of any action against such party in respect of which a claim for contribution may be made against an indemnifying party under this Section 6(e), such indemnified party shall notify the indemnifying party in writing of the commencement thereof if the notice specified in Section 6(c) has not been given with respect to such action; provided that the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise under this Section 6(e), except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. Notwithstanding anything in this Section 6(e) to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Section 6(e) to contribute any amount in excess of the proceeds received by such indemnifying party from the sale of Registrable Securities in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. 7. Holdback. (a) The Holder agrees, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of (including any sale pursuant to Rule 144) or otherwise dispose of any Registrable Securities or any other equity securities of the Company or any securities convertible into or exchangeable or exercisable for any equity security of the Company , during the 7 days prior to and the 120 days after any underwritten registration pursuant to Section 2 has become effective (or such shorter period as may be required by the underwriter, subject to Section 7(b) hereof), except as part of such underwritten registration. Notwithstanding the foregoing sentence, the Holder shall be entitled to sell during the foregoing period securities in a private sale. The Company may legend and may impose stop transfer instructions on any certificate evidencing Registrable Securities relating to the restrictions provided for in this Section 7. (b) The Holder agrees that, if so required by the Company or any managing underwriter of an offering of Common Stock which is being effected pursuant to the exercise of the demand or incidental registration rights contained in the 1986 Registration Rights Agreement, that the Holder will not effect any public sale or distribution (including any sale pursuant to Rule 144) of any Registrable Securities or any other equity securities of the Company or any securities convertible into or exchangeable or exercisable for any equity security of the Company during the 7 days prior to and 120 days after the effective date of such registration statement filed pursuant to the 1986 Registration Right Agreement; provided that the Holder will not be required to comply with this Section 7(b) with respect to any registration statement effected at a time when the Holder owns 1% or less of the shares of Common Stock then outstanding. 8. No Transfer of Registration Rights or Assignments. (a) The Holder may not transfer all or any portion of its rights under this Agreement to any Affiliate, transferee or assignee, provided that the Holder may transfer all of its rights under this Agreement to its successor by operation of law. (b) Neither the Company nor the Holder may assign their rights under this Agreement. The Company may not delegate its obligations under this Agreement. 9. Miscellaneous. (a) Amendment. This Agreement may be amended only by a written instrument duly executed by an authorized officer of each of the parties. (b) Waivers, etc. No failure or delay on the part of either party (or the intended third-party beneficiaries referred to herein) in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by an authorized officer of each of the parties, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (c) Severability. If any term or provision of this Agreement held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and each of the parties shall use its best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. (d) Further Assurances. Subject to the specific terms of this Agreement, each of the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. (e) Entire Agreement. This Agreement contains the final and complete understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. The paragraph headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. (f) Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall be one and the same instrument. (g) Notices. Unless expressly provided herein, all notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to be duly given (i) when personally delivered or (ii) if mailed registered or certified mail, postage prepaid, return receipt requested, on the date the return receipt is executed or the letter refused by the addressee or its agent or (iii) if mailed by first class mail, on the fifth business day after being deposited in the mail, postage prepaid or (iv) if sent by overnight courier which delivers only upon the signed receipt of the addressee, on the date the receipt acknowledgment is executed or refused by the addressee or its agent or (v) if telecopied, when receipt acknowledged: (i) if to the Company, to Eckerd Corporation 8333 Bryan Dairy Road Largo, Florida 34647 Attention: General Counsel (ii) if to the Holder, to Eckerd Corporation Profit Sharing Plan c/o NationsBank of Georgia, N.A. Institutional Administrative Services 600 Peachtree Street 7 Plaza South Atlanta, Georgia 30308 (h) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF. (i) Termination. This Agreement shall terminate, and thereby become null and void, on the Termination Date; provided that the provisions of Section 6 shall survive the termination of this Agreement. IN WITNESS WHEREOF, the Company and the Holder have caused this Agreement to be duly executed by their authorized representative as of the date first above written. ECKERD CORPORATION By /s/ Francis A. Newman Name: Francis A. Newman Title: President ECKERD CORPORATION PROFIT SHARING PLAN By NationsBank of Georgia, N.A., in its capacity as trustee By /s/ M. Carole Trizzino Name: M. Carole Trizzino Title: Vice President SCHEDULE A REGISTRABLE SECURITIES Number of Shares Certificate Numbers of Common Stock 970 161,522 1621 1,248,000 3176 64,000 EX-10.21 6 GUARANTEE AGREEMENT dated as of June 14, 1993, as amended and restated as of August 3, 1994, among each subsidiary party hereto (individually, a Guarantor and collectively, the Guarantors ) of Eckerd Corporation, a Delaware corporation (the Borrower ), and CHEMICAL BANK, a New York banking corporation ( Chemical Bank ), as collateral agent (the Collateral Agent ) for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the Credit Agreement ), among the Borrower, the financial institutions party thereto, as lenders (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., a national banking association ( NationsBank ), as managing agents and as swingline lenders (in such latter capacity, each a Swingline Lender ), and Chemical Bank, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders, the Swingline Lenders and the Fronting Banks. The Lenders and the Swingline Lenders have agreed to make Loans and Swingline Loans, respectively, to the Borrower, and the Fronting Banks have agreed to issue Letters of Credit and to originate Bankers' Acceptances for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances are conditioned on, among other things, the execution and delivery by the Guarantors of a guarantee agreement in the form hereof. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. Guarantee. Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit and any Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under the Credit Agreement and the other Loan Documents to which it is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being collectively called the Obligations ). Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligation. SECTION 2. Obligations Not Waived. To the fullest extent permitted by applicable law, each Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (a) the failure of the Collateral Agent or any other Secured Party to assert any claim or demand or to enforce any right or remedy against the Borrower or any other Guarantor under the provisions of this Agreement, any Loan Document or otherwise; (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of this Agreement, any other Loan Document, any guarantee or any other agreement, including with respect to any other Guarantor under this Agreement; (c) the release of any security held by the Collateral Agent or any other Secured Party for the Obligations or any of them; or (d) the failure of the Collateral Agent or any other Secured Party to exercise any right or remedy against any other Guarantor or guarantor of the Obligations. SECTION 3. Security. Each of the Guarantors authorizes the Collateral Agent and each of the other Secured Parties, in accordance with the terms and subject to the conditions set forth in the Security Documents to which such Guarantor is a party, to (a) take and hold security for the payment of this guarantee or the Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as they in their sole discretion may determine and (c) release or substitute any one or more endorsees, other guarantors or other obligors. SECTION 4. Guarantee of Payment. Each Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Collateral Agent or any other Secured Party to any of the security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Collateral Agent or any other Secured Party in favor of the Borrower or any other Person. SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Collateral Agent or any other Secured Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document, any other guarantee or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations). SECTION 6. Defenses of Borrower Waived. To the extent permitted by applicable law, each of the Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than final and indefeasible payment in full in cash of the Obligations. The Collateral Agent and the other Secured Parties may, at their election, in accordance with the terms and subject to the conditions set forth in the Security Documents to which such Guarantor is a party, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, or exercise any other right or remedy available to them against the Borrower or any other Guarantor, or any security, without affecting or impairing in any way the liability of such Guarantor hereunder except to the extent the Obligations have been fully, finally and indefeasibly paid. Each of the Guarantors waives any defense arising out of any such election even though such election operates to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other Guarantor, as the case may be, or any security. SECTION 7. Continued Effectiveness. Each Guarantor further agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by the Collateral Agent or any other Secured Party upon the bankruptcy or reorganization of the Borrower, any other Guarantor or otherwise. SECTION 8. Subrogation. In furtherance of the foregoing and not in limitation of any other right that the Collateral Agent or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will, upon receipt of written demand by the Collateral Agent, forthwith pay, or cause to be paid, to the Collateral Agent or such other Secured Party as is designated thereby in cash the amount of such unpaid Obligations, and thereupon the Collateral Agent or the other Secured Party that shall have received any part of such payment shall, assign (except to the extent that such assignment would render such Guarantor a creditor of the Borrower within the meaning of Section 547 of Title 11 of the United States Code as now in effect or hereafter amended or any comparable provision of any successor statute) the amount of the Obligations owed to it and paid by such Guarantor pursuant to this guarantee to such Guarantor, such assignment to be pro tanto to the extent to which the Obligations in question were discharged by such Guarantor, or make such other disposition thereof as such Guarantor shall direct (all without recourse to the Collateral Agent or such other Secured Party, and without any representation or warranty by the Collateral Agent or such other Secured Party); provided, however, that until the indefeasible payment in full of all the Obligations to the Collateral Agent and the other Secured Party, none of the Guarantors shall have any right by way of subrogation or otherwise as a result of the payment of any sums hereunder. If (a) any Guarantor shall make payment to the Collateral Agent or any Secured Party of all or any part of the Obligations, (b) all the Obligations and all other amounts payable under this Agreement shall be indefeasibly paid in full and (c) the Commitments and the LC/BA Commitment shall have expired or terminated, the Collateral Agent will, at such Guarantor's request, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Guarantor of an interest in the Obligations resulting from such payment by the Guarantor. SECTION 9. Information. Each of the Guarantors assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that none of the Collateral Agent and the other Secured Parties will have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 10. Subordination. Upon payment by any Guarantor of any sums to the Collateral Agent or any other Secured Party, as provided above, all rights of such Guarantor against the Borrower, arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations to the Collateral Agent and the other Secured Parties; provided, however, that to the extent any right of subrogation that such Guarantor may have pursuant to the Credit Agreement or otherwise would render such Guarantor a creditor of the Borrower within the meaning of Section 547 of Title 11 of the United States Code as now in effect or hereafter amended, or any comparable provision of any successor statute, such Guarantor hereby irrevocably waives such right of subrogation. SECTION 11. Representations and Warranties. Each of the Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Credit Agreement are true and correct. SECTION 12. Termination or Release. (a) The guarantees made hereunder shall terminate when all the Obligations have been indefeasibly paid in full and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, the LC/BA Exposure has been reduced to zero and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) Upon the sale of all or substantially all of the assets or all of the capital stock of any Guarantor in a manner that is permitted by the Credit Agreement, the guarantees of such Guarantor made hereunder shall automatically terminate. SECTION 13. Binding Agreement; Assignments. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Guarantors that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to any Guarantor when a counterpart hereof executed on behalf of such Guarantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Guarantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Guarantor, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Guarantor shall have the right to assign its rights hereunder or any interest herein or in the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 14. Waivers; Amendment. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Guarantors and the Collateral Agent, with the prior written consent of the Required Lenders. SECTION 15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 16. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 10.01 of the Credit Agreement. All communications and notices hereunder to each Guarantor shall be given to it at its address set forth on Schedule I hereto with a copy to the Borrower. SECTION 17. Survival of Agreement; Severability. (a) All covenants, agreements, representations and warranties made by the Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans, the making by the Swingline Lenders of the Swingline Loans and the issuance of the Letters of Credit and the origination of the Bankers' Acceptances by the Fronting Bank, and the execution and delivery to the Lenders and the Swingline Lenders of the Notes evidencing such loans, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or Swingline Loan or any other fee or amount payable under any this Agreement or any other Loan Document is outstanding and unpaid or the LC/BA Exposure does not equal zero and as long as the Commitments and the LC/BA Commitment have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective as provided in Section 13. SECTION 19. Rules of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 20. Jurisdiction; Consent to Service of Process. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Guarantor or its properties in the courts of any jurisdiction. (b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 16. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 21. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section. SECTION 22. Additional Guarantors. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary that was not in existence or not a Subsidiary on the date hereof or that was previously an Inactive Subsidiary is required to enter into this Agreement as a Guarantor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and a subsidiary of an instrument in the form of Annex 1, such subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. Pursuant to paragraph (q) of Article VIII of the Credit Agreement, an Event of Default will occur if any Person (referred to herein as a Parent Guarantor ) becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails, among other things, to enter into this Agreement (or a similar agreement) as a Guarantor. Upon execution and delivery, after the date hereof, by the Collateral Agent and a Parent Guarantor of an instrument in the form of Annex 2, such Parent Guarantor shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require the consent of any Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. SECTION 23. Right of Setoff. If an Event of Default shall have occurred and be continuing and the Administrative Agent shall have declared, or the Required Lenders shall have requested the Administrative Agent to declare, the Loans and the Swingline Loans immediately due and payable pursuant to Article VIII of the Credit Agreement, each Lender (including the Fronting Banks in their capacity as such) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender to or for the credit or the account of any Guarantor against any of and all the obligations of such Guarantor now or hereafter existing under the Credit Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Credit Agreement or any such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. SECTION 24. Impairment of Subrogation Rights. Upon the occurrence and during the continuance of an Event of Default the Collateral Agent may elect to nonjudicially or judicially foreclose against any real or personal property security it holds for the Obligations or any part thereof, or accept an assignment of any such security in lieu of foreclosure or compromise or adjust any part of the Obligations, or make any other accommodation with the Borrower or any Guarantor, or exercise any other remedy against the Borrower or any Guarantor or any security, in accordance with and subject to the provisions of the Security Documents. No such action by the Collateral Agent will release or limit the liability of any Guarantor to the Collateral Agent, even if the effect of that action is to deprive a Guarantor of the right to collect reimbursement from the Borrower for any sums paid to the Collateral Agent. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD TOBACCO COMPANY, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President E.I.T., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE HOLDINGS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CHEMICAL BANK, as Collateral Agent, by /s/ Meredith Vanden Handel Name: Meredith Vanden Handel Title: Vice President Annex 1 to the Guarantee Agreement SUPPLEMENT NO. dated as of , to the Guarantee Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Guarantee Agreement"), among each subsidiary party thereto of Eckerd Corporation, a Delaware corporation (the "Borrower"), and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guarantee Agreement and the Credit Agreement. C. Certain Subsidiaries of the Borrower have entered into the Guarantee Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary of the Borrower that was not in existence or not a Subsidiary of the Borrower on the date thereof or that was previously an Inactive Subsidiary is required to enter into the Guarantee Agreement as a Guarantor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Section 22 of the Guarantee Agreement provides that additional subsidiaries of the Borrower may become Guarantors under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Guarantor") is a subsidiary of the Borrower and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Guarantee Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 22 of the Guarantee Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Guarantor" in the Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 16 of the Guarantee Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below, which supplements Schedule I to the Guarantee Agreement, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: Annex 2 to the Guarantee Agreement SUPPLEMENT NO. dated as of , to the Guarantee Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Guarantee Agreement"), among each subsidiary party thereto of Eckerd Corporation, a Delaware corporation (the "Borrower"), and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guarantee Agreement and the Credit Agreement. C. Certain Subsidiaries of the Borrower have entered into the Guarantee Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to paragraph (q) of Article VIII of the Credit Agreement, an Event of Default will occur if any Person (referred to herein as a "Parent Guarantor") becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails, among other things, to enter into the Guarantee Agreement (or a similar agreement) as a Guarantor. Section 22 of the Guarantee Agreement provides that any Parent Guarantor may become a Guarantor under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Guarantor") is a Parent Guarantor of the Borrower and is executing this Supplement in accordance with the provisions of the Credit Agreement to become a Guarantor under the Guarantee Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 22 of the Guarantee Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Guarantor" in the Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 16 of the Guarantee Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below, which supplements Schedule I to the Guarantee Agreement, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: EX-10.22 7 INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of June 14, 1993, as amended and restated as of August 3, 1994, among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each subsidiary of the Borrower party hereto (collectively, the "Guarantors"), and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the Credit Agreement ), among the Borrower, the financial institutions party thereto, as lenders (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a Swingline Lender ), and Chemical Bank, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders, the Swingline Lenders and Fronting Banks. The Lenders and the Swingline Lenders have agreed to make Loans and Swingline Loans, respectively, to the Borrower, and the Fronting Banks have agreed to issue Letters of Credit and originate Bankers' Acceptances for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The Guarantors have guaranteed such Loans and such Swingline Loans and the other Obligations (as defined in the Guarantee Agreement) of the Borrower under the Credit Agreement pursuant to the Guarantee Agreement (for purposes of this Agreement, the Guarantees ) and, in certain cases, have granted Liens on and security interests in certain of their assets to secure such Loans, such Swingline Loans and such Guarantees. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances are conditioned on, among other things, the execution and delivery by the Borrower and the Guarantors of an agreement in the form hereof. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. Accordingly, the Borrower, each Guarantor and the Collateral Agent agree as follows: SECTION 1. Indemnity and Subrogation. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 3), the Borrower agrees that (a) in the event a payment shall be made by any Guarantor under the Guarantee Agreement, the Borrower shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor shall be sold pursuant to any mortgage, security agreement or similar instrument or agreement to satisfy a claim of any Lender, any Swingline Lender or either Fronting Bank, the Borrower shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. SECTION 2. Contribution and Subrogation. Each Guarantor agrees (subject to Section 3) that in the event a payment shall be made by any Guarantor under the Guarantee Agreement or assets of any Guarantor shall be sold pursuant to any mortgage, security agreement or similar instrument or agreement to satisfy a claim of any Lender, any Swingline Lender or either Fronting Bank and such Guarantor (the Claiming Guarantor ) shall not have been indemnified by the Borrower as provided in Section 1, each other Guarantor (a Contributing Guarantor ) shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, multiplied by a fraction of which the numerator shall be the net worth of the Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof. Any Contributing Guarantor making any payment to a Claiming Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Guarantor under Section 1 to the extent of such payment. SECTION 3. Subordination. Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations; provided, however, that to the extent any right of indemnity, contribution or subrogation that a Guarantor might have pursuant to this Agreement or otherwise would render such Guarantor a creditor of the Borrower within the meaning of Section 547 of Title 11 of the United State Code as now in effect or hereafter amended or any comparable provision of any successor statute, such Guarantor hereby irrevocably waives such right of indemnity, contribution or subrogation. No failure on the part of the Borrower or any Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to any Guarantee, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor under each such Guarantee. SECTION 4. Termination. This Agreement shall survive and be in full force and effect so long as any Obligation is outstanding and has not been indefeasibly paid in full in cash, and so long as the LC/BA Exposure has not been reduced to zero or any of the Commitments or the LC/BA Commitment under the Credit Agreement have not been terminated, and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor or otherwise. SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. No Waiver. No failure on the part of the Collateral Agent or any Guarantor to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Collateral Agent or any Guarantor preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. None of the Collateral Agent and the Guarantors shall be deemed to have waived any rights hereunder unless such waiver shall be in writing and signed by such parties. SECTION 7. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 16 of the Guarantee Agreement and addressed as specified in such Section 16. SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the parties that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. None of the Borrower and the Guarantors may assign or transfer any of its rights or obligations hereunder (and any such attempted assignment or transfer shall be void) without the prior written consent of the Required Lenders. SECTION 9. Survival of Agreement; Severability. (a) All covenants and agreements made by each of the Borrower and each Guarantor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement shall be considered to have been relied upon by the Collateral Agent, the other Secured Parties and each Guarantor and shall survive the making by the Lenders of the Loans, the making by the Swingline Lenders of the Swingline Loans, the issuance of the Letters of Credit and the origination of the Bankers' Acceptances by the Fronting Banks, and the execution and delivery to the Lenders of the Notes and to the Swingline Lenders of the Swingline Notes evidencing such loans and shall continue in full force and effect as long as the principal of or any accrued interest on any Notes or any Swingline Notes or any other fee or amount payable under any Note, Swingline Note, Letter of Credit or Bankers' Acceptance or this Agreement or, without duplication of the foregoing, under any of the other Loan Documents or under the Credit Agreement is outstanding and unpaid or the LC/BA Exposure does not equal zero and as long as the Commitments and the LC/BA Commitment have not been terminated. (b) In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Agreement shall be effective with respect to any Guarantor when a counterpart bearing the signature of such Guarantor shall have been delivered to the Collateral Agent. SECTION 11. Rules of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 12. Jurisdiction; Consent to Service of Process. (a) Each of the Borrower and each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto agrees that it will not institute or seek to institute any action or proceeding arising out of or relating to this Agreement (other than an action or proceeding seeking enforcement of a judgment) in any forum other than a New York State court or Federal court of the United States of America sitting in New York City. (b) Each of the Borrower and each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court of the United States of America sitting in New York. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 13. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section. SECTION 14. Additional Guarantors. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary that was not in existance or not a Subsidiary on the date hereof or that was previously on Inactive Subsidiary is required to enter into this Agreement as a Guarantor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and a subsidiary of the Borrower of an instrument in the form of Annex 1, such subsidiary of the Borrower shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor hereunder. Pursuant to paragraph (q) of Article VIII of the Credit Agreement, an Event of Default will occur if any Person (referred to herein as a Parent Guarantor ) becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails, among other things, to enter into this Agreement (or a similar agreement) as a Guarantor. Upon execution and delivery, after the date hereof, by the Collateral Agent and a Parent Guarantor of an instrument in the form of Annex 2, such Parent Guarantor shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require the consent of any Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first appearing above. ECKERD CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD TOBACCO COMPANY, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President E.I.T., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE HOLDINGS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CHEMICAL BANK, as Collateral Agent, by Meredith Vanden Handel Name: Meredith Vanden Handel Title: Vice President Annex 1 to the Indemnity, Subrogation and Contribution Agreement SUPPLEMENT NO. dated as of , to the Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each subsidiary of the Borrower party thereto (collectively, the "Guarantors") and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Indemnity, Subrogation and Contribution Agreement and the Credit Agreement. C. Certain Subsidiaries of the Borrower have entered into the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Bank to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary of the Borrower that was not in existence or not a Subsidiary of the Borrower on the date thereof or that was previously an Inactive Subsidiary is required to enter into the Indemnity, Subrogation and Contribution Agreement as a Guarantor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Section 14 of the Indemnity, Subrogation and Contribution Agreement provides that additional subsidiaries of the Borrower may become Guarantors under the Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Guarantor") is a subsidiary of the Borrower and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 14 of the Indemnity, Subrogation and Contribution Agreement, the New Guarantor by its signature below becomes a Guarantor under the Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby agrees to all the terms and provisions of the Indemnity, Subrogation and Contribution Agreement applicable to it as a Guarantor thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Guarantor. The Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Indemnity, Subrogation and Contribution Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature, which supplements Schedule I to the Guarantee Agreement, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Indemnity, Subrogation and Contribution Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: Annex 2 to the Indemnity, Subrogation and Contribution Agreement SUPPLEMENT NO. dated as of , to the Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each subsidiary of the Borrower party thereto (collectively, the "Guarantors") and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Indemnity, Subrogation and Contribution Agreement and the Credit Agreement. C. Certain Subsidiaries of the Borrower have entered into the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to paragraph (q) of Article VIII of the Credit agreement, an Event of Default will occur if any Person (referred to herein as a "Parent Guarantor") becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails, among other things, to enter into the Guarantee Agreement (or a similar agreement) as a Guarantor. Section 14 of the Indemnity, Subrogation and Contribution Agreement provides that any Parent Guarantor may become a Guarantor under the Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Guarantor") is a Parent Guarantor of the Borrower and is executing this Supplement in accordance with the provisions of the Credit Agreement to become a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 14 of the Indemnity, Subrogation and Contribution Agreement, the New Guarantor by its signature below becomes a Guarantor under the Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Indemnity, Subrogation and Contribution Agreement applicable to it as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Guarantor" in the Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Guarantor. The Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Indemnity, Subrogation and Contribution Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below, which supplements Schedule I to the Guarantee Agreement, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR], by ______________________________ Name: Title Address: ____________________ ____________________ ____________________ CHEMICAL BANK, as Collateral Agent by ______________________________ Name: Title EX-10.23 8 PLEDGE AGREEMENT dated as of June 14, 1993, as amended and restated as of August 3, 1994, among ECKERD CORPORATION, a Delaware corporation (the Borrower ), each of the subsidiaries of the Borrower listed on the signature pages hereof (individually, a Subsidiary Pledgor and, collectively, the Subsidiary Pledgors ; the Subsidiary Pledgors, together with the Borrower, are referred to individually as a Pledgor and collectively as the Pledgors ) and CHEMICAL BANK, a New York banking corporation ( Chemical Bank ), as collateral agent (the Collateral Agent ) for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the Credit Agreement ), among the Borrower, the financial institutions party thereto, as lenders (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., a national banking association ( NationsBank ), as managing agents and as swingline lenders (in such latter capacity, each a Swingline Lender ), and Chemical Bank, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders, the Swingline Lenders and the Fronting Banks. The Lenders and the Swingline Lenders have agreed to make Loans and Swingline Loans, respectively, to the Borrower, and the Fronting Banks have agreed to issue Letters of Credit and to originate Bankers' Acceptances for the account of the Borrower pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Subsidiary Pledgors has agreed to guarantee, among other things, all the obligations of the Borrower under the Credit Agreement. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances are conditioned upon, among other things, the execution and delivery by the Pledgors of a pledge agreement in the form hereof to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit and any Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under the Credit Agreement and the other Loan Documents to which it is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being collectively called the Obligations ). Capitalized terms used herein and not defined herein shall have meanings assigned to such terms in the Credit Agreement. Accordingly, each Pledgor and the Collateral Agent, on behalf of itself and each Secured Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Pledge. As security for the payment and performance in full of the Obligations, each Pledgor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the Collateral Agent, and grants to the Collateral Agent for the benefit of the Secured Parties a security interest in (a) the shares of capital stock listed below the name of such Pledgor on Schedule I and any shares of stock of any Subsidiary obtained in the future by such Pledgor and the certificates representing all such shares (the Pledged Stock ), provided that the Pledged Stock shall not include (i) more than 66% of the issued and outstanding shares of stock of any Subsidiary now or hereafter organized under the laws of a country other than the United States or any State or Commonwealth thereof (a Foreign Subsidiary ), (ii) any of the issued and outstanding shares of stock of any Foreign Subsidiary of a Foreign Subsidiary and (iii) to the extent that applicable law requires that a Subsidiary of the Borrower issue directors' qualifying shares, such qualifying shares, (b) the promissory notes listed on Schedule I hereto and any promissory notes issued in the future to such Pledgor (other than those evidencing Accounts Receivables (as defined in the Security Agreement) of Insta-Care Pharmacy Services Corporation, in an aggregate amount at any time outstanding not to exceed $1,000,000), (c) all other property that may be delivered to and held by the Collateral Agent pursuant to the terms hereof, (d) subject to Section 5, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed, in respect of, in exchange for or upon the conversion of the securities referred to in clauses (a), (b) and (c) above, (e) subject to Section 5, all rights and privileges of such Pledgor with respect to the securities and other property referred to in clauses (a), (b), (c) and (d) above, and (f) all proceeds of any of the foregoing (the items referred to in clauses (a) through (f) above being collectively referred to as the Collateral ). Upon delivery to the Collateral Agent, (a) any stock certificates, notes or other securities now or hereafter included in the Collateral (the Pledged Securities ) shall be accompanied by stock powers duly executed in blank or other instruments of transfer satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (b) all other property comprising part of the Collateral shall be accompanied by proper instruments of assignment duly executed by the applicable Pledgor and such other instruments or documents as the Collateral Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule I and made a part hereof. Each schedule so delivered shall supersede any prior schedules so delivered. TO HAVE AND TO HOLD the Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, forever; subject, however, to the terms, covenants and conditions hereinafter set forth. SECTION 2. Delivery of the Collateral; Intercompany Obligations. (a) Each Pledgor agrees promptly to deliver or cause to be delivered to the Collateral Agent any and all Pledged Securities, and any and all certificates or other instruments or documents representing the Collateral. (b)(i) Each Pledgor will cause any Indebtedness for borrowed money owed to such Pledgor by any person to be evidenced by a duly executed promissory note that is pledged and delivered to the Collateral Agent pursuant to the terms hereof. SECTION 3. Representations, Warranties and Covenants. Each Pledgor hereby represents, warrants and covenants, as to itself and the Collateral pledged by it hereunder, to and with the Collateral Agent that: (a) the Pledged Stock represents that percentage as set forth on Schedule I of the issued and outstanding shares of each class of the capital stock of the issuer with respect thereto; (b) except as set forth in Schedule 3(b) and except for the security interest granted hereunder, each Pledgor (i) is and will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule I to be owned by such Pledgor, (ii) holds the same free and clear of all Liens, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Collateral, other than pursuant hereto, and (iv) subject to Section 5, will cause any and all Collateral, whether for value paid by any Pledgor or otherwise, to be forthwith deposited with the Collateral Agent and pledged or assigned hereunder; (c) each Pledgor (i) has the power and authority to pledge the Collateral in the manner hereby done or contemplated and (ii) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Agreement and the Lien described in Schedule 3(b)), however arising, of all persons whomsoever; (d) no consent or approval of any Governmental Authority or any securities exchange was or is necessary to the validity of the pledge effected hereby; (e) by virtue of the execution and delivery by the Pledgors of this Agreement, when the Pledged Securities, certificates, instruments or other documents representing or evidencing the Collateral are delivered to the Collateral Agent in accordance with this Agreement, the Collateral Agent will obtain a valid and perfected first lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations); and (f) the pledge effected hereby is effective to vest in the Collateral Agent, on behalf of the Secured Parties, the rights of the Collateral Agent in the Collateral as set forth herein. SECTION 4. Registration in Nominee Name; Denominations. The Collateral Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the applicable Pledgor, endorsed or assigned in blank or in favor of the Collateral Agent. The applicable Pledgor will promptly give to the Collateral Agent copies of any notices or other communications received by it with respect to Pledged Securities registered in the name of such Pledgor. The Collateral Agent shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement. SECTION 5. Voting Rights; Dividends and Interest; etc. (a) Unless and until an Event of Default shall have occurred and be continuing: (i) The Pledgors shall be entitled to exercise any and all voting and/or other consensual rights and powers accruing to an owner of Pledged Securities or any part thereof for any purpose consistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents; provided, however, that such action would not materially and adversely affect the rights inuring to a holder of the Pledged Securities or the rights and remedies of any of the Secured Parties under this Agreement or the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same. (ii) The Collateral Agent shall execute and deliver to each Pledgor, or cause to be executed and delivered to such Pledgor, all such proxies, powers of attorney and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above and to receive the cash dividends, interest and principal it is entitled to receive pursuant to subparagraph (iii) below. (iii) Each Pledgor shall be entitled to receive and retain any and all cash dividends, interest and principal paid on the Pledged Securities to the extent and only to the extent that such cash dividends, interest and principal are permitted by, and otherwise paid in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws. Other than pursuant to the first sentence of this subparagraph, all noncash dividends, interest and principal, and all dividends, interest and principal paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, return of capital, capital surplus or paid-in surplus, and all other distributions made on or in respect of the Pledged Securities, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Collateral, and, if received by a Pledgor, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement). (b) Upon the occurrence and during the continuance of an Event of Default, all rights of each Pledgor to dividends, interest and principal that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such dividend, interest and principal payments. All dividends, interest and principal received by any Pledgor contrary to the provisions of this Section 5 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Collateral Agent upon demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an interest-bearing account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 7. After all Events of Default have been cured or waived, the Collateral Agent shall, within five Business Days after all such Events of Default have been cured or waived, repay to the Pledgors all cash dividends, interest or principal, with accrued interest thereon, that such Pledgors would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) above and which remain in such account. (c) Upon the occurrence and during the continuance of an Event of Default, all rights of the Pledgors to exercise the voting and consensual rights and powers they are entitled to exercise pursuant to paragraph (a)(i) of this Section 5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 5, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers. SECTION 6. Remedies upon Default. Upon the occurrence and during the continuance of an Event of Default, subject to applicable regulatory and legal requirements, the Collateral Agent may sell the Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives all rights of redemption, stay, valuation and appraisal such Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Upon taking of possession of any Collateral hereunder, the Collateral Agent shall deal with such Collateral in the same manner as it deals with similar property for its own account. The Collateral Agent shall give the applicable Pledgor 10 days' prior written notice (which such Pledgor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York) of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid in full by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public sale made pursuant to this Section 6, any Secured Party may bid for or purchase, free from any right of redemption, stay or appraisal on the part of any Pledgor (all said rights being also hereby waived and released), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to it from any Pledgor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Pledgor therefor. For purposes hereof, (a) a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant to such agreement and (c) no Pledgor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Collateral and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 6 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of Collateral pursuant to Section 6, as well as any Collateral consisting of cash, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs and expenses incurred by the Collateral Agent in connection with such sale or otherwise in connection with this Agreement, any other Loan Document or any of the Obligations, including all court costs and the reasonable fees, other charges and disbursements of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any of the Pledgors and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or thereunder; SECOND, to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement or BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, to the Pledgors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt by the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 8. Reimbursement of Collateral Agent. (a) The Pledgors jointly and severally agree to pay upon demand to the Collateral Agent the amount of any and all reasonable and documented expenses, including the reasonable fees, other charges and disbursements of its counsel and of any experts or agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Securities, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. (b) Without limitation of their indemnification obligations under the other Documents, the Pledgors jointly and severally agree to indemnify the Collateral Agent and the Indemnitees against, and hold each of them harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable and documented counsel fees and expenses, incurred by or asserted against any of them arising out of, in any way connected with, or as a result of, the execution, delivery or performance of this Agreement or any claim, litigation, investigation or proceeding relating hereto or to the Collateral, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section 8 shall remain operative and in full force and effect regardless of the termination of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 8 shall be payable on written demand therefor and shall bear interest at the Default Rate (as defined in the Credit Agreement). SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent's name or in the name of any Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due and under and by virtue of any Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to such Pledgor representing any interest or dividend or other distribution payable in respect of the Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and to make any agreement respecting, or otherwise deal with, the same; provided, however, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. SECTION 10. Waivers; Amendment. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Pledgor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Pledgor in any case shall entitle such Pledgor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Pledgors and the Collateral Agent, with the prior written consent of the Required Lenders. SECTION 11. Securities Act, etc. In view of the position of the Pledgors in relation to the Pledged Securities, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the Federal Securities Laws ) with respect to any disposition of the Pledged Securities permitted hereunder. The Pledgors understand that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Securities, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Securities under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. The Pledgors recognize that in light of the foregoing restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Securities, limit the purchasers to those who will agree, among others things, to acquire such Pledged Securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Pledgors acknowledge and agree that in light of the foregoing restrictions and limitations, the Collateral Agent, in its sole and absolute discretion, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale. The Pledgors acknowledge and agree that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 11 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells. SECTION 12. Registration, etc. Each Pledgor agrees that, upon the occurrence and during the continuance of an Event of Default hereunder, if for any reason the Collateral Agent desires to sell any of the Pledged Securities at a public sale, it will, at any time and from time to time, upon the written request of the Collateral Agent, use its best efforts to take or to cause the issuer of such Pledged Securities to take such action and prepare, distribute and/or file such documents, as are required or advisable in the reasonable opinion of counsel for the Collateral Agent to permit the public sale of such Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold harmless the Collateral Agent, each other Secured Party, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel (including, without limitation, reasonable and documented fees and expenses to the Collateral Agent of legal counsel), and claims (including the costs of investigation) that they may incur insofar as such loss, liability, expense or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to any Pledgor or the issuer of such Pledged Securities by the Collateral Agent or any other Secured Party expressly for use therein. Each Pledgor further agrees, upon such written request referred to above, to use its best efforts to qualify, file or register, or cause the issuer of such Pledged Securities to qualify, file or register, any of the Pledged Securities under the Blue Sky or other securities laws of such states as may be requested by the Collateral Agent and keep effective, or cause to be kept effective, all such qualifications, filings or registrations. The Pledgors will bear all costs and expenses of carrying out their obligations under this Section 12. The Pledgors acknowledge that there is no adequate remedy at law for failure by them to comply with the provisions of this Section 12 and that such failure would not be adequately compensable in damages, and therefore agree that their agreements contained in this Section 12 may be specifically enforced. SECTION 13. Security Interest Absolute. All rights of the Collateral Agent hereunder, the grant of a security interest in the Collateral and all obligations of the Pledgors hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document, any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Pledgor in respect of the Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Obligations). SECTION 14. Termination or Release. (a) This Agreement and the security interests granted hereby shall terminate when all the Obligations have been indefeasibly paid in full and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, the LC/BA Exposure has been reduced to zero and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) Upon any sale or other transfer by any Pledgor of any Collateral that is permitted under the Credit Agreement, or, upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 10.08 of the Credit Agreement, the security interest in such Collateral shall be automatically released. (c) Upon the sale of all or substantially all of the assets or all of the capital stock of any Pledgor in a manner that is permitted by the Credit Agreement the security interest in the Collateral relating to such Pledgor shall be automatically released. (d) In connection with any termination or release pursuant to paragraphs (a), (b) and (c), the Collateral Agent shall execute and deliver to such Pledgor, at such Pledgor's expense, all documents that such Pledgor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 14 shall be without recourse to or warranty by the Collateral Agent. SECTION 15. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 10.01 of the Credit Agreement. All communications and notices hereunder to any Subsidiary Pledgor shall be given to it at its address set forth on Schedule II hereto with a copy to the Borrower. SECTION 16. Further Assurances. Each Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Collateral or any part thereof or in order better to assure and confirm unto the Collateral Agent its rights and remedies hereunder. SECTION 17. Binding Agreement; Assignments. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Pledgors that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. This Agreement shall become effective as to any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Pledgor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Pledgors, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Pledgor shall have the right to assign its rights hereunder or any interest herein or in the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 18. Survival of Agreement; Severability. (a) All covenants, agreements, representations and warranties made by the Pledgors herein and in the certificates or other instruments prepared, delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans, the making by the Swingline Lenders of the Swingline Loans and the issuance of the Letters of Credit and the origination of the Bankers' Acceptances by the Fronting Banks, and the execution and delivery to the Lenders and the Swingline Lenders of the Notes evidencing such loans, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or Swingline Loan or any other fee or amount payable under any this Agreement or any other Loan Document is outstanding and unpaid or the LC/BA Exposure does not equal zero and as long as the Commitments and the LC/BA Commitment have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective as provided in Section 17. SECTION 21. Rules of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each Pledgor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Pledgor or its properties in the courts of any jurisdiction. (b) Each Pledgor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 15. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 23. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section. SECTION 24. Additional Pledgors. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary that was not in existence or not a Subsidiary on the date thereof or that was previously an Inactive Subsidiary is required to enter into this Agreement as a Pledgor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and a subsidiary of an instrument in the form of Annex 1, such subsidiary shall become a Subsidiary Pledgor hereunder with the same force and effect as if originally named as a Subsidiary Pledgor herein. Pursuant to paragraph (q) of Article VIII of the Credit Agreement, an Event of Default will occur if any Person (referred to herein as Parent Pledgor ) becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails to enter into this Agreement (or a similar agreement) as a Pledgor. Upon execution and delivery, after the date hereof, by the Collateral Agent and a Parent Pledgor of an instrument in the form of Annex 2, such Parent Pledgor shall become a Pledgor hereunder with the same force and effect as if originally named as a Pledgor herein. The execution and delivery of any instrument adding an additional Pledgor as a party to this Agreement shall not require the consent of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Pledgor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ECKERD CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD TOBACCO COMPANY, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President E.I.T., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE HOLDINGS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CHEMICAL BANK, as Collateral Agent, by /s/ Meredith Vanden Handel Name: Meredith Vanden Handel Title: Vice President Annex 1 to the Pledge Agreement SUPPLEMENT NO. dated as of , to the Pledge Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Pledge Agreement"), among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each of the subsidiaries of the Borrower listed on the signature pages thereof (individually a "Subsidiary Pledgor" and collectively, the "Subsidiary Pledgors"; the Subsidiary Pledgors together with the Borrower are referred to individually as a "Pledgor" and collectively as the "Pledgors") and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Pledge Agreement and the Credit Agreement. C. The Borrower and certain Subsidiaries of the Borrower have entered into the Pledge Agreement in order to induce the Lenders to make Loans, the Swingline Leaders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary of the Borrower that was not in existence or not a Subsidiary of the Borrower on the date thereof or that was previously an Inactive Subsidiary is required to enter into the Pledge Agreement as a Pledgor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Section 24 of the Pledge Agreement provides that additional subsidiaries of the Borrower may become Subsidiary Pledgors under the Pledge Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the 'New Subsidiary Pledgor") is a subsidiary of the Borrower and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Pledgor under the Pledge Agreement in order to induce the Lenders to make additional Loan, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Subsidiary Pledgor agree as follows: SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New Subsidiary Pledgor by its signature below becomes a Subsidiary Pledgor under the Pledge Agreement with the same force and effect as if originally named therein as a Subsidiary Pledgor and the New Subsidiary Pledgor hereby (a) agrees to all the terms and provisions of the Pledge Agreement applicable to it as a Subsidiary Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Pledgor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary Pledgor, as security for the payment and performance in full of the Obligations, does hereby transfer, grant, bargain, sell, convey, hypothecate, pledge, set over and deliver unto the Collateral Agent, and grant to the Collateral Agent for the benefit of the Secured Parties a security interest in (a) the shares of capital stock listed below the name of the New Subsidiary Pledgor on Schedule I hereto and any shares of stock of any Subsidiary obtained in the future by the New Subsidiary Pledgor and the certificates representing all such shares (subject to the proviso in clause (a) of Section I of the Pledge Agreement), (b) the promissory notes listed on Schedule I hereto and any promissory notes issued in the future to such New Subsidiary Pledgor and (c) all other Collateral referred to in the Pledge Agreement. Schedule I attached hereto supplements Schedule I to the Pledge Agreement and shall be deemed a part thereof for all purposes of the Pledge Agreement. Each reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement shall be deemed to include the New Subsidiary Pledgor. The Pledge Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Pledgor represents and warrants to the Collateral Agent and to the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it Pledgor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Pledgor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Pledge Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 15 of the Pledge Agreement. All communications and notices hereunder to the New Subsidiary Pledgor shall be given to it at the address set forth under its signature hereto, which supplements Schedule 11 to the Pledge Agreement, with a copy to the Borrower. SECTION 8. The New Subsidiary Pledgor agrees to reimburse the Collateral Agent for its reasonable out-of- pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Pledgor and the Collateral Agent have duly executed this Supplement to the Pledge Agreement as of the day and year first above written [NAME OF NEW SUBSIDIARY PLEDGOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: Annex 2 to the Pledge Agreement SUPPLEMENT NO. dated as of , to the Pledge Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Pledge Agreement"), among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each of the subsidiaries of the Borrower listed on the signature pages thereof (individually a "Subsidiary Pledgor" and collectively, the "Subsidiary Pledgors"; the Subsidiary Pledgors together with the Borrower are referred to individually as a "Pledgor" and collectively as the "Pledgors") and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Pledge Agreement and the Credit Agreement. C. The Borrower and certain Subsidiaries of the Borrower have entered into the Pledge Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to paragraph (q) of Article VIII of the Credit Agreement, an Event of Default will occur if any Person (referred to herein as a 'Parent Pledgor") becomes the owner or holder of record of all the common equity securities of the Borrower and, prior to or simultaneously with obtaining such shares, fails to enter into the Pledge Agreement (or a similar agreement) as a Pledgor. Section 24 of the Pledge Agreement provides that any Parent Pledgor may become a Pledgor under the Pledge Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Pledgor") is a Parent Pledgor of the Borrower and is executing this Supplement in accordance with the provisions of the Credit Agreement to become a Pledgor under the Pledge Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Pledgor agree as follows: SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with the same force and effect as if originally named therein as a Pledgor and the New Pledgor hereby (a) agrees to all the terms and provisions of the Pledge Agreement applicable to it as a Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Pledgor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Pledgor, as security for the payment and performance in full of the Obligations, does hereby transfer, grant, bargain, sell, convey, hypothecate, pledge, set over and deliver unto the Collateral Agent, and grant to the Collateral Agent for the benefit of the Secured Parties a security interest in (a) the shares of capital stock listed below the name of the New Pledgor on Schedule I hereto and any shares of stock of the Borrower obtained in the future by the New Pledgor and the certificates representing all such shares, (b) subject to Section 5 of the Pledge Agreement, all payments of dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed, in respect of, in exchange for or upon the conversion of the securities referred to in clause (a) above, (c) subject to Section 5 of the Pledge Agreement, all rights and privileges of such New Pledgor with respect to the securities and other property referred to in clause (a) above, and (d) all proceeds of any of the foregoing. Schedule I attached hereto supplements Schedule I to the Pledge Agreement and shall be deemed a part thereof for all of the Pledgor Agreement. Each reference to a "Pledgor" in the Pledge Agreement shall be deemed to include the New Pledgor. The Pledgor Agreement is hereby incorporated herein by reference. SECTION 2. The New Pledgor represents and warrants to the Collateral Agent and to the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it Pledgor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or mom counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Pledgor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Pledge Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 15 of the Pledge Agreement. All communications and notices hereunder to the New Pledgor shall be given to it at the address set forth under its signature hereto, which supplements Schedule II to the Pledge Agreement, with a copy to the Borrower. SECTION 8. The New Pledgor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly executed this Supplement to the Pledge Agreement as of the day and year first above written. [NAME OF NEW PLEDGOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: EX-10.24 9 SECURITY AGREEMENT dated as of June 14, 1993, as amended and restated as of August 3, 1994, among ECKERD CORPORATION, a Delaware corporation (the Borrower ), each of the subsidiaries of the Borrower listed on the signature pages hereof (individually, a Guarantor and, collectively, the Guarantors ; the Guarantors, together with the Borrower, are referred to individually as a Grantor and collectively as the Grantors ) and CHEMICAL BANK, a New York banking corporation ( Chemical Bank ), as collateral agent (in such capacity, the Collateral Agent ) for the Secured Parties (as defined herein). Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the Credit Agreement ), among the Borrower, the financial institutions party thereto, as lenders (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., a national banking association ( NationsBank ), as managing agents and as swingline lenders (in such latter capacity, each a Swingline Lender ), and Chemical Bank, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders, the Swingline Lenders and the Fronting Banks. The Lenders and the Swingline Lenders have agreed to make Loans and Swingline Loans, respectively, to the Borrower, and the Fronting Banks have agreed to issue Letters of Credit and to originate Bankers' Acceptances for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Credit Agreement. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances are conditioned upon, among other things, the execution and delivery by the Grantors of a security agreement in the form hereof to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit or Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under the Credit Agreement and the other Loan Documents to which the Borrower is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being referred to collectively as the Obligations ). Accordingly, the Grantors and the Collateral Agent, on behalf of itself and each Secured Party (and each of their respective successors or assigns), hereby agree as follows: ARTICLE I Definitions SECTION 1.01. Definition of Terms Used Herein. All capitalized terms used but not defined herein shall have the meanings set forth in the other Loan Documents. SECTION 1.02. Definition of Certain Terms Used Herein. As used herein, the following terms shall have the following meanings: Account Debtor shall mean any person who is or who may become obligated to the Grantors under, with respect to or on account of an Account. Accounts shall mean, with respect to the Grantors, any and all right, title and interest of any Grantor to payment for goods and services sold or leased, including any such right evidenced by chattel paper, whether due or to become due, whether or not it has been earned by performance, and whether now or hereafter acquired or arising in the future, including accounts receivable from Affiliates of the Grantors. Accounts Receivable shall mean, with respect to the Grantors, all Accounts and all right, title and interest of any Grantor to Accounts and all right, title and interest of any Grantor in any returned goods, together with all rights, titles, securities and guarantees with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary, in each case whether now existing or owned or hereafter arising or acquired. Collateral shall mean all (a) Accounts, (b) Accounts Receivable, (c) Documents, (d) Equipment (including Fixtures), (e) General Intangibles, (f) Inventory, (g) Proceeds, (h) amounts due or to become due from the transfer of Third Party Receivables pursuant to Permitted Receivables Purchase Agreements and (i) Collection Deposit Accounts and all other cash and cash accounts, provided that Collateral shall not include any of the foregoing in clause (a), (b), (c), (e) or (g) solely to the extent transferred by the Borrower (either in its entirety or an undivided interest therein) under any Permitted Receivables Purchase Agreement from time to time. Collection Deposit Account shall mean a lockbox account of any Grantor maintained for the benefit of the Secured Parties with the Collateral Agent pursuant to Article V or with a Sub-Agent pursuant to a Lockbox Agreement. Credit Agreement shall have the meaning assigned to such term in the preliminary statement of this Agreement. Documents shall mean all instruments, files, records, ledger sheets and documents, whether now owned or hereafter acquired, covering or relating to any of the Collateral (other than any such instruments pledged and delivered pursuant to the Pledge Agreement), including customer lists, credit files, computer programs, printouts and other computer materials and records, but excluding prescription records and files. Equipment shall mean all equipment in all its forms, wherever located, now or hereafter existing, and all parts thereof and accessions thereto, that are now or hereafter owned by any Grantor, provided that Equipment shall not include any equipment subject to Liens permitted under Section 7.02(h) or (i) of the Credit Agreement or any equipment that has been or will be the subject of Equipment Agency Arrangements. The term Equipment shall include Fixtures. Fixtures shall mean all items of Equipment, whether now owned or hereafter acquired, of any Grantor that become so related to particular real estate that an interest in such items of Equipment arises under any real estate law applicable thereto. General Intangibles shall mean all choses in action and causes of action and all other intangible personal property of any Grantor of every kind and nature (other than Accounts Receivable) now owned or hereafter acquired by any Grantor (other than any such intangible personal property if applicable law or any agreement in respect of such property by its terms prohibits the assignment or grant of a security interest in such property), including corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, Rate Protection Agreements and other agreements), Intellectual Property, goodwill, registrations, franchises, tax refund claims and any letter of credit, guarantee, claim, security interest or other security held by or granted to any Grantor to secure payment by an Account Debtor of any of the Accounts Receivable. Intellectual Property shall mean all intellectual and similar property of any Grantor of every kind and nature now owned or hereafter acquired by any Grantor, including inventions, designs, patents, patent applications, copyrights, copyright registrations, applications to register copyrights, Licenses, trademarks (including service marks), trademark or service mark applications, trade names, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations and franchises, and all additions, improvements and accessions to, and books and records describing or used in connection with, any of the foregoing. Inventory shall mean all goods of any Grantor, whether now owned or hereafter acquired, held for sale or lease, or furnished or to be furnished by any Grantor under contracts of service, or consumed in any Grantor's business, including raw materials, intermediates, work in process, packaging materials, finished goods, semi-finished inventory, scrap inventory, manufacturing supplies and spare parts, and all such goods that have been returned to or repossessed by or on behalf of any Grantor. License shall mean any patent license, copyright license or other license or sublicense (other than any Trademark License) to which any Grantor is or becomes a party (other than those license agreements that by their terms prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). Lockbox Agreements shall mean the lockbox agreements among any Grantor, the Collateral Agent and a Sub-Agent (as defined in each Lockbox Agreement), substantially in the form of Annex 1 hereto, with any changes, additions or modifications as reasonably requested by such Sub-Agent. Loan Documents shall have the meaning assigned to such term in the Credit Agreement. Medicaid Accounts shall mean Third Party Receivables owed pursuant to State plans approved under Title XIX of the Social Security Act of 1935, as amended. Medicare Accounts shall mean Third Party Receivables owed pursuant to the health insurance program for the aged and disabled under Title XVIII of the Social Security Act of 1935, as amended. Obligations shall have the meaning assigned to such term in the preliminary statement of this Agreement. Perfection Certificate shall mean the Perfection Certificate substantially in the form of Annex 2 hereto, prepared by the Borrower. Permitted Receivables Purchase Agreements shall have the meaning assigned to such term in the Credit Agreement. Proceeds shall mean any consideration received from the sale, exchange or other disposition of any asset or property that constitutes Collateral, any value received as a consequence of the possession of any Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property that constitutes Collateral, and shall include (a) all cash and negotiable instruments received or held on behalf of the Collateral Agent pursuant to the Lockbox Agreements or any other lockbox or similar arrangement relating to the payment of Accounts Receivable, Inventory and Third Party Receivables (other than those transferred pursuant to Permitted Receivables Purchase Agreements) and (b) any claim of any Grantor against any third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, current or future infringement of any patent now or hereafter owned by any Grantor or licensed under a patent license, (ii) past, current or future breach of any License, (iii) past, current or future infringement of any copyright now or hereafter owned by any Grantor or licensed under a copyright license and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. Secured Parties shall mean (a) the Lenders, (b) the Fronting Banks, (c) the Administrative Agent, (d) the Collateral Agent, (e) the Swingline Lenders and (f) the successors and assigns of each of the foregoing. Security Interest shall have the meaning assigned to such term in Section 2.01. Sub-Agent shall mean a financial institution that shall have delivered to the Collateral Agent an executed Lockbox Agreement. Third Party Receivables shall have the meaning assigned to such term in the Credit Agreement. SECTION 1.03. Rules of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. ARTICLE II Security Interest SECTION 2.01. Security Interest. As security for the payment or performance, as the case may be, of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to the Collateral Agent, its successors and its assigns, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor's right, title and interest in, to and under the Collateral (the Security Interest ). Without limiting the foregoing, the Collateral Agent is hereby authorized to file one or more financing statements (other than fixture filings, except with respect to Fixtures appurtenant to the Mortgaged Properties), continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by each Grantor, without the signature of any Grantor, naming any Grantor or the Grantors as debtors and the Collateral Agent as secured party. Each Grantor agrees at all times to keep such accurate and complete accounting records with respect to the Collateral as is consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged. SECTION 2.02. No Assumption of Liability. The Security Interest is granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of any of the Collateral. ARTICLE III Representations And Warranties The Grantors jointly and severally represent and warrant to and with the Collateral Agent and each other Secured Party that: SECTION 3.01. Title and Authority. Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval that has been obtained. SECTION 3.02. Filings. The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects. Fully executed Uniform Commercial Code financing statements (other than fixture filings, except with respect to Fixtures appurtenant to the Mortgaged Properties) or other appropriate filings, recordings or registrations (other than such as would be made in the United States Copyright Office) containing a description of the Collateral have been delivered to the Collateral Agent for filing in each governmental, municipal or other office specified in Schedule 6 to the Perfection Certificate, which are all the filings, recordings and registrations that are necessary to publish notice of and protect the validity of and to establish a valid and perfected security interest in favor of the Collateral Agent (for the ratable benefit of the Secured Parties) in respect of all Collateral (other than Fixtures, except Fixtures appurtenant to the Mortgaged Properties, and copyrights, to the extent that recordings and registration in the United States Copyright Office may be necessary) in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements and except that recordation of the Security Interest in the United States Patent and Trademark Office may be necessary with respect to Collateral consisting of patents and Trademarks acquired after the date hereof and recordation of the Security Interest, in addition to registration of any unregistered copyrights, in the United States Copyright Office may be necessary with respect to Collateral consisting of copyrights. SECTION 3.03. Validity of Security Interest. The Security Interest constitutes (a) a valid security interest in all the Collateral securing the payment and performance of the Obligations and (b) subject to the filings described in Section 3.02 above, a perfected security interest in all Collateral (other than Fixtures, except Fixtures appurtenant to the Mortgaged Properties, and copyrights, to the extent that recordings and registration in the United States Copyright Office may be necessary) in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions, except that recordation of the Security Interest in the United States Patent and Trademark Office may be necessary with respect to Collateral consisting of patents and Trademarks acquired after the date hereof and recordation of the Security Interest, in addition to registration of any unregistered copyrights, in the United States Copyright Office may be necessary with respect to Collateral consisting of copyrights. The Security Interest is and shall be prior to any other Lien on any of the Collateral, other than Liens expressly permitted to be prior to the Security Interest pursuant to Section 7.02 of the Credit Agreement. SECTION 3.04. Absence of Other Liens. The Collateral is owned by the Grantors free and clear of any Lien, except for Liens expressly permitted pursuant to Section 7.02 of the Credit Agreement. Other than as contemplated hereby or by the Trademark Security Agreement, none of the Grantors has filed or consented to the filing of (a) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Collateral, (b) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with the United States Patent and Trademark Office or the United States Copyright Office or (c) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect. ARTICLE IV Covenants SECTION 4.01. Change of Name; Location of Collateral; Records; Place of Business. (a) Each Grantor agrees promptly to notify the Collateral Agent of any change (i) in its corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in the location of its chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in its identity or corporate structure or (iv) in its Federal Taxpayer Identification Number. Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid and perfected security interest in all the Collateral. Each Grantor agrees promptly to notify the Collateral Agent if any material portion of the Collateral is damaged or destroyed. (b) Each Grantor agrees to maintain, at its own cost and expense, such complete and accurate records with respect to the Collateral owned by it as is consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged and, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form and detail reasonably satisfactory to the Collateral Agent showing the identity, amount and location of any and all Collateral. SECTION 4.02. Periodic Certification. Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to Section 6.04 of the Credit Agreement, each Grantor shall deliver to the Collateral Agent a certificate executed by a Financial Officer and the chief legal officer of such Grantor (a) setting forth the information required pursuant to Section 2 of the Perfection Certificate, (b) certifying that all Uniform Commercial Code financing statements (other than fixture filings, except with respect to Fixtures appurtenant to the Mortgaged Properties) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (a) above to the extent necessary to protect and perfect the Security Interest for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period), (c) setting forth, with respect to each filing, recording or registration (including each refiling, rerecording or reregistration) made since the date of the Perfection Certificate or the most recent certificate delivered pursuant to this Section 4.02, the filing office, date and file number thereof and (d) attaching true, correct and complete acknowledgement copies of each such filing, recording or registration not theretofore delivered to the Collateral Agent. SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost and expense, take any and all actions necessary to defend title to the Collateral against all persons and to defend the Security Interest of the Collateral Agent in the Collateral and the priority thereof against any Lien not expressly permitted under the Credit Agreement. SECTION 4.04. Further Assurances. Each Grantor agrees, at its expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest and the filing of any financing statements (other than fixture filings, except with respect to Fixtures appurtenant to the Mortgaged Properties) or other documents in connection herewith. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall (to the extent not previously pledged and delivered pursuant to the Pledge Agreement) be immediately pledged and delivered to the Collateral Agent, duly endorsed in a manner satisfactory to the Collateral Agent. SECTION 4.05. Inspection and Verification. The Collateral Agent and such persons as the Collateral Agent may reasonably designate shall have the right, at any reasonable time or times upon reasonable notice and at the Grantor's own cost and expense, to inspect the Collateral, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral is located, to discuss any Grantor's affairs with the officers of such Grantor and its independent accountants and to verify under reasonable procedures the validity, amount, quality, quantity, value, condition and status of or any other matter relating to, the Collateral, including, in the case of Accounts or Collateral in the possession of any third party, by contacting Account Debtors or the third party possessing such Collateral for the purpose of making such a verification. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any other Secured Party (it being understood that any such information shall be deemed to be Information subject to the provisions of Section 10.15 of the Credit Agreement). SECTION 4.06. Taxes; Encumbrances. At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, liens, security interests or other encumbrances at any time levied or placed on the Collateral other than as the same may be permitted under the Loan Documents, and may pay for the maintenance and preservation of the Collateral to the extent any Grantor fails to do so as required by this Agreement or the other Loan Documents, and such Grantor agrees to reimburse the Collateral Agent on demand for any payment made or any reasonable and documented expense incurred by the Collateral Agent pursuant to the foregoing authorization; provided, however, that nothing in this Section 4.06 shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any other Secured Party to cure or perform, any covenants or other promises of the Grantors with respect to taxes, assessments, charges, fees, liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. SECTION 4.07. Assignment of Security Interest. If at any time any Grantor shall take and perfect a security interest in any property of an Account Debtor or any other person to secure payment and performance of an Account, such Grantor shall promptly assign such security interest to the Collateral Agent. Such assignment need not be filed of public record unless necessary to continue the perfected status of the security interest against creditors of and transferees from the Account Debtor or other person granting the security interest. SECTION 4.08. Continuing Obligations of the Grantors. The Grantors shall remain liable to, at their own cost and expense, duly and punctually observe and perform all the conditions and obligations to be observed and performed by them under each contract, agreement or instrument relating to the Collateral, all in accordance with the terms and conditions thereof, and each Grantor agrees to indemnify and hold harmless the Collateral Agent and the other Secured Parties from and against any and all liability for such performance. SECTION 4.09. Use and Disposition of Collateral. The Grantors may use but not dispose of the Collateral in any lawful manner not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document, except that the Grantors may dispose of Collateral to the extent expressly permitted by provisions of the Loan Documents. Without limiting the generality of the foregoing, (a) each Grantor agrees that it shall not permit any Inventory to be in the possession or control of any warehouseman, bailee, agent or processor at any time unless such warehouseman, bailee, agent or processor shall have been notified of the Security Interest and shall have agreed in a writing in form and substance reasonably satisfactory to the Collateral Agent to hold the Inventory subject to the Security Interest and the instructions of the Collateral Agent and to waive and release any Lien held by it with respect to such Inventory, whether arising by operation of law or otherwise, and (b) each Grantor may sell or purport to sell Accounts Receivable or an undivided interest in Accounts Receivable in accordance with the provisions of any Permitted Receivables Purchase Agreement and transfer any Document representing only Accounts Receivable so sold or in which an undivided interest is so sold or purported to be sold whereupon, in the case of such a sale or purported sale, the Security Interest created hereby in the Accounts Receivable so sold or purported to be sold and Document so transferred (but not in any Proceeds arising from such sale or purported sale) shall cease immediately without any further action on the part of the Collateral Agent, provided that, with respect to each Account Receivable in which an undivided interest is sold pursuant to a Permitted Receivables Purchase Agreement, such Security Interest in that portion of such Account Receivable that remains the property of any Grantor shall so cease only if required by the terms of such Permitted Receivables Purchase Agreement in order for such Account Receivable to be eligible for sale thereunder. The Collateral Agent will deliver to each Grantor, upon its written request, any Document to be so transferred pursuant to clause (b) of the foregoing sentence, if such Document is in the Collateral Agent's possession. SECTION 4.10. Limitation on Modification of Accounts. None of the Grantors will, without the Collateral Agent's prior written consent, grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business. After a Default or an Event of Default shall have occurred and during the continuance thereof, the Collateral Agent may notify the Grantors not to grant or make any such extension, credit, discount, compromise, or settlement under any circumstances without its prior written consent. ARTICLE V Collections SECTION 5.01. Collection Deposit Accounts. (a) Each Grantor agrees (i) at the request of the Collateral Agent, after the occurrence and during the continuation of any Default or Event of Default, to establish one or more Collection Deposit Accounts with the Collateral Agent or with any financial institution that (A) is satisfactory to the Collateral Agent and (B) enters into a Lockbox Agreement and (ii) once established, to maintain such Collection Deposit Accounts regardless of whether such Default or Event of Default shall no longer be continuing. (b) Unless and until the Collection Deposit Accounts are converted to closed lockbox accounts pursuant to paragraph (c) below, each Grantor may at any time withdraw any of the funds contained in a Collection Deposit Account of such Grantor for use, subject to the provisions of the Loan Documents, for general corporate purposes. (c) Effective upon notice to the Grantors from the Collateral Agent after the occurrence and during the continuance of an Event of Default (which notice may be given by telephone if promptly confirmed in writing), each Collection Deposit Account will, without any further action on the part of any Grantor, the Collateral Agent or any Sub- Agent, convert into a closed lockbox account under the exclusive dominion and control of the Collateral Agent in which funds are held subject to the rights of the Collateral Agent hereunder. No Grantor shall thereafter have any right or power to withdraw any funds from any Collection Deposit Account without the prior written consent of the Collateral Agent until all Events of Default are cured or waived. The Grantors irrevocably authorize the Collateral Agent to notify each Sub-Agent (i) of the occurrence of an Event of Default and (ii) of the matters referred to in this paragraph (c). Following the occurrence of an Event of Default, the Collateral Agent may instruct each Sub-Agent to transfer immediately all funds held in each Collection Deposit Account to an account maintained with the Collateral Agent. SECTION 5.02. Collections. (a) From and after the date on which the Collateral Agent requests that the Grantors establish and maintain one or more Collection Deposit Accounts, each Grantor agrees to notify and direct promptly each Account Debtor and every other person obligated to make payments with respect to the Accounts Receivable, Inventory and Third Party Receivables (other than those transferred pursuant to Permitted Receivables Purchase Agreements) to make all such payments to a Collection Deposit Account established by it, provided that such payment arrangements shall apply to Medicaid Accounts and Medicare Accounts only to the extent permitted under applicable law, it being the express intention of the Grantors and the Secured Parties that the Security Interests hereunder in the Medicaid Accounts and Medicare Accounts be perfected and that the Proceeds thereof be fully available to the Collateral Agent for the benefit of the Secured Parties to the maximum extent permitted by law. Each Grantor shall use all reasonable efforts to cause each Account Debtor and every other person identified in the preceding sentence (subject to the proviso in the preceding sentence) to make all of the foregoing payments directly to such Collection Deposit Account. (b) In the event that any Grantor directly receives any remittances on Accounts Receivable (including to the extent permitted by applicable law, payments made in respect of Medicaid Accounts and Medicare Accounts), Inventory or Third Party Receivables (other than those transferred pursuant to Permitted Receivables Purchase Agreements), notwithstanding the arrangements for payment directly into the Collection Deposit Accounts, such remittances shall be held in trust for the benefit of the Collateral Agent and the other Secured Parties and shall be segregated from other funds of such Grantor, subject to the Security Interest granted hereby, and such Grantor shall cause such remittances and payments to be deposited into the applicable Collection Deposit Account as soon as practicable after such Grantor's receipt thereof. SECTION 5.03. Collateral Agent Appointed Attorney-in- Fact. The Collateral Agent is hereby appointed by the Grantors as the true and lawful agent and attorney-in-fact of each Grantor, and in such capacity the Collateral Agent shall have the right, with power of substitution for the Grantors and in each Grantor's name or otherwise, for the use and benefit of the Collateral Agent and the other Secured Parties, upon the occurrence and during the continuance of an Event of Default, (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral; (d) to send verifications of Accounts Receivable to any Account Debtor; (e) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (f) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral; (g) to notify, or to require the Grantors to notify, Account Debtors to make payment directly to the Collateral Agent; and (h) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; provided, however, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent or any other Secured Party to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent or any other Secured Party, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. It is understood and agreed that the appointment of the Collateral Agent as the agent and attorney-in-fact of the Grantors for the purposes set forth above is coupled with an interest and is irrevocable. The provisions of this Section 5.03 shall in no event relieve any Grantor of any of its obligations hereunder or under the other Loan Documents with respect to the Collateral or any part thereof or impose any obligation on the Collateral Agent or any other Secured Party to proceed in any particular manner with respect to the Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent or any other Secured Party of any other or further right that it may have on the date of this Agreement or hereafter, whether hereunder, under any other Loan Document, by law or otherwise. Any sale pursuant to the provisions of this Section 5.03 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. ARTICLE VI Remedies SECTION 6.01. Remedies upon Default. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of Collateral to the Collateral Agent on demand, and it is agreed that the Collateral Agent shall have the right (subject to applicable law) to take any of or all the following actions at the same or different times: (a) with respect to any Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Collateral by such Grantor to the Collateral Agent, or to license or, to the extent permitted by applicable law, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any such Collateral throughout the world on such terms and conditions and in such manner as the Collateral Agent shall determine (other than in violation of any then-existing licensing arrangements to the extent that waivers cannot be obtained), and (b) with or without legal process and with or without previous notice or demand for performance, to take possession of the Collateral (and temporary possession of any non-Collateral in connection with any such repossession, with the right to store, at the Grantors' expense and risk, such non-Collateral) and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral and, generally, to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein). Without limiting the generality of the foregoing, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein), at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein) hold the property sold absolutely free from any claim or right on the part of such Grantors, and each Grantor hereby waives (to the fullest extent permitted by applicable law) all rights of redemption, stay and appraisal that such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall give the Grantors 10 days' prior written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions) of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public sale made pursuant to this Section 6.01, any Secured Party may bid for or purchase (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein), free (to the fullest extent permitted by applicable law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein) without further accountability to such Grantor therefor. For purposes hereof, (a) a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant to such agreement and (c) no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may (subject to any applicable alcohol and liquor control laws, rules and regulations and pharmaceutical laws, rules and regulations and except as may be limited in the case of Medicaid Accounts and Medicare Accounts by the Social Security Act and regulations thereunder and any applicable state law, including as set forth in Appendix A attached hereto and incorporated by reference herein) proceed by a suit or suits at law or in equity to foreclose upon the Collateral and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. The Collateral Agent may also seek a court order directing payment of Medicare Accounts and Medicaid Accounts to itself or any purchaser thereof from it and, to the extent permitted by law, each Grantor hereby reasonably consents to the entry of such an order. Any sale pursuant to the provisions of this Section 6.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply the proceeds of any collection or sale of the Collateral, as well as any Collateral consisting of cash, as follows: FIRST, to the payment of all costs and expenses incurred by the Collateral Agent in connection with such collection or sale or otherwise in connection with this Agreement, any other Loan Document or any of the Obligations, including all court costs and the reasonable and documented fees, other charges and disbursements of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any of the Grantors and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or thereunder; SECOND, to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement or BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt by the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 6.03. Grant of License to Use Intellectual Property. For the purpose of enabling the Collateral Agent to exercise rights and remedies under Sections 6.01 and 6.02 at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, non- exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sub- license any of the Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor to the extent of the interest of such Grantor therein at such time, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Collateral Agent shall be exercised, at the option of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default, provided that any license, sub-license or other transaction entered into by the Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. In operating under the license granted by each Grantor pursuant to this Section 6.03, the Collateral Agent agrees that the goods sold and services rendered under the Trademarks shall be of a nature and quality substantially consistent with those theretofore offered under such Trademarks by such Grantor and such Grantor shall have the right to inspect during the term of such license, at any reasonable time or times upon reasonable notice to the Collateral Agent, and at such Grantor's own cost and expense, representative samples of goods sold and services rendered under the Trademarks. ARTICLE VII Miscellaneous SECTION 7.01. Notices. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 10.01 of the Credit Agreement. All communications and notices hereunder to any Grantor shall be given to it at its address set forth in Schedule I hereto. SECTION 7.02. Security Interest Absolute. All rights of the Collateral Agent hereunder, the Security Interest and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument relating to the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Obligations). SECTION 7.03. Survival of Agreement. All covenants, agreements, representations and warranties made by the Grantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans, the making by the Swingline Lenders of the Swingline Loans and the issuance of the Letters of Credit and the origination of the Bankers' Acceptances by the Fronting Banks, and the execution and delivery to the Lenders and the Swingline Lenders of the Notes evidencing such loans, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or Swingline Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the LC/BA Exposure does not equal zero and as long as the Commitments and the LC/BA Commitment have not been terminated. SECTION 7.04. Binding Agreement; Assignments. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Grantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Grantors, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Grantor shall have the right to assign its rights hereunder or any interest herein or in the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Grantors that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. SECTION 7.06. Reimbursement of Collateral Agent. (a) The Grantors jointly and severally agree to pay upon demand to the Collateral Agent the amount of any and all reasonable and documentd expenses, including the reasonable and documented fees and expenses of its counsel and of any experts or agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement (including the customary fees and expenses of the Collateral Agent for any audits conducted by it with respect to the Accounts Receivable, Inventory or Third Party Receivables (other than those transferred pursuant to Permitted Receivables Purchase Agreements)), (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof. If the Grantors shall fail to do any act or thing that they have covenanted to do hereunder or any representation or warranty of the Grantors hereunder shall be breached, the Collateral Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach and there shall be added to the Obligations the cost or expense incurred by the Collateral Agent in so doing. (b) Without limitation of their indemnification obligations under the other Loan Documents, the Grantors jointly and severally agree to indemnify the Collateral Agent and the Indemnitees against, and hold each of them harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any of them arising out of, in any way connected with, or as a result of, the execution, delivery or performance of this Agreement or any claim, litigation, investigation or proceeding relating hereto or to the Collateral, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section 7.06 shall remain operative and in full force and effect regardless of the termination of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 7.06 shall be payable on written demand therefor and shall bear interest at the Default Rate (as defined in the Credit Agreement). SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Grantor in any case shall entitle such Grantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Grantors and the Collateral Agent, with the prior written consent of the Required Lenders. SECTION 7.09. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 7.09. SECTION 7.10. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7.11. Jurisdiction; Consent to Service of Process. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or its properties in the courts of any jurisdiction. (b) Each Grantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 7.12. Termination or Release. (a) This Agreement and the Security Interest shall terminate when all the Obligations have been indefeasibly paid in full and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, the LC/BA Exposure has been reduced to zero and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) Upon any sale or other transfer by any Grantor of any Collateral that is permitted under the Credit Agreement, or, upon the effectiveness of any written consent to the release of the Security Interest in any Collateral pursuant to Section 10.08 of the Credit Agreement, the Security Interest in such Collateral shall be automatically released. (c) In connection with any termination or release pursuant to paragraphs (a) and (b), the Collateral Agent shall execute and deliver to such Grantor, at such Grantor's expense, all Uniform Commercial Code termination statements and similar documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of termination statements or documents pursuant to this Section 7.12 shall be without recourse to or warranty by the Collateral Agent. SECTION 7.13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective as provided in Section 7.04. SECTION 7.14. Additional Grantors. Upon execution and delivery by the Collateral Agent and a subsidiary of the Borrower of an instrument in the form of Annex 3, such subsidiary of the Borrower shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ECKERD CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President ECKERD TOBACCO COMPANY, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President E.I.T., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE HOLDINGS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President CHEMICAL BANK, as Collateral Agent, by /s/ Meredith Vanden Handel Name: Meredith Vanden Handel Title: Vice President Annex 1 to the Security Agreement LOCKBOX AGREEMENT dated as of ________, among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each of the subsidiaries of the Borrower party to the Security Agreement referred to below and listed on the signature pages hereof (together with the Borrower, individually a "Grantor" and collectively the "Grantors"), CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (in such capacity, the "Collateral Agent") for the Secured Parties (such term, and each other capitalized term used but not defined herein, having the meaning given it in the Security Agreement referred to below) and [ ], a [ ] banking corporation (the "Sub-Agent"). A. The Grantors and the Collateral Agent are parties to a Security Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Security Agreement"). Pursuant to the terms of the Security Agreement, each Grantor has granted to the Collateral Agent, for the benefit of the Secured Parties, a perfected security interest in such Grantor's Accounts Receivable (as defined in the Security Agreement) and other Collateral to secure the payment and performance of the Obligations and has irrevocably appointed the Collateral Agent as its agent to collect amounts due in respect of Accounts Receivable (as defined in the Security Agreement), Inventory (as defined in the Security Agreement) and Third Party Receivables (as defined in the Security Agreement) (other than those transferred pursuant to Permitted Receivables Purchase Agreements) (as defined in the Security Agreement). B. The Sub-Agent has agreed to act as collection sub-agent of the Collateral Agent to receive payments on the terms set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Collateral Agent hereby appoints the Sub- Agent as its collection sub-agent under the Security Agreement and authorizes the Sub-Agent, on the terms and subject to the conditions set forth herein, to receive payments in respect of the Accounts Receivable, Inventory and Third Party Receivables (other than those transferred pursuant to Permitted Receivables Purchase Agreements). The Sub-Agent shall have no duty to obtain or read the Security Agreement, to know the definitions of terms defined therein or to comply with any provisions thereof (except to the extent expressly provided in this Agreement). 2. Contemporaneously with the execution and delivery by the Sub-Agent of this Agreement, and for the purposes of this Agreement, the Sub-Agent shall establish and maintain deposit account number [ ] (including all subaccounts thereof) for the benefit of the Collateral Agent (such account being called the "Collection Deposit Account"). The Collection Deposit Account shall be designated with the title "Chemical Bank, as Collateral Agent under the ECKERD Security Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994" (or a similar title). Subject to the Sub-Agent's Terms for Remittance Banking (Lockbox) Services attached hereto as Exhibit A, to the extent that the terms thereof relate to procedures or fees and to the extent not inconsistent with the terms hereof, all payments received by the Sub-Agent in Lockboxes Number [ ] and [ ] or any replacements in respect thereof (the "Lockboxes") shall be deposited in the Collection Deposit Account. All funds at any time on deposit in the Collection Deposit Account shall be held by the Sub-Agent for application in accordance with the terms of this Agreement. The Sub-Agent agrees to give the Collateral Agent prompt notice if the Collection Deposit Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process, except as may be required by law. As security for the payment and performance of the Obligations, each Grantor hereby pledges, assigns and transfers to the Collateral Agent, and hereby creates and grants to the Collateral Agent, a security interest in the Collection Deposit Account and all property and assets held therein. 3. The Collateral Agent shall have the sole right of withdrawal over the Collection Deposit Account and the sole power to agree with the Sub-Agent as to specifications for Lockbox services; provided, however, that the Collateral Agent hereby authorizes the Sub-Agent to permit the Grantors to make withdrawals from the Collection Deposit Account and to agree with the Sub-Agent as to specifications for Lockbox services as they relate to procedures or fees, so long as the Sub-Agent has not received notice from the Collateral Agent pursuant to the next succeeding sentence or paragraph 8 below. Upon receipt of written, telex or telephonic notice (which, in the case of telephonic notice, shall be promptly confirmed in writing) from the Collateral Agent so directing the Sub-Agent at any time, which the Collateral Agent agrees will be given only during the existence of a Default or Event of Default, the Sub-Agent shall no longer permit withdrawals from the Collection Deposit Account to be made or new specifications for Lockbox services to be implemented by the Grantors and, if so directed in such notice, shall (subject to the Sub-Agent's right to request that the Collateral Agent furnish, in form satisfactory to the Sub-Agent, signature cards and/or other appropriate documentation and/or that the Collateral Agent comply with other security procedures satisfactory to the Sub-Agent) promptly transmit to the Collateral Agent, at the office specified in such notice, all funds, if any, then on deposit in, or otherwise to the credit of, the Collection Deposit Account (provided that funds on deposit that are subject to collection may be transmitted promptly upon availability for withdrawal and that the Sub-Agent may retain a reasonable reserve in a separate deposit account with the Sub-Agent for unpaid and future fees and amounts which may be subject to collection). If so directed in such notice, the Sub-Agent shall deliver directly to the Collateral Agent at the office specified in such notice all checks, drafts and other instruments for the payment of money received in the Lockboxes and at the time in the possession of or thereafter received by the Sub-Agent without depositing such checks, drafts or other instruments in the Collection Deposit Account or any other account, provided that the Sub-Agent may retain a reasonable reserve in a separate deposit account with the SubAgent in respect of unpaid and future fees and amounts which may be subject to collection. 4. The Sub-Agent shall furnish the Collateral Agent with monthly statements setting forth the amounts deposited in and withdrawn from the Collection Deposit Account and shall furnish such other information relating to the Collection Deposit Account at such times as shall be reasonably requested by the Collateral Agent. 5. The fees for the services of the Sub-Agent shall be mutually agreed upon between the Grantors and the Sub-Agent and shall be the joint and several obligation of the Grantors; provided, however, that, notwithstanding the terms of any agreement under which the Collection Deposit Account shall have been established with the Sub-Agent, the Grantor and the Sub-Agent agree not to terminate such Collection Deposit Account for any reason (including, without limitation, the failure of the Grantors to pay such fees) for so long as this Agreement shall remain in effect (it being understood that the foregoing shall not be construed to prohibit the resignation of the Sub-Agent in accordance with paragraph 8 below). Neither the Collateral Agent nor the Secured Parties shall have any liability for the payment of any such fees. 6. The Sub-Agent may perform any of its duties hereunder by or through its agents, officers or employees and shall be entitled to rely upon the advice of counsel as to its duties. The Sub-Agent shall not be liable to the Collateral Agent or the Grantors for any action taken or omitted to be taken by it in good faith, nor shall the Sub- Agent be responsible to the Collateral Agent or the Grantors for the consequences of any oversight or error of judgment or be answerable to the Collateral Agent for the same unless such consequences shall occur through the Sub-Agent's gross negligence or wilful misconduct. 7. The Sub-Agent hereby represents and warrants that (a) it is a banking corporation duly organized, validly existing and in good standing under the laws of [ ] and has full corporate power and authority under such laws to execute, deliver and perform its obligations under this Agreement and (b) the execution, delivery and performance of this Agreement by the Sub-Agent have been duly and effectively authorized by all necessary corporate action and this Agreement has been duly executed and delivered by the Sub-Agent and constitutes a valid and binding obligation of the Sub-Agent enforceable in accordance with its terms. 8. The Sub-Agent may resign at any time as Sub- Agent hereunder by delivery to the Collateral Agent of written notice of resignation not less than thirty days prior to the effective date of such resignation. The Sub- Agent may be removed by the Collateral Agent at any time, with or without cause, by written, telex or telephonic notice (which, in the case of telephonic notice, shall be promptly confirmed in writing) of removal delivered to the Sub-Agent. Upon receipt of such notice of removal, or delivery of such notice of resignation, the Sub-Agent (subject to the Sub-Agent's right to request that the Collateral Agent furnish, in form satisfactory to the Sub- Agent, signature cards and/or other appropriate documentation and/or that the Collateral Agent comply with other security procedures satisfactory to the Sub-Agent) will (a) promptly transmit to the Collateral Agent at the office specified in paragraph 11 (or such other office as the Collateral Agent shall specify) all funds, if any, then on deposit in, or otherwise to the credit of, the Collection Deposit Account (provided that funds on deposit that are subject to collection may be transmitted promptly upon availability for withdrawal), (b) deliver directly to the Collateral Agent at the office specified in paragraph 11 (or such other office as the Collateral Agent shall specify) all checks, drafts and other instruments for the payment of money received in the Lockboxes and in the possession of the Sub-Agent, without depositing such checks, drafts or other instruments in the Collection Deposit Account or any other account and (c) deliver any checks, drafts and other instruments for the payment of money received in the Lockboxes by the Sub-Agent after such notice, in whatever form received, directly to the Collateral Agent at the office specified in paragraph 11 (or such other office as the Collateral Agent shall specify). 9. Each Grantor consents to the appointment of the Sub-Agent and agrees that it will not withdraw, or request to withdraw, funds from the Lockboxes or the Collection Deposit Account other than in accordance with the provisions of this Agreement, the Security Agreement and the other Loan Documents (as defined in the Security Agreement). Each Grantor agrees that the Sub-Agent shall incur no liability to such Grantor as a result of any action taken pursuant to an instruction given by the Collateral Agent in accordance with the provisions of this Agreement. Each Grantor agrees to indemnify and defend the Sub-Agent against any loss, liability, claim or expense (including reasonable attorneys' fees) arising from the Sub-Agent's entry into this Agreement and actions taken hereunder, except to the extent resulting from the Sub-Agent's gross negligence or willful misconduct. 10. The term of this Agreement shall extend from the date hereof until the earlier of (a) the date on which the Sub-Agent has been notified in writing by the Collateral Agent that the Sub-Agent has no further duties under this Agreement and (b) the date of termination specified in the notice of removal given by the Collateral Agent, or notice of resignation given by the Sub-Agent, as the case may be, pursuant to paragraph 8. The obligations of the Sub-Agent contained in the last sentence of paragraph 8 and the obligations of the Grantors contained in paragraphs 5, 9 and 14 shall survive the termination of this Agreement. 11. All notices and communications hereunder shall be in writing or by telex (except where telephonic instructions or notices are authorized herein) and shall be deemed to have been received and shall be effective on the day on which delivered (a) in the case of the Collateral Agent, to Chemical Bank, 270 Park Avenue, New York, New York 10017, Attention of [ ], and (b) in the case of the Sub-Agent, addressed to [ ], Attention of [ ]. For purposes of this Agreement, any officer of the Collateral Agent shall be authorized to act, and to give instructions and notices, on behalf of the Collateral Agent hereunder. 12. The Sub-Agent will not assign or transfer any of its rights or obligations hereunder (other than to the Collateral Agent) without the prior written consent of the other parties hereto. 13. This Agreement may be amended only by a written instrument executed by the Collateral Agent, the Sub-Agent and the Grantors, acting by their representative officers thereunto duly authorized. 14. Except as otherwise provided in the Credit Agreement with respect to rights of setoff available to the Sub-Agent in its capacity as a Lender (if and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby irrevocably waives any right to set off against, or otherwise deduct from, any funds held in the Collection Deposit Account any indebtedness or other claim owed by the Grantor to the Sub-Agent; provided, however, that this paragraph shall not limit the ability of the SubAgent to, and the Sub-Agent may, (a) exercise any right to setoff against, or otherwise deduct from, any such funds to the extent necessary for the Sub-Agent to collect any fees owed to it by the Grantors in connection with the Collection Deposit Account, (b) charge back and net against the Collection Deposit Account any returned or dishonored items or other adjustments in accordance with the Sub-Agent's usual practices and (c)(i) establish the reserves contemplated in paragraph 3 in respect of unpaid and future fees and amounts which may be subject to collection and (ii) to transfer funds in respect of such reserves from the Collection Deposit Account to the separate deposit account with the Sub-Agent as contemplated in paragraph 3. 15. This Agreement shall inure to the benefit of and be binding upon the Collateral Agent, the Sub-Agent, the Grantors and their respective permitted successors and assigns. 16. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 18. The Sub-Agent shall be an independent contractor. This Agreement does not give rise to any partnership, joint venture or fiduciary relationship. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. ECKERD CORPORATION, by Name: Title: CLORWOOD DISTRIBUTORS, INC., by Name: Title: ECKERD CONSUMER PRODUCTS, INC., by Name: Title: ECKERD FLEET, INC., by Name: Title: ECKERD HOLDINGS II, INC., by Name: Title: ECKERD'S WESTBANK, INC., by Name: Title: ECKERD TOBACCO COMPANY, INC., by Name: Title: E.I.T., INC., by Name: Title INSTA-CARE HOLDINGS, INC., by Name: Title: INSTA-CARE PHARMACY SERVICES CORPORATION, by Name: Title: P.C.V., INC., by Name: Title: PHARMACY DYNAMICS GROUP, INC., by Name: Title: CHEMICAL BANK, as Collateral Agent, by Name: Title: [SUB-AGENT], by Name: Title: Annex 3 to the Security Agreement SUPPLEMENT NO. dated as of , to the Security Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Security Agreement"), among ECKERD CORPORATION, a Delaware corporation (the "Borrower"), each of the subsidiaries of the Borrower listed on the signature pages thereof (individually, a "Guarantor" and, collectively, the "Guarantors"; the Guarantors, together with the Borrower, are referred to individually as a "Grantor" and collectively as the "Grantors") and CHEMICAL BANK, a New York banking corporation ("Chemical Bank"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Security Agreement). A. Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the "Credit Agreement"), among the Borrower, the financial institutions party thereto, as lenders (the "Lenders"), Chemical Bank and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and as swingline lenders (in such latter capacity, each a "Swingline Lender"), and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement and the Credit Agreement. C. The Borrower and certain Subsidiaries of the Borrower have entered into the Security Agreement in order to induce the Lenders to make Loans, the Swingline Lenders to make Swingline Loans and the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptances. Pursuant to Section 6.10(b) of the Credit Agreement, each Subsidiary of the Borrower that was not in existence or not a Subsidiary of the Borrower on the date thereof or that was previously an Inactive Subsidiary is required to enter into the Security Agreement as a Grantor upon or, in the case of an Inactive Subsidiary, prior to becoming a Subsidiary. Section 7.14 of the Security Agreement provides that additional subsidiaries of the Borrower may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a subsidiary of the Borrower and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Grantor under the Security Agreement in order to induce the Lenders to make additional Loans, the Swingline Lenders to make additional Swingline Loans and the Fronting Banks to issue additional Letters of Credit and originate additional Bankers' Acceptances and as consideration for Loans and Swingline Loans previously made, Letters of Credit previously issued and Bankers' Acceptances previously originated. Accordingly, the Collateral Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Grantor by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees (a) to all the terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Grantor, as security for the payment and performance in full of the Obligations, does hereby create and grant to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, their successors and permitted assigns, a security interest in the Collateral (as defined in the Security Agreement) of the New Grantor. Each reference to a "Grantor" in the Security Agreement shall be deemed to include the New Grantor. The Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Collateral Agent. SECTION 4. The New Grantor hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Grantor and (b) set forth under its signature hereto, is the true and correct location of the chief executive office of the New Grantor. SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement. All communications and notices hereunder to the New Grantor shall be given to it at the address set forth under its signature hereto, with a copy to the Borrower. SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], by Name: Title: Address: CHEMICAL BANK, as Collateral Agent, by Name: Title: EX-10.25 10 TRADEMARK SECURITY AGREEMENT dated as of June 14, 1993, as amended and restated as of Augut 3, 1994, among ECKERD CORPORATION, a Delaware corporation (the Borrower ), each of the subsidiaries of the Borrower listed on the signature pages hereof (individually, a Guarantor and, collectively, the Guarantors ; the Guarantors, together with the Borrower, are referred to individually as a Grantor and collectively as the Grantors ) and CHEMICAL BANK, a New York banking corporation ( Chemical Bank ), as collateral agent (in such capacity, the Collateral Agent ) for the Secured Parties (as defined herein). Reference is made to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (as amended or modified from time to time, the Credit Agreement ), among the Borrower, the financial institutions party thereto, as lenders (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., a national banking association ( NationsBank ), as managing agents and as swingline lenders (in such latter capacity, each a Swingline Lender ), and Chemical Bank, as administrative agent (in such capacity, the Administrative Agent ) for the Lenders, the Swingline Lenders and the Fronting Banks. The Lenders and the Swingline Lenders have agreed to make Loans and Swingline Loans, respectively, to the Borrower, and the Fronting Banks have agreed to issue Letters of Credit and to originate Bankers' Acceptances for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Credit Agreement. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances are conditioned upon, among other things, the execution and delivery by the Grantors of a trademark security agreement in the form hereof to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit or Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under the Credit Agreement and the other Loan Documents to which the Borrower is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being referred to collectively as the Obligations ). Accordingly, the Grantors and the Collateral Agent, on behalf of itself and each other Secured Party (and each of their successors or assigns), hereby agree as follows: SECTION 1. Definition of Terms Used Herein. All capitalized terms used but not defined herein shall have the meanings set forth in the Credit Agreement. SECTION 2. Definition of Certain Terms Used Herein. As used herein, the following terms shall have the following meanings: Collateral shall mean all the following, whether now owned or hereafter acquired by any Grantor: (a) Trademark Licenses, (b) Trademarks, including registrations, recordings and applications listed on Schedule I attached hereto and (c) all products and Proceeds (including insurance proceeds) of, and additions, improvements and accessions to, and books and records describing or used in connection with, any and all the property described above. Proceeds shall mean any consideration received from the sale, exchange or other disposition of any asset or property that constitutes Collateral, any value received as a consequence of the possession of any Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property that constitutes Collateral, any claims of either Grantor against third parties for past, current or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark or Trademark licensed under any Trademark License and any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. Secured Parties shall mean (a) the Lenders, (b) the Fronting Banks, (c) the Administrative Agent, (d) the Collateral Agent, (e) the Swingline Lenders and (f) the successors and assigns of each of the foregoing. Trademark Licenses shall mean any written agreement granting to any third party any right to use any Trademark now or hereafter owned by any Grantor, or granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, except for any agreement that by its terms prohibits the assignment or grant of security interests therein. Trademarks shall mean all of the following now or hereafter owned: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office, any State of the United States or any other country or any political subdivision thereof, (b) all goodwill of the business symbolized by and/or associated therewith and (c) all extensions or renewals thereof. SECTION 3. Rule of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 4. Security Interest. As security for the payment or performance, as the case may be, of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to the Collateral Agent, its successors and its assigns, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, a security interest in, all of such Grantor's right, title and interest in, to and under the Collateral (the Security Interest ). Without limiting the foregoing, the Collateral Agent is hereby authorized to file one or more financing statements, continuation statements, filings with the United States Patent and Trademark Office, or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest without the signature of each Grantor, naming any Grantor or the Grantors as debtors and the Collateral Agent as secured party. Each Grantor agrees at all times to keep such accurate and complete accounting records with respect to the Collateral as are consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged. SECTION 5. Further Assurances. Each Grantor agrees, at its expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request for the better assuring and preserving of the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest created hereby and the filing of any financing statements or other documents (including filings with the United States Patent and Trademark Office) in connection herewith, and the execution and delivery of any document required to supplement this Agreement with respect to any Trademarks acquired, registered or issued after the date hereof. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall (to the extent not previously pledged and delivered pursuant to the Pledge Agreement) be immediately pledged and delivered to the Collateral Agent, duly endorsed in a manner reasonably satisfactory to the Collateral Agent. SECTION 6. Inspection and Verification. The Collateral Agent and such persons as the Collateral Agent may reasonably designate shall have the right, at any reasonable time or times, upon reasonable notice and at such Grantor's own cost and expense, to inspect the Collateral, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral is located, to discuss any Grantor's affairs with the officers of such Grantor and its independent accountants and to verify under reasonable procedures the validity, amount, quality, quantity, value, conditions and status of, or any other matter relating to, the Collateral, including, in the case of Collateral in the possession of any third party, by contacting such person possessing such Collateral for the purpose of making such a verification. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any other Secured Party (it being understood that any such information shall be deemed to be Information subject to the provisions of Section 10.15 of the Credit Agreement). SECTION 7. Taxes; Encumbrances. At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, liens, security interests or other encumbrances at any time levied or placed on the Collateral other than as the same may be permitted under the Loan Documents, and may pay for the maintenance and preservation of the Collateral to the extent any Grantor fails to do so as required by this Agreement or the other Loan Documents, and such Grantor agrees to reimburse the Collateral Agent on demand for any payment made or any reasonable and documented expense incurred by it pursuant to the foregoing authorization; provided, however, that nothing in this Section 7 shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any other Secured Party to cure or perform, any covenants or other promises of the Grantors with respect to taxes, assessments, charges, fees, liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. SECTION 8. Representations and Warranties. The Grantors jointly and severally represent, warrant and covenant to and with the Collateral Agent and each other Secured Party that: (a) Title and Authority. Each Grantor has rights in such Collateral and good title to the United States registrations of the Trademarks shown on Schedule I with respect to which it has purported to grant the Security Interest hereunder and has full corporate power and authority to grant to the Collateral Agent the Security Interest in such Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval that has been obtained. (b) Filings. Fully executed Uniform Commercial Code financing statements containing a description of the Collateral have been delivered to the Collateral Agent for filing in every governmental, municipal or other office in every jurisdiction in which any portion of the Collateral is located necessary to establish a valid and perfected security interest in favor of the Collateral Agent in respect of the Collateral in which a security interest may be perfected by filing in the United States and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements and except to record notice of the Security Interest with the United States Patent and Trademark Office with respect to applications for registration and registrations of such Trademarks that are filed or acquired after the date hereof. (c) Validity of Security Interest. The Security Interest constitutes a valid and, upon the filing of the Uniform Commercial Code financing statements referred to in paragraph (b) above and upon filing financing statements and filings with the United States Patent and Trademark Office and appropriate state offices with respect to state registered trademarks, perfected first priority security interest in all such Collateral in which a security interest may be perfected by filing in the United States and its territories and possessions, provided that recordation of the Security Interest in the United States Patent and Trademark Office may be required with respect to Trademarks acquired by the Debtor after the date hereof. (d) Information Regarding Names and Locations. Each Grantor has disclosed in writing to the Collateral Agent on Schedule II the material trade names used to identify it in its business or in the ownership of its properties. (e) Absence of Other Liens. Such Collateral is owned by the Grantors free and clear of any Lien of any nature whatsoever (except for Liens expressly permitted by Section 7.02 of the Credit Agreement or hereby and any liens or licenses listed on Schedule III). None of the Grantors has filed a financing statement under the Uniform Commercial Code covering any such Collateral used in the United States, nor has any Grantor filed any assignment in which it assigns such Collateral, any security agreement or any similar instrument covering such Collateral with the United States Patent and Trademark Office, other than as contemplated hereby, which financing statement, assignment, security agreement or similar instrument is still in effect. (f) Licenses. On the date hereof, there is no default by any Licensee under the Trademark Licenses listed on Schedule III hereto. SECTION 9. Covenants Regarding Trademark Collateral. (a) Each Grantor (either itself or through licensees) will, for each Trademark material to the conduct of such Grantor's business, (i) to the extent consistent with past practice, continue to use such Trademark currently in use on each and every trademark class of goods applicable to its current line of products and/or services as currently reflected in order to maintain such Trademark in full force free from any claim of abandonment for nonuse, provided that such Grantor may modify or abandon its logos, change advertising campaign slogans and discontinue or abandon the use of any Trademark, in each case consistent with its ordinary business practice, (ii) maintain as in the past (or as future business requirements may dictate) the quality of products and services offered under such Trademark, (iii) with respect to Trademarks used in the United States or as otherwise required by law, employ such Trademark with the notice of Federal registration as the case may be, except where the failure to do so would not materially impair such Grantor's rights to or in such Trademark, (iv) not knowingly use such Trademark in violation of any third party rights (which shall not be construed to include any of the liens listed on Schedule III) and (v) not (and not knowingly permit any licensee or sub-licensee thereof to) do any act or omit to do any act whereby such Trademark may become or be deemed to have been abandoned or invalidated except as provided in the proviso to clause (i) above. (b) Each Grantor shall notify the Collateral Agent immediately if it knows or has reason to know that any Trademark material to the conduct of its business may become abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court) regarding the Grantor's ownership of any such material Trademark, its right to register the same, or to keep and maintain the same. (c) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for any Trademark material to the conduct of its business with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs the Collateral Agent and, upon request of the Collateral Agent, executes and delivers to the Collateral Agent any and all agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence and, in the case of applications for Trademarks with the United States Patent and Trademark Office, perfect the Collateral Agent's security interest in such Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (d) Each Grantor will take all necessary steps (except as provided in Section 9(a)(i)) that are consistent with the practice in any proceeding before the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each material application relating to the Trademarks material to the conduct of its business (and to obtain the relevant grant or registration) and to maintain each material registration of the Trademarks that is material to the conduct of such Grantor's business, including, filing of applications for renewal, affidavits of use, affidavits of incontestability and maintenance fees, and, if consistent with good business judgment of such Grantor, to initiate opposition, interference and cancellation proceedings against third parties. (e) In the event that any Collateral consisting of a Trademark material to the conduct of such Grantor's business is believed by such Grantor to have been infringed, misappropriated or diluted by a third party in a manner that materially impairs such Grantor's rights in and to the Trademarks, such Grantor shall notify the Collateral Agent within 15 days after it learns thereof and shall, if consistent with good business judgment or, if reasonably requested by the Collateral Agent, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as are appropriate under the circumstances to protect such Collateral. SECTION 10. Protection of Security. Each Grantor shall, at its own cost and expense, take any and all actions necessary to defend title to the Collateral that is material to the conduct of its business against all persons and to defend the Security Interest of the Collateral Agent in the Collateral and the priority thereof, against any adverse Lien not permitted under the Credit Agreement. SECTION 11. Continuing Obligations of the Grantors. Each Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agreement, interest or obligation relating to the Collateral, all in accordance with the terms and conditions thereof, and shall indemnify and hold harmless the Collateral Agent and the other Secured Parties and each of them severally, from any and all such liabilities. SECTION 12. Grant of License To Use Trademark Collateral. For the purpose of enabling the Collateral Agent to exercise rights and remedies under Sections 14 and 15 hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sub-license any Trademark now owned or hereafter acquired by such Grantor to the extent of the interest of such Grantor therein at such time, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Collateral Agent shall be exercised, at the option of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default, provided that any license, sub-license or other transaction entered into by the Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. The Collateral Agent agrees to apply the net proceeds received from any license towards payment of the Obligations as set forth in Section 15. In operating under the license granted by each Grantor pursuant to this Section 12, the Collateral Agent agrees that the goods sold and services rendered under the Trademarks shall be of a nature and quality substantially consistent with those theretofore offered under such Trademarks by such Grantor and such Grantor shall have the right to inspect during the term of such license, at any reasonable time or times upon reasonable notice to the Collateral Agent and at such Grantor's own cost and expense, representative samples of goods sold and services rendered under the Trademarks. SECTION 13. Power of Attorney. The Collateral Agent is hereby appointed by the Grantors, as the true and lawful agent and attorney in fact of each Grantor, and in such capacity the Collateral Agent shall have the right, with power of substitution for each Grantor and in each Grantor's name or otherwise, for the use and benefit of the Collateral Agent and the other Secured Parties, upon the occurrence and during the continuance of an Event of Default, (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral; (d) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (e) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to or pertaining to all or any of the Collateral; and (f) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; provided, however, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent or any other Secured Party to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent or any other Secured Party, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. It is understood and agreed that the appointment of the Collateral Agent as the agent of each Grantor for the purposes set forth above in this Section 13 is coupled with an interest and is irrevocable. The provisions of this Section 13 shall in no event relieve any Grantor of any of its obligations hereunder or under any other Loan Document with respect to the Collateral or any part thereof or impose any obligation on the Collateral Agent or any other Secured Party to proceed in any particular manner with respect to the Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent or any other Secured Party of any other or further right that it may have on the date of this Agreement or hereafter, whether hereunder, under any other Loan Document, by law or otherwise. Any sale pursuant to the provisions of this Section 13 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York as its equivalent in other jurisdictions. SECTION 14. Remedies upon Default. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of Collateral to the Collateral Agent on demand, and it is agreed that the Collateral Agent shall have the right to take any or all of the following actions at the same or different times: with or without legal process and with or without previous notice or demand for performance, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral and, generally, to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law. Without limiting the generality of the foregoing, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and such Grantor hereby waives (to the fullest extent permitted by applicable law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall give the Grantors 10 days' prior written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions) of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public sale made pursuant to this Section 14, any Secured Party may bid for or purchase, free from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the fullest extent permitted by applicable law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Grantor therefor. For purposes hereof, (a) a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant to such agreement and (c) no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 14 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. SECTION 15. Application of Proceeds of Sale. The proceeds of any sale of Collateral pursuant to Section 15, as well as any Collateral consisting of cash, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs and expenses incurred by or the Collateral Agent in connection with such sale or otherwise in connection with this Agreement, any other Loan Document or any of the Obligations, including all court costs and the reasonable and documented fees, other charges and disbursements of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any of the Grantors and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or thereunder; SECOND, to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement or BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 16. Locations of Collateral; Place of Business. (a) Each Grantor agrees, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form reasonably satisfactory to the Collateral Agent, showing the identity, amount and location of any and all material Collateral. (b) Each Grantor agrees not to change, or permit to be changed, the location of its chief executive office or the name or names used to identify it in its business or in the ownership of its properties unless all filings under the Uniform Commercial Code or otherwise that are required by the Credit Agreement to be made have been made and the Collateral Agent has a valid, legal and perfected security interest in the Collateral subject to no liens, other than liens permitted by Section 7.02 of the Credit Agreement and any liens or licenses listed on Schedule III. SECTION 17. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 10.01 of the Credit Agreement. All communications and notices hereunder to any Grantor shall be given to it at the address set forth on Schedule IV hereto. SECTION 18. Security Interest Absolute. All rights of the Collateral Agent hereunder, the security interests granted hereunder and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non perfection of any Lien on other Collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Obligations or this Agreement (other than the indefeasible payment in full of all the Obligations). SECTION 19. Survival of Agreement. All covenants, agreements, representations and warranties made by the Grantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans, the making by the Swingline Lenders of the Swingline Loans and the issuance of the Letters of Credit and the origination of Bankers' Acceptances by the Fronting Banks, and the execution and delivery to the Lenders and the Swingline Lenders of the Notes evidencing such loans, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or Swingline Loan or any other fee or amount payable under any this Agreement or any other Loan Document is outstanding and unpaid or the LC/BA Exposure does not equal zero and as long as the Commitments and the LC/BA Commitment have not been terminated. SECTION 20. Binding Agreement; Assignments. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Grantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Grantors, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Grantor shall have the right to assign its rights hereunder or any interest herein or in the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 21. Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Grantor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. SECTION 22. Reimbursement of Collateral Agent. (a) The Grantors jointly and severally agree to pay upon demand to the Collateral Agent the amount of any and all reasonable and documented expenses and its fully allocated internal costs, including the reasonable and documented fees and expenses of its counsel and of any experts or agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from or other realization upon any of the Collateral, (iii) the exercise, enforcement or protection of any of the rights of the Collateral Agent hereunder or (iv) the failure of any Grantor to perform or observe any of the provisions hereof. If the Grantors shall fail to do any act or thing that they have covenanted to do hereunder or any representation or warranty of the Grantors hereunder shall be breached, the Collateral Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach and there shall be added to the Obligations the cost or expense incurred by the Collateral Agent in so doing. (b) Without limitation of their indemnification obligations under the other Documents, the Grantors jointly and severally agree to indemnify the Collateral Agent and the Indemnitees against, and hold each of them harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any of them arising out of, in any way connected with, or as a result of, the execution, delivery or performance of this Agreement or any claim, litigation, investigation or proceeding relating hereto or to the Collateral, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section 22 shall remain operative and in full force and effect regardless of the termination of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 22 shall be payable on written demand therefor and shall bear interest at the Default Rate (as defined in the Credit Agreement). SECTION 23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT FEDERAL LAW OR LAWS OF ANOTHER STATE MAY APPLY TO THE TRADEMARKS. SECTION 24. Waivers; Amendment. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Grantor in any case shall entitle such Grantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Grantors and the Collateral Agent, with the prior written consent of the Required Lenders. SECTION 25. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this section 25. SECTION 26. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good- faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 27. Jurisdiction; Consent to Service of Process. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or its properties in the courts of any jurisdiction. (b) Each Grantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 17. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 28. Termination; Release. (a) This Agreement and the security interests granted hereby shall terminate when all the Obligations have been indefeasibly paid in full and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, the LC/BA Exposure has been reduced to zero and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) Upon any sale or other transfer by any Grantor of any Collateral that is permitted under the Credit Agreement, or upon the effectiveness of any written consent to the release of the Security Interest in any Collateral pursuant to Section 10.08 of the Credit Agreement, the Security Interest in such Collateral shall be automatically released. (c) In connection with any termination or release pursuant to paragraphs (a) and (b), the Collateral Agent shall execute and deliver to such Grantor, at such Grantor's expense, all Uniform Commercial Code termination statements, documents in order to terminate any United States Patent and Trademark Office filings and similar documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of termination statements or documents pursuant to this Section 28 shall be without recourse to or warranty by the Collateral Agent. SECTION 29. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 30. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective as provided in Section 20. SECTION 31. Additional Grantors. Upon execution and delivery, after the date hereof, by the Collateral Agent and a subsidiary of the Borrower of an instrument in the form of Annex 1, such subsidiary of the Borrower shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Trademark Security Agreement as of the day and year first above written. ECKERD CORPORATION, by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President ECKERD TOBACCO COMPANY, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President E.I.T., INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President INSTA-CARE HOLDINGS, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name:Martin W. Gladysz Title:Vice President CHEMICAL BANK, as Collateral Agent, by /s/ Meredith Vanden Handel Name: Meredith Vanden Handel Title: Vice President EX-10.26 11 REVOLVING CREDIT NOTE $350,000,000 New York, New York August 3, 1994 FOR VALUE RECEIVED, the undersigned, ECKERD CORPORATION, a Delaware corporation (the Borrower ), hereby promises to pay ____________________________ or registered assigns (the Lender ), at the office of Chemical Bank (the Administrative Agent ) at 270 Park Avenue, New York, New York 10017, (a) on the last day of each Interest Period (as defined in the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the Credit Agreement ), among the Borrower, the Lenders named therein, Chemical Bank and NationsBank of Florida, N.A., as Managing Agents and as Swingline Lenders, and the Administrative Agent), the aggregate unpaid principal amount of all Revolving Loans (as defined in the Credit Agreement) made by the Lender to the Borrower pursuant to the Credit Agreement to which the Interest Period applies and (b) on the Revolving Credit Maturity Date (as defined in the Credit Agreement), the lesser of the principal sum of THREE HUNDRED FIFTY MILLION Dollars $350,000,000) and the aggregate unpaid principal amount of all Revolving Loans made to the Borrower by the Lender pursuant to the Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. This Note is issuable only in registered form. The holder hereof, by its acceptance of this Note, shall be deemed to have agreed to transfer this Note only on the terms provided in the Credit Agreement. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates and maturity dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof that shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligations of the Borrower under this Note. This Note is one of the Revolving Credit Notes referred to in the Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is secured as provided in the Credit Agreement. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. ECKERD CORPORATION, By: /s/ MARTIN W. GLADYSZ Name: MARTIN W. GLADYSZ Title: Vice President LOANS AND PAYMENTS Payments Unpaid Name of Amount Principal Person and Type Maturity Balance Making Date of Loan Date Principal Interest of Note Notation EX-10.27 12 TERM NOTE $500,000,000 New York, New York August 3, 1994 FOR VALUE RECEIVED, the undersigned, ECKERD CORPORATION, a Delaware corporation (the Borrower ), hereby promises to pay ____________________________ or registered assigns (the Lender ), at the office of Chemical Bank (the Administrative Agent ) at 270 Park Avenue, New York, New York 10017, (a) on the Term Loan Maturity Date (as defined in the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the Credit Agreement ), among the Borrower, the Lenders named therein, Chemical Bank and NationsBank of Florida, N.A., as Managing Agents and as Swingline Lenders, and the Administrative Agent), the aggregate unpaid principal amount of all Term Loans (as defined in the Credit Agreement) made to the Borrower by the Lender pursuant to the Credit Agreement and (b) on each Term Loan Repayment Date (as defined in the Credit Agreement) prior to the Term Loan Maturity Date, the principal amount of Term Loans made to the Borrower by the Lender pursuant to the Credit Agreement and payable to the Lender on such Term Loan Repayment Date as provided therein, in each case in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. This Note is issuable only in registered form. The holder hereof, by its acceptance of this Note, shall be deemed to have agreed to transfer this Note only on the terms provided in the Credit Agreement. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof that shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligations of the Borrower under this Note. This Note is one of the Term Notes referred to in the Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is secured as provided in the Credit Agreement. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. ECKERD CORPORATION, By: /s/ MARTIN W. GLADYSZ Name: MARTIN W. GLADYSZ Title: Vice President LOANS AND PAYMENTS Payments Unpaid Name of Amount Principal Person and Type Maturity Balance Making Date of Loan Date Principal Interest of Note Notation EX-10.28 13 SWINGLINE NOTE $15,000,000 New York, New York August 3, 1993 FOR VALUE RECEIVED, the undersigned, ECKERD CORPORATION, a Delaware corporation (the Borrower ), hereby promises to pay _________________________ or registered assigns (the Swingline Lender ), at its office at _________________________ or to such account of the Swingline Lender as specified by notice from the Swingline Lender to the Borrower, (a) on the last day of each Interest Period (as defined in the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the Credit Agreement ), among the Borrower, the Lenders named therein (the Lenders ), Chemical Bank and NationsBank of Florida, N.A., as Managing Agents and as Swingline Lenders, and Chemical Bank, as Administrative Agent), the aggregate unpaid principal amount of all Swingline Loans (as defined in the Credit Agreement) made by the Swingline Lender to the Borrower pursuant to the Credit Agreement to which the Interest Period applies and (b) on the Revolving Credit Maturity Date (as defined in the Credit Agreement), the lesser of the principal sum of FIFTEEN MILLION Dollars ($15,000,000) and the aggregate unpaid principal amount of all Swingline Loans made to the Borrower by the Swingline Lender pursuant to the Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. This Note is issuable only in registered form. The holder hereof, by its acceptance of this Note, shall be deemed to have agreed to transfer this Note only on the terms provided in the Credit Agreement. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates and maturity dates thereof and all purchases by the Lenders of any Swingline Loans evidenced hereby shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof that shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligations of the Borrower under this Note. This Note is one of the Swingline Notes referred to in the Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is secured as provided in the Credit Agreement. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. ECKERD CORPORATION, By: /s/ MARTIN W. GLADYSZ Name: MARTIN W. GLADYSZ Title: Vice President LOANS, PAYMENTS AND LENDER PURCHASES Payments or Purchases Unpaid Name of by Lenders Principal Person Amount Maturity Balance Making Date of Loan Date Principal Interest of Note Notation EX-10.29 14 DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS THIS DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 14, 1994 as amended and restated as of August 3, 1994, (this "Deed of Trust"), by ECKERD CORPORATION, formerly known as Jack Eckerd Corporation, a Delaware corporation, having an office at 8333 Bryan Dairy Road, Largo, Florida 34647 (the "Grantor"), to Kenneth F. Plifka (the "Trustee") for the benefit of CHEMICAL BANK, a New York banking corporation ("Chemical"), having an office at 270 Park Avenue, New York, New York 10017, as Collateral Agent for the Secured Parties (as defined herein) (in such capacity, together with its successors" substitutes and assigns, the "Beneficiary"). WITNESSETH THAT: A. The Grantor as the Borrower (such term and each other capitalized term used herein but not defined herein shall have the meaning given to such term in the Credit Agreement (as defined herein)), has entered into an amended and restated credit agreement dated as of the date hereof of the credit agreement dated as of June 14, 1993 (the "1993 Agreement"), (such amended and restated credit agreement, as amended or modified from time to time, the "Credit Agreement"), with the financial institutions party thereto, as lenders (the "Lenders"), Chemical and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and swingline lenders (in such latter capacity, each a "Swingline Lender") and Chemical, as administrative agent (in such capacity, the "Administrative Agent") and NationsBank as documentation Agent (in such capacity, the "Documentation Agent"). B. Pursuant to the Credit Agreement (a) the Lenders and the Swingline Lenders, respectively, have agreed to extend credit in order to enable the Mortgagor to borrow (i) on a term basis, Term Loans in an aggregate principal amount not to exceed $500,000,000 and having a scheduled maturity date of July 29, 2000, (ii) on a revolving basis, Revolving Loans, at any time and from time to time prior to July 29, 2000, in an aggregate principal amount at any time outstanding not in excess of the difference between $350,000,000 and the sum of (A) the aggregate principal amount of the Swingline Loans outstanding at such time and (B) the LC/BA Exposure at such time and (iii) on a revolving basis, at any time and from time to time prior to July 29, 2000, Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $30,000,000 and (b) the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptance in an aggregate face amount at any time outstanding not in excess of $155,000,000 and having a scheduled maturity date of July 29, 2000. C. On the Restatement Date, the Mortgagor will (a) use the proceeds of (i) all Term Borrowings and (ii) Revolving Credit Borrowings not in excess of $50,000,000 solely to continue or convert all term loans outstanding under the 1993 Credit Agreement and (b) use the proceeds of any additional Revolving Credit Borrowings solely to continue or convert all revolving loans outstanding under the 1993 Credit Agreement. The proceeds of Revolving Credit Borrowings following the Restatement Date will be used for the general corporate purposes of the Mortgagor and the Subsidiaries. The proceeds of the Swingline Loans will also be used for the general corporate purposes of the Mortgagor and the Subsidiaries, Letters of Credit and Bankers' Acceptances will be used to support obligations of the Mortgagor and the Subsidiaries incurred in the ordinary course of business of the Mortgagor and the Subsidiaries. D. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances, are conditioned upon, among other things, the execution and delivery by the Grantor of this Deed of Trust, in the form hereof, to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit or Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of the Borrower to the Secured Parties under the Credit Agreement, this Deed of Trust and the other Loan Documents, to which the Borrower is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement, this Deed of Trust and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being referred to, collectively, as the "Obligations"). E. Pursuant to the requirements of the Credit Agreement, the Grantor is entering into this Deed of Trust to grant to the Beneficiary a lien against and create a security interest in the Trust Property (as defined herein) to secure the performance and payment by the Grantor of the Obligations. The Credit Agreement also requires the granting by Grantor of mortgages (the "Other Mortgages") that create security interests in certain Mortgaged Properties other than the Trust Property to secure the performance by the Grantor of the Obligations. Granting Clauses NOW THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the (a) due and punctual payment and performance of the Obligations by the Grantor, (b) the due and punctual payment by the Grantor of all taxes and insurance premiums relating to the Trust Property and (c) all disbursements made by Beneficiary for the payment of taxes, or insurance premiums, all fees, expenses or advances in connection with or relating to the Trust Property, and interest on such disbursements and other amounts not timely paid in accordance with the terms of the Credit Agreement, this Deed of Trust and the Loan Documents, Grantor hereby grants, bargains, sells, transfers, sets over, assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over unto Trustee, IN TRUST FOREVER, with power of sale, with mortgage covenants, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired; provided, however, that the maximum amount secured by this Deed of Trust in the State of Texas upon recordation or upon any contingency which may be secured hereby at any time hereafter is $850,000,000; (1) the fee estate in the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if any, relating thereto, and also together with all of the other easements, rights, privileges, interests, permits, hereditaments and appurtenances thereunto belonging or in anywise appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Grantor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the "Premises"); (2) all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all legal fixtures of every kind and type affixed to all or any portion of the Premises or attached to or forming part of all or any portion of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the "Improvements"); (3) all apparatus, movable appliances, building materials, equipment, fittings, furnishings, furniture, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, now or at any time hereafter owned by the Grantor and placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Improvements or the Premises, including all of Grantor's books and records relating thereto and including all pumps, tanks, goods, machinery, tools, equipment, lifts (including fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, entertainment, communications, computers, recreational, window or structural, maintenance, truck or car repair and all other equipment of every kind), restaurant, bar and all other indoor or outdoor furniture (including tables, chairs, booths, serving stands, planters, desks, sofas, racks, shelves, lockers and cabinets), bar equipment, glasses, cutlery, uniforms, linens, memorabilia and other decorative items, furnishings, appliances, supplies, inventory, rugs, carpets and other floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and other lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), computer systems, cash registers and inventory control systems, and all other apparatus, equipment, furniture, furnishings, and articles used in connection with the use or operation of the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this paragraph (3), including Grantor's interest as lessee under any lease of personal property to the extent such lease does not prohibit such grant, being hereinafter called the "Personal Property"); (4) all general intangibles now owned or hereafter acquired by the Grantor and relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (the "Permits, Plans and Warranties"); (5) Grantor's interest in and rights under all leases or licenses (under which Grantor is landlord or licensor) and subleases (under which Grantor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, "Leases"), and all agreements or contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Grantor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ("Rents"); (6) all of Grantor's right, title and interest in and to all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims, including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards which may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets ("Proceeds"), together with any and all moneys now or hereafter on deposit for the payment of real estate taxes or assessments levied against the Trust Property, unearned premiums on policies of fire and other insurance maintained by the Grantor covering any interest in the Trust Property or required by the Credit Agreement; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Personal Property, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Grantor or constructed, assembled or placed by the Grantor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, deed of trust, conveyance, assignment or other act by the Grantor, all of which shall become subject to the lien of this Deed of Trust as fully and completely, and with the same effect, as though now owned by the Grantor and specifically described herein. TO HAVE AND TO HOLD the Trust Property and the rights and privileges hereby mortgaged or intended to be, unto Trustee, its successors and assigns for the uses and purposes herein set forth, for the benefit of the Beneficiary, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancellation as provided in Section 3.05. IN TRUST NEVERTHELESS, upon the terms and trust herein set forth for the benefit and security of the Beneficiary. ARTICLE I Representations, Warranties and Covenants of Grantor Grantor agrees, covenants, represents and/or warrants as follows: SECTION 1.01. Title. (a) Grantor has good and marketable title to a fee estate in the Land and Improvements subject to no lien, charge or encumbrance except for, and this Deed of Trust is and will remain a valid and enforceable first and prior lien on the Premises, Improvements and the Rents subject only to, in each case, Liens permitted by Section 7.02 of the Credit Agreement and the exceptions and encumbrances referred to in Schedule A annexed hereto. (b) Grantor has good and marketable title to all the Personal Property subject to no lien, charge or encumbrance other than this Deed of Trust and those allowed under Section 7.02 of the Credit Agreement. The Personal Property is not and will not become the subject matter of any lease or other arrangement that is not allowed under Section 7.02 of the Credit Agreement, whereby the ownership of any Personal Property will be held by any person or entity other than Grantor; except as expressly permitted by Section 7.05 of the Credit Agreement, none of the Personal Property will be removed from the Premises or the Improvements unless the same is no longer needed for the continued operation of the Premises and the Improvements as currently operated (or as then operated, to the extent that any change from the current manner of operation was permitted by the Credit Agreement) or is replaced by other Personal Property of substantially equal or greater utility and value; and, except as expressly permitted by Section 7.05 of the Credit Agreement, Grantor will not create or cause to be created (other than those allowed under Section 7.02 of the Credit Agreement) any security interest covering any of the Personal Property that Grantor owns other than the security interest in the Personal Property created in favor of Beneficiary by this Deed of Trust or any other agreement collateral hereto. (c) All easement agreements, covenant or restrictive agreements, supplemental agreements and any other instruments hereinabove referred to and mortgaged hereby are and will remain valid, subsisting and in full force and effect, unless the failure to remain valid, subsisting and in full force and effect, individually or in the aggregate, would not have a material adverse effect on the Trust Property, and Grantor is not in default thereunder and has fully performed the material terms thereof required to be performed through the date hereof, and has no knowledge of any default thereunder or failure to fully perform the terms thereof by any other party, nor of the occurrence of any event which after notice or the passage of time or both will constitute a default thereunder, unless the default thereunder by Grantor or by any other party, individually or in the aggregate, would not have a material adverse effect on the Trust Property. (d) Grantor has good and lawful right and full power and authority to mortgage or grant a security interest in the Trust Property. Grantor will forever warrant and defend its title to the Trust Property, the rights of Beneficiary therein under this Deed of Trust and the validity and priority of the lien of this Deed of Trust thereon against the claims of all persons and parties except those having rights under Permitted Encumbrances to the extent of those rights and those having rights under any exception or matter permitted by Section 7.02 of the Credit Agreement. (e) This Deed of Trust, when duly recorded in the appropriate public records and when financing statements are duly filed in the appropriate public records, will create a valid, perfected and enforceable lien upon and security interest in all the Trust Property and there will be no defenses or offsets to this Deed of Trust or to any of the Obligations secured hereby, (i) except as the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity. SECTION 1.02. Credit Agreement; Certain Amounts. (a) This Deed of Trust is given pursuant to the Credit Agreement. Each and every term and provision of the Credit Agreement, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Deed of Trust. (b) If any remedy or right of Trustee or Beneficiary pursuant hereto is acted upon by Trustee or Beneficiary or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which Trustee or Beneficiary is made a party and is obliged to defend or uphold or enforce this Deed of Trust or the rights of Trustee or Beneficiary hereunder or the terms of any Lease, or if a condemnation proceeding is instituted affecting the Trust Property, Grantor will pay all sums, including reasonable attorneys' fees and disbursements, incurred by Trustee or Beneficiary related to the exercise of any remedy or right of Trustee or Beneficiary pursuant hereto or for the expense of any such action or proceeding together with all statutory or other costs, disbursements and allowances, interest thereon from the date of demand for payment thereof at the Default Rate, and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Trust Property prior to any right, title to, interest in or claim upon the Trust Property attaching or accruing subsequent to the recording of this Deed of Trust and shall be secured by this Deed of Trust to the extent permitted by law. (c) Any payment of amounts due under this Deed of Trust not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Rate, and such interest at the Default Rate shall be immediately due upon demand by Trustee or Beneficiary. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except as may be permitted by Section 6.03 of the Credit Agreement, Grantor will pay and discharge from time to time when the same shall become due and payable, and before any interest or penalty accrues thereon or attaches thereto, all taxes of every kind and nature, all general and special assessments, levies, permits, inspection and license fees, all water and sewer rents, all vault charges, and all other public charges, and all service charges, common area charges, private maintenance charges, utility charges and all other private charges, whether of a like or different nature, imposed upon or assessed against the Trust Property or any part thereof or upon the Rents from the Trust Property or arising in respect of the occupancy, use or possession thereof. At Beneficiary's option, Beneficiary may require Grantor to contract with a tax service firm to provide to Beneficiary on or about the same times each year, receipts evidencing the payment of all such taxes, assessments, levies, fees and other public charges imposed upon or assessed against the Trust Property or may provide such information to Beneficiary from internal sources. (b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Deed of Trust or debts secured by mortgages (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Beneficiary, either directly or indirectly, on this Deed of Trust, the Notes or any of the Loan Documents or to require an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event Grantor shall (i) agree to enter into such further instruments, including but not limited to new notes to be issued in exchange for the Notes theretofore issued, as may be reasonably necessary or desirable to obligate Grantor to make any applicable additional payments, and (ii) Grantor shall make such additional payments under the Notes. If Grantor is not permitted by law to do that which is required by the preceding sentence, Grantor shall be required to do so to the extent there are unencumbered assets of Grantor to substitute collateral for the Trust Property which is of equivalent value upon notice from Beneficiary promptly after such determination is reached. (c) At any time that an Event of Default shall occur hereunder, or if required by any law applicable to Grantor or to Beneficiary, Beneficiary shall have the right to direct Grantor to make an initial deposit on account of real estate taxes and assessments, insurance premiums and common area charges, levied against or payable in respect of the Trust Property in advance and thereafter semi-annually, each such deposit to be equal to one-half of any such annual charges reasonably estimated by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. SECTION 1.04. Payment of Closing Costs. Grantor shall pay all reasonable costs in connection with, relating to or arising out of the preparation, execution and recording of this Deed of Trust, including title company premiums and charges for a customary loan policy with such endorsements as may be reasonably requested by Beneficiary, inspection costs, survey costs, recording fees and taxes, attorneys', engineers', appraisers' and consultants' fees and disbursements and all other similar expenses of every kind. SECTION 1.05. Alterations and Waste; Plans. (a) No Improvements will be materially altered or demolished or removed in whole or in part by Grantor except as provided by Section 1.05(c) hereof. Grantor will not commit any waste on the Trust Property or make any alteration to, or change in the use of, the Trust Property which will diminish the fair market value thereof or materially increase any ordinary fire or other hazard arising out of construction or operation, but in no event shall any such alteration or change be contrary to the terms of any insurance policy required to be kept pursuant to Section 1.06. Grantor will maintain and operate, the Improvements and Personal Property in good repair, working order and condition, reasonable wear and tear excepted. (b) Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property currently in possession of Grantor either at the Trust Property or in a particular office at the headquarters of Grantor to which Beneficiary shall have access upon reasonable advance notice. (c) Grantor shall in connection with any lease or sublease permitted by Section 7.05(j) of the Credit Agreement have the right to alter the Trust Property for purposes of performing reasonable improvements in connection with such lease or sublease. SECTION 1.06. Insurance. Grantor will (a) Keep the Trust Property (including Improvements and Personal Property (each as defined in the Deed of Trust)) insured at all times by financially sound and reputable insurers against loss by fire, casualty and such other hazards as may be afforded by an "all risk" policy or a fire policy covering "special" causes of loss, including building ordinance law endorsements; cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Collateral Agent, which endorsement shall provide that, from and after the Restatement Date, the insurance carrier subject to the provisions of Sections 1.07 and 1.08 hereof, shall pay all proceeds otherwise payable to the Grantor under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Grantor, the Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Collateral Agent may reasonably require from time to time to protect its interest; provided, however, that if additional coverage is required, Grantor will obtain such coverage only if such coverage is (i) customarily maintained by others in the same or similar business in the geographic region of the Trust Property, and (ii) available at commercially reasonable rates (if available to Grantor); deliver, original or certified copies of all such policies to the Collateral Agent confirming that the terms of such policy are in compliance with the provisions of this Section 1.06 hereof; cause each such policy to provide that it shall not be canceled, modified or not renewed for any reason upon not less than 30 days' prior written notice thereof by insurer to the Collateral Agent; deliver to the Collateral Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent), together with evidence reasonably satisfactory to the Collateral Agent of timely payment of the premium therefor promptly after making such payment; (b) If at any time the area in which the Premises (as defined in the Deed of Trust) are located is designated a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency, obtain flood insurance in such total amount as the Collateral Agent may from time to time reasonably require, and otherwise comply with the National Flood Insurance Program as set forth in said Flood Disaster Protection Act of 1973, as it may be amended from time to time. (c) With respect to any Trust Property, carry and maintain comprehensive general liability insurance including the "broad form endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $5,000,000, naming the Collateral Agent as an additional insured, on forms reasonably satisfactory to the Collateral Agent. (d) Notify the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 1.06 is taken out by the Grantor; and promptly deliver to the Collateral Agent a duplicate original copy of such policy or policies. SECTION 1.07. Casualty; Restoration of Casualty Damage. Notwithstanding any other provisions of this Deed of Trust or the other Loan Documents, the Collateral Agent is authorized, at its option, to collect and receive, all insurance Proceeds, damages, claims and rights of action and the right thereto under any insurance policies with respect to a casualty relating to any portion of the Trust Property; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the insurance carrier to pay such proceeds directly to the Grantor. Grantor agrees to notify the Collateral Agent, in writing, in reasonable detail of any casualty to the Trust Property, promptly after the Grantor obtains notice of any casualty to all or any portion of the Trust Property. SECTION 1.08. Condemnation/Eminent Domain. Grantor will notify the Collateral Agent immediately upon obtaining notice of the institution, or the proposed, contemplated or threatened institution, of any action or proceeding for the taking of the Trust Property, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner (a "Condemnation"). The Collateral Agent is authorized, at its option, to collect and receive, all Proceeds of any such Condemnation; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the governmental authority to pay such proceeds directly to the Grantor. SECTION 1.09. Assignment of Leases and Rents. (a) Grantor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the performance by Grantor of the Obligations. Grantor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any other Lease or their respective Rents to anyone other than Beneficiary. (b) (i) Without Beneficiary's prior written consent, Grantor will not (A) modify, amend, terminate or consent to the cancellation or surrender of any lease if such modification, amendment, termination or consent would, in the reasonable judgment of the Beneficiary, be adverse in any material respect to the Lenders, the value of the Trust Property or the lien created by this Deed of Trust or (B) consent to an assignment of a tenant's interest in any Lease or to a subletting thereof covering a material portion of the Trust Property unless such assignment or sublease conforms with Section 7.05 of the Credit Agreement. (ii) If requested by Grantor, Beneficiary shall execute and deliver to Grantor's tenant a non-disturbance attornment and recognition agreement in form and substance satisfactory to Beneficiary. (c) Subject to paragraph 1.09(d) below, Grantor has assigned and transferred to Beneficiary all of Grantor's right, title and interest in and to the Rents now or hereafter arising from Leases heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to paragraph 1.09(d) below, an absolute transfer and assignment of all Rents and all Leases to Beneficiary and not merely to grant a security interest therein. Subject to paragraph 1.09(d) below, Beneficiary may in Grantor's name and stead (with or without first taking possession of any of the Trust Property personally or by receiver as provided herein) operate the Trust Property and rent, lease or let all or any portion of any of the Trust Property to any party or parties at such rental and upon such terms as Beneficiary shall, in its sole discretion, determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease. (d) Until an Event of Default occurs or after an Event of Default has occurred but is no longer continuing, Beneficiary will not exercise any of its rights under paragraph 1.09(c) above, and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening of any Event of Default (but only while such Event of Default continues), Beneficiary may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Upon the happening of an Event of Default, Grantor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Beneficiary to any such tenant or any of such tenant's successors in interest, and thereafter to pay Rents to Beneficiary without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Grantor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Beneficiary. Each tenant or any of such tenant's successors in interest from whom Beneficiary or any officer, agent, attorney or employee of Beneficiary shall have collected any Rents, shall be authorized to pay Rents to Grantor only after such tenant or any of such tenant's successors in interest shall have received written notice from Beneficiary that the Event of Default is no longer continuing, which notice Beneficiary shall be obligated to give if Beneficiary determines in its reasonable discretion that such Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Beneficiary to such tenant or any of such tenant's successors in interest. (e) Beneficiary will not become a mortgagee in possession so long as it does not enter or take actual possession of the Trust Property. In addition, Beneficiary shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenants, or others, for any dangerous or defective conditions of any of the Trust Property, for negligence in the management, upkeep, repair or control of any of the Trust Property or any other act or omission by any other person. (f) Grantor shall furnish to Beneficiary, within 30 days after a request by Beneficiary to do so, a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder. SECTION 1.10. Restrictions on Transfers and Encumbrances. Except as permitted hereby or by the Credit Agreement, Grantor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charges or any form of encumbrance upon any interest in or any part of the Trust Property, or be divested of its title to the Trust Property or any interest therein in any manner or way,, whether voluntarily or involuntarily (other than resulting from a taking), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof; provided, however, that Grantor may in the ordinary course of business within reasonable commercial standards, enter into easement or covenant agreements which relate to and/or benefit the operation of the Trust Property or which do not materially or adversely affect the use and operation of the same (except for customary utility easements which service the Trust Property). SECTION 1.11. Security Agreement. This Deed of Trust is both a mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a "Security Agreement" within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located. Grantor has hereby granted unto Beneficiary a security interest in and to all the Trust Property described in this Deed of Trust that is not real property, and simultaneously with the recording of this Deed of Trust, Grantor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located to perfect the security interest granted by this Deed of Trust in all the Trust Property that is not real property. Grantor hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent, for Grantor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Beneficiary shall have all rights with respect to the part of the Trust Property that is the subject of a security interest afforded by the uniform commercial code as adopted in the state wherein the Premises are located in addition to, but not in limitation of, the other rights afforded Trustee and Beneficiary hereunder. SECTION 1.12. Filing and Recording. Grantor will cause this Deed of Trust, any other security instrument creating a security interest in or evidencing the lien hereof upon the Trust Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the security interest of Trustee and Beneficiary in, the Trust Property. Grantor will pay all filing, registration or recording fees, and all expenses incidental to the execution and acknowledgment of this Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Personal Property, and any instrument of further assurance and all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery and recording of this Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Personal Property or any instrument of further assurance. SECTION 1.13. Further Assurances. Upon demand by Beneficiary, Grantor will, at the cost of Grantor and without expense to Beneficiary, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Beneficiary shall from time to time reasonably require for the better assuring, conveying, assigning, transferring and confirming unto Beneficiary the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Grantor may be or may hereafter become bound to convey or assign to Beneficiary, or for carrying out the intention or facilitating the performance of the terms of this Deed of Trust, or for filing, registering or recording this Deed of Trust, and on demand, Grantor will also execute and deliver and hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent for Grantor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably requested by Beneficiary to evidence more effectively the lien hereof upon the Personal Property and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.14. Additions to Trust Property. All right, title and interest of Grantor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Trust Property hereafter acquired by or released to Grantor or constructed, assembled or placed by Grantor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by Grantor, shall become subject to the lien and security interest of this Deed of Trust as fully and completely and with the same effect as though now owned by Grantor and specifically described in the grant of the Trust Property above, but at any and all times Grantor will execute and deliver to Beneficiary any and all such further assurances, mortgages, conveyances or assignments thereof as Beneficiary may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Deed of Trust. SECTION 1.15. No Claims Against Trustee or Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Trustee or Beneficiary, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Trust Property or any part thereof, nor as giving Grantor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Trustee or Beneficiary in respect thereof. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. It shall be an Event of Default under this Deed of Trust if any Event of Default (as therein defined) shall exist pursuant to (a) the Credit Agreement or (b) any other Mortgage. Notwithstanding the provisions of Article VIII, Section (e) of the Credit Agreement, if Grantor shall default in the observance or performance of any covenant, condition or agreement expressly set forth in this Deed of Trust and the subject matter of any such covenant, condition or agreement is not otherwise set forth in the Credit Agreement or any other Loan Document, and Grantor's default in its observance or performance of such covenant, condition or agreement (a) is not susceptible of cure by the payment of money or (b) could not, if left uncured, have a material adverse effect on the Trust Property, then in such case an Event of Default shall not occur until such default shall continue unremedied for a period of 30 days after written notice thereof from Beneficiary; provided, however, that in the case of any such default described in clauses (a) or (b) above, which cannot with the exercise by the Grantor of due diligence be cured within such 30-day period, the period within which such default may be cured may be extended for up to an additional 90 days, so long as Grantor shall have promptly commenced to cure the same during its initial 30-day cure period and thereafter continuously prosecutes the curing thereof with diligence. SECTION 2.02. Demand for Payment. If an Event of Default as set forth herein shall occur and be continuing, then, upon written demand of Beneficiary, Grantor will pay to Beneficiary upon demand all amounts due hereunder and such further amounts as shall be incurred to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Trustee or Beneficiary. In case Grantor shall fail forthwith to pay such amounts or any amounts due under any other Section of this Deed of Trust upon Beneficiary's demand, Trustee or Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity as advised by counsel for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Grantor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable. SECTION 2.03. Rights to Take Possession, Operate and Apply Revenues. (a) If an Event of Default shall occur and be continuing, Grantor shall, upon demand of Beneficiary, forthwith surrender to Beneficiary actual possession of the Trust Property and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Trust Property without the appointment of a receiver or an application therefor, exclude Grantor and its agents and employees wholly therefrom, and have access (with Grantor) to the books, papers and accounts of Grantor. (b) If Grantor shall for any reason fail to surrender or deliver the Trust Property or any part thereof after such demand by Beneficiary, Beneficiary may obtain a judgment or decree conferring upon Beneficiary the right to immediate possession or requiring Grantor to deliver immediate possession of the Trust Property to Beneficiary, to the entry of which judgment or decree Grantor hereby specifically consents. Grantor will pay to Beneficiary, upon demand, all expenses of obtaining such judgment or decree, including compensation to Beneficiary's attorneys and agents with interest thereon at the Default Rate; and all such expenses and compensation shall, until paid, be secured by this Deed of Trust. (c) Upon every such entry or taking of possession, Beneficiary may hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary, proper and reasonable maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Trust Property insured, (iv) manage and operate the Trust Property and exercise all the rights and powers of Grantor to the same extent as Grantor could in its own name or otherwise with respect to the same, or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Beneficiary, all as may from time to time be directed or determined by Beneficiary to be in its best interest and Grantor hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent, for Grantor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Beneficiary may collect and receive all the Rents, issues, profits and revenues from the Trust Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Trust Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Beneficiary may at its option pay, (v) other proper charges upon the Trust Property or any part thereof and (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received first to the payment of the Beneficiary for the payment in full of Indebtedness and satisfaction of the Obligations, and second, if there is any surplus, to Grantor, subject to the entitlement of others thereto under applicable law. (d) Whenever, before any sale of the Trust Property under Section 2.06 hereof, all Obligations which are then due shall have been paid and all Events of Default fully cured, Beneficiary will surrender possession of the Trust Property back to Grantor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing. SECTION 2.04. Right to Cure Grantor's Failure to Perform. Prior to the occurrence of an Event of Default upon five business days' written notice to Grantor (except in the case of an emergency), or after the occurrence of an Event of Default at any time and without notice, should Grantor fail in the payment, performance or observance of any term, covenant or condition required by this Deed of Trust or the Credit Agreement (with respect to the Trust Property), Beneficiary may pay, perform or observe the same, and all payments made or costs or expenses incurred by Beneficiary in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Rate. Beneficiary shall make reasonable judgment as to the necessity for any such actions and of the amounts to be paid. Subject to the notice provisions of the first sentence of this paragraph 2.04, Beneficiary is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to Grantor, to any person in possession holding under Grantor or to any other person. SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be continuing, Beneficiary, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver to take possession of and to operate the Trust Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Trust Property is located. Grantor will pay to Beneficiary upon demand all reasonable amounts of expenses, including receiver's fees, attorney's fees and disbursements, costs and agent's compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Deed of Trust and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Rate. SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, Beneficiary may elect to sell the Trust Property or any part of the Trust Property by exercise of the power of foreclosure or of sale granted to Beneficiary by applicable law or this Deed of Trust. In such case, Trustee or Beneficiary may commence a civil action to foreclose this Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Obligation. Trustee or Beneficiary or an officer appointed by a judgment of foreclosure to sell the Trust Property, may sell all or such parts of the Trust Property as may be chosen by Beneficiary at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Beneficiary shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Trustee or Beneficiary or an officer appointed by a judgment of foreclosure to sell the Trust Property may postpone any foreclosure or other sale of all or any portion of the Trust Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Trustee or Beneficiary or an officer appointed to sell the Trust Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including Grantor or Beneficiary or any designee or affiliate thereof, may purchase at such sale. (b) The Trust Property may be sold subject to unpaid taxes and Permitted Encumbrances, and after deducting all costs, fees and expenses of Beneficiary, including costs of evidence of title in connection with the sale, Trustee or Beneficiary or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08 hereof. (c) Any foreclosure or other sale of less than the whole of the Trust Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure provided for herein; and subsequent sales may be made hereunder until the obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted providing for any appraisement before sale of any portion of the Trust Property, (ii) the benefit of all laws now existing or that may be hereafter enacted in any way extending the time for the enforcement or the collection of amounts due under any of the Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (iii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, or sale of the Trust Property as separate tracts, units or estates or as a single parcel in the event of foreclosure, and (iv) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Obligations and marshalling in the event of foreclosure of this Deed of Trust. (e) If an Event of Default shall occur and be continuing, Beneficiary may instead of, or in addition to, exercising the rights described in paragraph 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the terms of the Loan Documents or the performance of any term, covenant, condition or agreement of this Deed of Trust or any other right, or (ii) to pursue any other remedy available to it, all as Beneficiary shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be continuing, Beneficiary may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the uniform commercial code of the State wherein the Premises are located, including, to the extent not prohibited by applicable law, the following: (i) Either personally or by means of a court- appointed receiver, to take possession of all or any of the Personal Property and exclude therefrom Grantor and all others claiming under Grantor, and thereafter to hold, store, use, operate, manage, maintain and control, make repairs, replacements, alterations, additions and improvements to and exercise all rights and powers of Grantor with respect to the Personal Property or any part thereof. (ii) To make such payments and do such acts as Beneficiary may deem necessary to protect its security interest in the Personal Property, including paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior or superior to the security interest granted hereunder, and, in exercising any such powers or authority, paying all expenses incurred in connection therewith. (iii) To assemble the Personal Property or any portion thereof at a place designated by Beneficiary and reasonably convenient to both parties, to demand prompt delivery of the Personal Property to Beneficiary or an agent or representative designated by it, and to enter upon any or all of the Premises or Improvements to exercise Beneficiary's rights hereunder. (iv) To sell or otherwise dispose of or purchase the Personal Property at public sale, with or without having the Personal Property at the place of sale, upon such terms and in such manner as Beneficiary may determine, after Beneficiary shall have given Grantor at least ten days' prior written notice of the time and place of any public sale or other intended disposition of the Personal Property by mailing a copy to Grantor at the address set forth in Section 3.02. (b) In connection with a sale of the Trust Property or any Personal Property and the application of the proceeds of sale as provided in Section 2.08 of this Deed of Trust, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Obligations, plus all other charges, payments and costs due under this Deed of Trust, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any of the Trust Property, Beneficiary shall receive the proceeds of sale, no purchaser shall be required to see to the application of the proceeds and Beneficiary shall apply the proceeds of the sale together with any Rents that may have been collected and any other sums which then may be held by Beneficiary under this Deed of Trust as follows: First: to the payment of the costs and expenses of such sale, including compensation to Beneficiary's attorneys and agents, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Beneficiary under this Deed of Trust, together with interest at the Default Rate on all advances made by Beneficiary, including all taxes or assessments (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of removing any Permitted Encumbrance (except any Permitted Encumbrance subject to which the Trust Property was sold); Second: to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement or BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; Third: to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and Fourth: to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall promptly make application of any such proceeds, moneys or balances in accordance with this Deed of Trust. Upon any sale of the Trust Property by Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Trustee or Beneficiary or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Trust Property so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Trustee or Beneficiary or such officer or be answerable in any way for the misapplication thereof. SECTION 2.09. Grantor as Tenant Holding Over. If Grantor remains in possession of any of the Trust Property after any foreclosure sale by Beneficiary, at Beneficiary's election Grantor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over. SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. (a) Grantor will not object to any sale of the Trust Property in its entirety pursuant to Section 2.06, and for itself and all who may claim under it, Grantor waives, to the extent that it lawfully may, all right to have the Trust Property marshalled or to have the Trust Property sold as separate estates, parcels, tracts or units in the event of any foreclosure of this Deed of Trust. (b) To the full extent permitted by the law of the state wherein the Trust Property is located or other applicable law, neither Grantor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead-exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust, the absolute sale of the Trust Property or the final and absolute putting of the purchasers into possession thereof immediately after any sale; and Grantor, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully do so, the benefit of all such laws and any and all right to have the assets covered by the security interest created hereby marshalled upon any foreclosure of this Deed of Trust. SECTION 2.11. Discontinuance of Proceedings. In case Trustee or Beneficiary shall proceed to enforce any right, power or remedy under this Deed of Trust by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Trustee or Beneficiary, then and in every such case Grantor, Trustee and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Trustee and Beneficiary shall continue as if no such proceeding had been taken. SECTION 2.12. Suits to Protect the Trust Property. Trustee and/or Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in the Trust Property and in the Rents arising therefrom and (c) at its sole cost and expense, to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Trustee or Beneficiary hereunder provided there is no adverse impact on Grantor and its interest in the Trust Property. SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Grantor, Beneficiary shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Beneficiary allowed in such proceedings for the obligations secured by this Deed of Trust at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or which may become due and payable hereunder after such date. SECTION 2.14. Possession by Beneficiary. Notwithstanding the appointment of any receiver, liquidator or trustee of Grantor, any of its property or the Trust Property, Beneficiary shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Trust Property now or hereafter granted under this Deed of Trust to Beneficiary in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by Trustee or Beneficiary to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to Trustee or Beneficiary may be exercised from time to time and as often as may be deemed expedient by Trustee or Beneficiary. No consent or waiver by Beneficiary to or of any breach or default by Grantor in the performance of the Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or any other obligations by Grantor hereunder. No failure on the part of Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Beneficiary of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Grantor. (b) Even if Beneficiary (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Loan Documents, (iv) releases a part of the Trust Property from this Deed of Trust, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Loan Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Beneficiary's lien on the Trust Property hereunder; no such act or omission shall preclude Beneficiary from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise provided in an instrument executed by Trustee and Beneficiary, shall this Deed of Trust be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Trust Property, Beneficiary is hereby authorized and empowered to deal with any vendee or transferee with reference to the Trust Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Trustee or Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Deed of Trust shall for any reason be held to be invalid, illegal or unenforceable in any respect, such validity, illegality or unenforceability shall, at the option of Beneficiary, not affect any other provision of this Deed of Trust, and this Deed of Trust shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 3.02. Notices. All notices to be sent and all documents to be delivered hereunder shall be in writing, shall be delivered by hand or overnight courier service, mailed or sent by telex, graphic scanning or other telegraphic communications equipment of the sending party and shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telex, telecopy or other telegraphic communications equipment of the sender, or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in Section 10.01 of the Credit Agreement or in accordance with the latest unrevoked direction from such party given in accordance with said Section 10.01, except that all notices to the Trustee shall be delivered, sent or mailed (properly addressed) to the Trustee at Stutzman & Bromberg, 2323 Bryan, Dallas, Texas 75201. SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Grantor and the successors and assigns of Beneficiary. SECTION 3.04. Counterparts. This Deed of Trust may be executed in any number of counterparts and all such counterparts shall together constitute but one and the same mortgage. SECTION 3.05. Satisfaction and Cancellation. (a) The conveyance to Beneficiary of the Trust Property as security, created and consummated by this Deed of Trust, shall be null and void when all the Obligations have been indefeasibly paid in full in accordance with the terms of the Loan Documents and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, no Letters of Credit or Bankers' Acceptances are outstanding and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) The lien of this conveyance shall be released from the Trust Property pursuant to and in accordance with the operative provisions of Section 7.05 of the Credit Agreement. (c) In connection with any termination or release pursuant to paragraph (a) or (b), to the extent applicable, the Mortgage shall be marked "satisfied" by the Beneficiary and/or Trustee, and this Deed of Trust may be canceled of record at the request and at the expense of the Grantor. Beneficiary and Trustee shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by paragraph (a) or (b) and Grantor will pay all costs and expenses, including attorneys' fees and disbursements, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.06. Definitions. As used in this Deed of Trust, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act which Trustee or Beneficiary is permitted to perform hereunder may be performed at any time and from time to time by Trustee or Beneficiary or any person or entity designated by Trustee or Beneficiary. Any act which is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property. Each appointment of Trustee or Beneficiary as attorney-in-fact for Grantor under the Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, Beneficiary has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. SECTION 3.07. Multisite Real Estate Transaction. Grantor acknowledges that this Deed of Trust is one of a number of Other Mortgages and Security Documents which secure the Obligations. Grantor agrees that the lien of this Deed of Trust shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Trustee or Beneficiary and, without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by Trustee or Beneficiary of any security for or guarantees of any of the Obligations hereby secured, or by any failure, neglect or omission on the part of Trustee or Beneficiary to realize upon or protect any Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Security Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Security Documents or of any guarantee thereof, and Trustee or Beneficiary may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Security Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Trustee's or Beneficiary's rights and remedies under any or all of the Other Mortgages and other Security Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Deed of Trust and any exercise of the rights or remedies of Trustee or Beneficiary hereunder shall not impair the lien of any of the Other Mortgages and other Security Documents or any of Trustee's or Beneficiary's rights and remedies thereunder. The undersigned specifically consents and agrees that Trustee or Beneficiary may exercise its rights and remedies hereunder and under the Other Mortgages and other Security Documents separately or concurrently and in any order that it may deem appropriate and the undersigned waives any rights of subrogation. ARTICLE IV Particular Provisions This Deed of Trust is subject to the following provisions relating to the particular laws of the state wherein the Premises are located: SECTION 4.01. Applicable Law; Certain Particular Provisions. This Deed of Trust shall be governed by and construed in accordance with the internal law of the State of New York; provided, however, that the provisions of this Deed of Trust relating to the creation, perfection and enforcement of the lien and security interest created by this Deed of Trust in respect of the Trust Property and the exercise of each remedy provided hereby, including the power of foreclosure or power of sale procedures set forth in this Deed of Trust, shall be governed by and construed in accordance with the internal law of the state where the Trust Property is located, and Grantor and Beneficiary will submit to jurisdiction and the laying of venue for any suit on this Deed of Trust in such state. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Deed of Trust and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control. SECTION 4.02. Trustee's Powers and Liabilities. (a) Trustee, by acceptance hereof, covenants faithfully to perform and fulfill the trusts herein created, being liable, however, only for gross negligence or wilful misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by it in accordance with the terms hereof. All authorities, powers and discretions given in this Deed of Trust to Trustee and/or Beneficiary may be exercised by either, without the other, with the same effect as if exercised jointly. (b) Trustee may resign at any time upon giving 30 days' notice in writing to Grantor and to Beneficiary. (c) Beneficiary may remove Trustee at any time or from time to time and select a successor trustee. In the event of the death, removal, resignation, refusal to act, inability to act or absence of Trustee from the state in which the premises are located, or in its sole discretion for any reason whatsoever, Beneficiary may, upon notice to the Grantor and without specifying the reason therefor and without applying to any court, select and appoint a successor trustee, and all powers, rights, duties and authority of the former Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall not be required to give bond for the faithful performance of his duties unless required by Beneficiary. Such substitute trustee shall be appointed by written instrument duly recorded in the county where the Land is located. Grantor hereby ratifies and confirms any and all acts which the herein named Trustee, or his successor or successors in this trust, shall do lawfully by virtue hereof. Grantor hereby agrees, on behalf of itself and its heirs, executors, administrators and assigns, that the recitals contained in any deed or deeds executed in due form by any Trustee or substitute trustee, acting under the provisions of this instrument, shall be prima facie evidence of the facts recited, and that it shall not be necessary to prove in any court, otherwise than by such recitals, the existence of the facts essential to authorize the execution and delivery of such deed or deeds and the passing of title thereby. (d) Trustee shall not be required to see that this Deed of Trust is recorded, nor be liable for its validity or its priority as a first deed of trust, or otherwise, nor shall Trustee be answerable or responsible for performance or observance of the covenants and agreements imposed upon Grantor or Beneficiary by this Deed of Trust or any other agreement. Trustee, as well as Beneficiary, shall have authority in their respective discretion to employ agents and attorneys in the execution of this trust and to protect the interest of the Beneficiary hereunder, and to the extent permitted by law they shall be compensated and all expenses relating to the employment of such agents and/or attorneys, including expenses of litigations, shall be paid out of the proceeds of the sale of the Trust Property conveyed hereby should a sale be had, but if no such sale be had, all sums so paid out shall be recoverable to the extent permitted by law by all remedies at law or in equity. (e) At any time, or from time to time, without liability therefor and with 10 days' prior written notice to Grantor, upon written request of Beneficiary and without affecting the effect of this Deed of Trust upon the remainder of the Trust Property, Trustee may (i) reconvey any part of the Trust Property, (ii) consent in writing to the making of any map or plat thereof, so long as Grantor has consented thereto, (iii) join in granting any easement thereon, so long as Grantor has consented thereto, or (iv) join in any extension agreement or any agreement subordinating the lien or charge hereof. IN WITNESS WHEREOF, this Deed of Trust has been duly authorized and has been executed and delivered to Trustee and Beneficiary by Grantor on the date first written above. ECKERD CORPORATION, a Delaware corporation, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President [ACKNOWLEDGMENT FORM] THE STATE OF NEW YORK ) COUNTY OF NEW YORK ) This instrument has been acknowledged before me on this 3rd day of August, 1994, by Martin W. Gladysz, a vice president of Eckerd Corporation, a Delaware corporation, on behalf of such corporation. My Commission expires: /s/ Deborah M. Voytovich May 1, 1995 Notary Public in and for the State of New York Deborah M. Voytovich Printed Name of Notary APPENDIX A to Deed of Trust, Security Agreement and Assignment of Leases and Rents TEXAS OVERRIDE PROVISIONS This Appendix A (this "Appendix A") has been attached to and shall be deemed incorporated into that certain Deed of Trust, Security Agreement and Assignment of Leases and Rents (the "Deed of Trust") dated as of June 14, 1993, as amended and restated as of August 3, 1994, by Eckerd Corporation, formerly known as Jack Eckerd Corporation, a Delaware corporation, (the "Grantor") to the trustee named therein (the "Trustee") for the benefit of Chemical Bank, as Collateral Agent for the Secured Parties (in such capacity the "Beneficiary"). As set forth in Section 4.01 of the Deed of Trust, in the event of any conflict between the terms and provisions contained in the body of the Deed of Trust and the terms and provisions set forth in this Appendix A, the terms and provisions set forth in this Appendix A shall govern and control. All references in this Appendix A to Articles and Section shall, unless otherwise provided, refer to Articles and Sections of this Appendix A and all references to "this Deed of Trust" or similar language shall refer to the Deed of Trust, as supplemented and, if applicable, overridden by this Appendix A. ARTICLE I Future Advances and Interest Limitation SECTION 1.01. Future Advances. In addition to securing the full, prompt and complete payment when due of the Obligations, this Deed of Trust shall also secure any and all other, further or future loans, advances, readvances, reborrowings and borrowings made to or at the request of the Grantor from or by any one on all of the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and/or the Collateral Agent and all other debts, obligations and liabilities of every kind and character of the Grantor now or hereafter existing in favor of any one or all of the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and/or the Collateral Agent (including, without limitation, all indebtedness incurred or arising pursuant to the Credit Agreement and/or any Loan Document) whether such debts, obligations or liabilities be direct or indirect, primary or secondary, joint or several, fixed or contingent, and whether originally payable to any of such parties or to a third party, and subsequently acquired by any of such parties, and whether such debts, obligations and liabilities are evidenced by note, open account, overdraft, endorsement, surety agreement or otherwise, it being presently contemplated by the Grantor and such other parties that the Grantor may and will hereafter become indebted to the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and the Collateral Agent in other, further and future sum or sums. SECTION 1.02. Limitation on Interest. All agreements between the Grantor and the Beneficiary, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity of the indebtedness secured hereby, or otherwise, shall the amount paid or agreed to be paid to the Beneficiary for the use, forbearance or detention of the indebtedness secured hereby or for the performance or payment of any covenant or obligation contained herein or in any other instrument evidencing, securing or pertaining to the indebtedness secured hereby, exceed the maximum rate permitted by applicable law. If from any circumstances whatsoever fulfillment of any provision hereof or of any such other document, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance the Beneficiary hereof shall ever receive anything of value deemed interest by applicable law which would exceed the maximum rate, an amount equal to any excessive interest shall be applied to the reduction of the principal amount owing under the Obligations or on account of any other principal indebtedness of the Grantor to the Beneficiary, in the inverse order of maturity, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Obligations and such other indebtedness, such excess shall be refunded by the Beneficiary to the Grantor. In determining if from any such specific circumstance the Beneficiary shall have received anything of value deemed interest by applicable law which would exceed the maximum rate, the Grantor and the Beneficiary shall, to the maximum extent permissible under applicable law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread all sums paid or agreed to be paid throughout the full term of such indebtedness until payment in full so that the rate of interest on account of such indebtedness is uniform throughout the term thereof; provided, however, that if such indebtedness is paid and performed in full prior to the end of the full contemplated term thereof, and the Beneficiary shall have received anything of value deemed interest by applicable law which would exceed the maximum rate for the actual period of such indebtedness, the Beneficiary shall apply such amounts as hereinabove provided, and, in such event, the Beneficiary shall not be subject to any penalty for contracting for, charging or receiving interest in excess of the maximum rate. The terms and provisions of this Section 1.02 shall control and supersede every other provision of all agreements between the Grantor and the Beneficiary. ARTICLE II Non-Judicial Foreclosure and Certain Waivers SECTION 2.01. Foreclosure and Sale. (a) If an Event of Default shall occur, each of Trustee and his successor or substitute is authorized and empowered and it shall be his special duty at the request of the Beneficiary to sell or offer for sale the Trust Property in such portions, order and parcels as the Beneficiary may determine, with or without having first taken possession of same, to the highest bidder for cash at public auction or upon such other terms and conditions as the Beneficiary, in its sole and absolute discretion, may hereafter elect. Such sale shall be made at the courthouse door of the county in which the Trust Property (or that portion thereof to be sold) is situated (whether the parts or parcels thereof, if any, located in different counties are contiguous or not, and without the necessity of having any personal property hereby mortgaged present at such sale) on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m. after advertising the time, place and terms of sale and that portion of the Trust Property to be sold by posting or causing to be posted written or printed notice thereof at least 21 days preceding the date of said sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Trust Property may be situated, which notice may be posted by the Trustee acting, or by any person acting for him, and filing a copy of such notice with the clerk of the county in which the sale is to be made, and the holder of the indebtedness has, at least 21 days preceding the date of sale, served written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the indebtedness secured by this Deed of Trust according to the records of the Beneficiary by the deposit of such notice, enclosed in a postpaid wrapper, properly addressed to such debtor at debtor's most recent address as shown by the records of the holder of the indebtedness, in a post office or official depository under the care and custody of the United States Postal Service. In the event any of the foregoing are not sufficient to satisfy or are in excess of the requirements of the applicable laws of the State of Texas or of the United States whenever such is to be commenced or conducted, this Article shall be deemed to incorporate any additional laws of the State of Texas or of the United States, and to be amended by deletion of any requirements in excess thereof. (b) Notwithstanding anything herein to the contrary, the Beneficiary may, at its option, accomplish all or any of the aforesaid in such manner as may from time to time be permitted or required by the provisions of the Property Code of the State of Texas (the "Property Code") relating to the sale of real estate or by Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor (as said article and chapter now exist or may be hereinafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same. Nothing contained in this Section 2.01 shall be construed to limit in any way the Trustee's right to sell the Trust Property by private sale under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same. At any such sale: (i) whether made under the power herein contained, the Property Code, the Texas Business and Commerce Code or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for the Trustee to have physically present, or to have constructive possession of, the Trust Property (the Grantor shall deliver to the Trustee any portion of the Trust Property not actually or constructively possessed by the Trustee immediately upon demand by the Trustee) and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale; (ii) each instrument of conveyance executed by the Trustee shall contain a general warranty of title, binding upon the Grantor and its successors; (iii) each and every recital contained in any instrument of conveyance made by the Trustee shall be conclusive evidence of the truth and accuracy of the matters recited therein, including, without limitation, non- payment of the indebtedness, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor to the Trustee hereunder; (iv) any and all prerequisites to the validity thereof shall be presumed to have been performed; (v) the receipt of the Trustee or of such other party or officer making the sale shall be sufficient to discharge to the purchaser or purchasers for his or their purchase money, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or non- application thereof; (vi) to the fullest extent permitted by law, the Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar, both at law and in equity, against the Grantor and against all other persons claiming or to claim the property sold or to any part thereof by, through or under the Grantor; and (vii) to the extent and under such circumstances as are permitted by law, the Beneficiary may be a purchaser at any such sale. SECTION 2.02. Separate Sales. The Trustee may sell all or any portion of the Trust Property together or in lots or parcels and in such manner and order as the Trustee, in its sole discretion, may elect. The sale or sales by the Trustee of less than the whole of the Trust Property shall not exhaust the power of sale herein granted, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Trust Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Trust Property shall be less than the aggregate of the indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Trust Property just as though no sale or sales had been made; provided, however, that the Grantor shall never have any right to require the sale or sales of less than the whole of the Trust Property, but the Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Trust Property. As among the various counties in which items of the Trust Property may be situated, sales in such counties may be conducted in any order that the Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient. If default is made hereunder, the holder of the indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provision of this paragraph. Any number of sales may be made hereunder without exhausting the right of sale for any unmatured part of the indebtedness secured hereby. SECTION 2.03. Release of and Resort to Collateral. Any part of the Trust Property may be released by the Beneficiary without affecting, subordinating or releasing the lien, security interest and assignment hereof against the remainder. The lien, security interest and other rights granted hereby shall not affect or be affected by any other security taken for the same indebtedness or any part thereof. The taking of additional security, or the rearrangement, extension, modification, reinstatement or renewal of the indebtedness, or any part thereof, shall not release or impair the lien, security interest and other rights granted hereby or affect the liability of any endorser, guarantor or surety, or improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, modification, renewal or extension of the indebtedness secured hereby, or any part thereof, shall be and remain a first and prior lien on all of the Trust Property not expressly released until the indebtedness is completely paid. SECTION 2.04. Waiver of Redemption, Notice and Marshalling of Assets. To the fullest extent permitted by law, the Grantor hereby irrevocably and unconditionally waives and releases: (a) all benefits that might accrue to the Grantor, by any present or future laws exempting the Trust Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of acceleration, notices of intent to accelerate, notices of demand, notices of intent to demand, notices of any Event of Default and notices of the Beneficiary's or the Trustee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, except to the extent, if at all, expressly otherwise provided in the Credit Agreement; (c) any right to appraisal or marshalling of assets or a sale in inverse order of alienation; (d) the exemption of homestead; (e) the administration of estates of decedents, or other matter whatever to defeat, reduce or affect the right of the Beneficiary under the terms of this Deed of Trust, to sell the Trust Property for the collection of the indebtedness secured hereby (without any prior or different resort for collection) or the right of the Beneficiary, under the terms of this Deed of Trust, to the payment of the indebtedness out of the proceeds of sale of the Trust Property in preference of every other person and claimant whatever (only reasonable expenses of such sale being first deducted); and (f) any right or remedy which it may have or be able to assert by reason of the provisions of Chapter 34 of the Business and Commerce Code of the State of Texas, as currently in effect or hereafter amended, and any other, further or future laws, rules and/or judicial doctrines pertaining to the rights and remedies of sureties. ARTICLE III The Trustee's Duties and Liability SECTION 3.01. No Liability. The Trustee shall not be liable for any error of judgment or act done by the Trustee, or be otherwise responsible or accountable under any circumstances whatsoever, except if the result of the Trustee's gross negligence or willful misconduct. The Trustee shall not be personally liable in case of entry by him or anyone acting by virtue of the powers herein granted him upon the Trust Property for debts contracted or liability or damages or damages incurred in the management or operation of the Trust Property. The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder or believed by him to be genuine. The Trustee shall be entitled to reimbursement for actual expenses incurred by him in the performance of his duties hereunder and to reasonable compensation for such of his services hereunder as shall be rendered. The Grantor will, from time to time, reimburse the Trustee for and save and hold him harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of his duties. SECTION 3.02. Retention of Monies. All monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law) and the Trustee shall be under no liability for interest on any monies received by him hereunder. SECTION 3.03. Successor Trustees. The Trustee may resign by giving of notice of such resignation in writing to the Beneficiary. If the Trustee shall die, resign or become disqualified from acting in the execution of this trust or shall fail or refuse to exercise the same when requested by the Beneficiary or if for any or no reason and without cause the Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, the Beneficiary shall, without any formality or notice to the Grantor or any other person, have full power to appoint a substitute trustee and, if the Beneficiary so elects, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the aforenamed Trustee. SECTION 3.04. Succession Instruments. Any new Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but, nevertheless, upon the written request of the Beneficiary or his successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and monies held by the Trustee to the successor trustee so appointed in its or his place. SECTION 3.05. Performance of Duties by Agents. The Trustee may authorize one or more parties to act on his behalf to perform the ministerial functions required of him hereunder, including, without limitation, the transmittal and posting of any notices. ARTICLE IV Fixture Filing and Assignment of Rents SECTION 4.01. Fixture Filing. Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a Financing Statement filed as a fixture filing from the date of its filing for record covering and including any and all fixtures of every kind and type affixed to all or any portion of the Premises or forming part of all or any portion of the Improvements. The name and address of the Grantor, as Debtor, and the Beneficiary (where information concerning the security interest granted hereby may be obtained), as Secured Party, are as set forth on page 1 of this Deed of Trust. The above described goods are or are to become fixtures related to the Premises and the Improvements of which the Grantor is the record title owner. This Deed of Trust shall also be effective as a financing statement covering minerals or the like (including oil and gas) and accounts subject to Section 9.103(e) of the Texas Business and Commerce Code, as amended. A carbon, photographic or other reproduction of this Deed of Trust or any financing statement relating to this Deed of Trust shall be sufficient as a financing statement. SECTION 4.02. Assignment of Rents. The Grantor acknowledges and agrees that the assignment set forth in Section 1.09(c) of the body of this Deed of Trust shall be upon the following additional terms: (a) until receipt from the Beneficiary of written notice each tenant may pay any and all Rents and other sums set forth above directly to the Grantor, but after written notice, the Grantor covenants to hold any and all such sums in trust for the use and benefit of the Beneficiary; (b) upon receipt from the Beneficiary of a written notice, each tenant is hereby authorized and directed, without the need for the prior consent, approval or joinder by the Grantor or any other person, to pay directly to the Beneficiary any and all of such Rents and other sums thereafter accruing; (c) the Beneficiary shall not be liable for its failure to exercise diligence in the collection of any and all of such Rents and other sums; (d) the assignment set forth herein shall terminate upon the release of this instrument, but no tenant shall be required to accept notice of any such termination until a copy of any such release, as executed by the Beneficiary, has been delivered to such tenant; (e) in no event shall the rights set forth in this assignment effect or be construed so as to effect a pro tanto reduction of the indebtedness secured hereby except to the extent, if at all, that the Beneficiary actually receives, after the occurrence of a default and the Beneficiary's election to pursue its rights under this Section, Rents and other sums directly from any tenant of all or any portion of the Trust Property and applies same, in the Beneficiary's discretion, to such indebtedness; and (f) the Beneficiary need not institute, prosecute or resort to any legal, equitable or other action, nor deliver any notice or demand, nor take any affirmative action whatsoever after the occurrence of a default in order to enforce and obtain the benefits of the provisions set forth herein. Notwithstanding anything to the contrary contained herein or otherwise, the Grantor and the Beneficiary intend, clearly and without ambiguity, that the assignment set forth herein shall be deemed and otherwise construed for all purposes to be an absolute, unconditional and presently effective assignment of the Rents and the provisions of clause (a) and clause (b) above are intended solely for the benefit of each tenant and shall never inure to the benefit of the Grantor or any person claiming by, through or under the Grantor. ARTICLE V Miscellaneous SECTION 5.01. Releases. Upon payment in full of the Obligations and all other indebtedness secured hereby, the Beneficiary shall, at the Grantor's expense, cause the lien created by this Deed of Trust to be released by an instrument in form and substance reasonably satisfactory to the Grantor and the Beneficiary. SECTION 5.02. Subrogation. If any or all of the proceeds of the indebtedness secured hereby have been used to extinguish, extend or renew any indebtedness heretofore existing against all or any portion of the Trust Property or to satisfy any indebtedness or obligation secured by a lien or encumbrance of any kind (including liens securing the payment of any taxes), such proceeds have been advanced by the Beneficiary at the Grantor's request and, to the extent of such funds so used, the indebtedness and obligations in this Deed of Trust shall be subrogated to and extend to all of the rights, claims, liens, titles and interests heretofore existing against the Trust Property (or such portion thereof) to secure the indebtedness or obligation so extinguished, paid, extended or renewed, and the former rights, claims, liens, titles and interests, if any, shall not be waived but rather shall be continued in full force and effect and in favor of the Beneficiary and shall be merged with the lien and security interest created herein as cumulative security for the repayment of the indebtedness and satisfaction of the Obligations. SECTION 5.03. No Partnership. That notwithstanding anything to the contrary contained herein or otherwise (a) the relationship between the Grantor and the Beneficiary hereunder and otherwise shall be deemed, construed and treated by the Grantor and the Beneficiary for all purposes to be solely that of debtor/creditor; (b) the various consent, approval and other rights afforded to the Beneficiary under this Deed of Trust have been granted and designed solely to protect the value of the Trust Property and to assure the Grantor's payment of the indebtedness and all of such rights are customarily granted lenders in secured lending transactions; (c) the Grantor and the Beneficiary hereby expressly disclaim any sharing of liabilities, losses, costs or expenses with respect to the ownership or operation of all or any portion of the Trust Property, or otherwise; and (d) the terms contained herein are not intended by the Grantor and the Beneficiary and shall not for any purpose be deemed, construed or treated by the Grantor and the Beneficiary so as (i) to create a partnership or joint venture between the Beneficiary and the Grantor or between the Beneficiary and any other party, or (ii) to cause the Beneficiary to be or become liable in any way for the debts and obligations of the Grantor (including, without limitation, any losses attributable to the Grantor's operation of the Trust Property) or any other party. SECTION 5.04. Incorporation by Reference. The terms, covenants and provisions of the Credit Agreement and the other Loan Documents have been incorporated into this Deed of Trust by this reference. All references to the "Beneficiary" shall be deemed to include Chemical Bank and any successor, further or substitute entity appointed now or at any time hereafter as the collateral agent hereunder. All references to the "Lenders", the "Swingline Lenders" the "Fronting Banks", the "Managing Agents", the "Administrative Agent" and the "Documentation Agent" shall include all persons and entities currently acting as such and their respective successors and assigns. All persons from time to time having an interest in all or any portion of the Trust Property are hereby placed on notice of all of the terms, covenants and provisions of the instruments incorporated herein and that copies of same may be obtained, subject to such confidentiality restrictions as may be reasonably acceptable to both the Beneficiary and the Grantor, by those having an appropriate interest in the Trust Property or any portion thereof upon written request to the Beneficiary at the address set forth on page 1 of this Deed of Trust. Any such request shall include the name and address of the requesting party and also contain a brief explanation of the nature and reason for such request. SECTION 5.05. Section 26.02 Notice. IN ACCORDANCE WITH SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, THIS DEED OF TRUST AND THE OTHER DOCUMENTS EVIDENCING, SECURING OR PERTAINING TO ALL OR ANY PORTION OF THE OBLIGATIONS REPRESENT THE FINAL AGREEMENT BETWEEN THE GRANTOR AND THE BENEFICIARY AS TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PARTIES. Dallas County, Texas EXHIBIT A All that certain plot, piece or parcel of land located in the City of Garland, County of Dallas, and State of Texas, bounded and described as follows: BEING A TRACT OF LAND IN THE CITY OF GARLAND, DALLAS COUNTY, TEXAS, BEING DESCRIBED AS THE EAST 370 FEET OF LOTS 7 AND 8, ALL OF LOT 9 OF SHEPERD INDUSTRIAL PARK NO. 3, AN ADDITION TO THE CITY OF GARLAND, TEXAS, ACCORDING TO THE PLAT RECORDED IN VOLUME 823, PAGE 2073, MAP RECORDS OF DALLAS COUNTY, TEXAS, AND ALL OF LOT 32 OF SHEPERD INDUSTRIAL PARK NO. 4, AN ADDITION TO THE CITY OF GARLAND, TEXAS, ACCORDING TO THE PLAT RECORDED IN VOLUME 71194, PAGE 009, MAP AND PLAT RECORDS, DALLAS COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF LOT 7 OF SAID SHEPERD INDUSTRIAL PARK NO. 3; THENCE SOUTH 0 DEG. 14' 38" WEST WITH THE EAST LINE OF SAID LOTS 7, 8, 9 AND 32, 673.21 FEET TO AN IRON STAKE FOR CORNER LOCATED IN THE NORTH RIGHT OF WAY OF ACTION STREET AND BEING THE SOUTHEAST CORNER OF SAID LOT 32; THENCE SOUTH 70 DEG. 12' 24" WEST WITH THE NORTH RIGHT OF WAY OF ACTION STREET AND THE SOUTH LINE OF LOT 32, 517.04 FEET TO POINT OF CURVATURE OF CURVE FOR CORNER; THENCE NORTHEASTERLY WITH A CURVE TO THE RIGHT AND SOUTH AND WEST LINES OF SAID LOT 32, 192.05 FEET TO POINT OF SAID CURVE IN THE EAST RIGHT OF WAY OF SHEPERD DRIVE, SAID CURVE HAVING A CENTRAL ANGLE OF 110 DEG. 02' 14" AND A RADIUS OF 100.00 FEET; THENCE NORTH 0 DEG. 14' 38" EAST WITH THE EAST RIGHT OF WAY OF SHEPERD DRIVE AND THE WEST LINE OF LOT 32 AND LOT 9, 523.78 FEET TO AN IRON STAKE FOR CORNER, SAID CORNER BEING THE NORTHWEST CORNER OF SAID LOT 9; THENCE EAST WITH THE NORTH LINE OF LOT 9 AND THE SOUTH LINE OF LOT 8, 250 FEET TO IRON STAKE FOR CORNER; THENCE NORTH 0 DEG. 14' 38" EAST PARALLEL TO SHEPERD DRIVE ACROSS LOTS 8 AND 7, 230 FEET TO AN IRON STAKE FOR CORNER SET IN THE NORTH LINE OF LOT 7, SAID POINT BEING THE SOUTHEAST CORNER OF LOT 6 OF SHEPERD INDUSTRIAL PARK NO. 2 AS FILED IN VOLUME 52, PAGE 113, MAP AND PLAT RECORDS, DALLAS COUNTY, TEXAS; THENCE EAST WITH THE NORTH LINE OF LOT 7 AND THE SOUTH LINE OF AMERICAN METER PROPERTY 370 FEET TO THE PLACE OF BEGINNING, AND CONTAINING 424,466.90 SQUARE FEET OF LAND. EX-10.30 15 DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS THIS DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 14, 1994 as amended and restated as of August 3, 1994, (this "Deed of Trust"), by ECKERD CORPORATION, formerly known as Jack Eckerd Corporation, a Delaware corporation, having an office at 8333 Bryan Dairy Road, Largo, Florida 34647 (the "Grantor"), to Kenneth F. Plifka (the "Trustee") for the benefit of CHEMICAL BANK, a New York banking corporation ("Chemical"), having an office at 270 Park Avenue, New York, New York 10017, as Collateral Agent for the Secured Parties (as defined herein) (in such capacity, together with its successors" substitutes and assigns, the "Beneficiary"). WITNESSETH THAT: A. The Grantor as the Borrower (such term and each other capitalized term used herein but not defined herein shall have the meaning given to such term in the Credit Agreement (as defined herein)), has entered into an amended and restated credit agreement dated as of the date hereof of the credit agreement dated as of June 14, 1993 (the "1993 Agreement"), (such amended and restated credit agreement, as amended or modified from time to time, the "Credit Agreement"), with the financial institutions party thereto, as lenders (the "Lenders"), Chemical and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and swingline lenders (in such latter capacity, each a "Swingline Lender") and Chemical, as administrative agent (in such capacity, the "Administrative Agent") and NationsBank as documentation Agent (in such capacity, the "Documentation Agent"). B. Pursuant to the Credit Agreement (a) the Lenders and the Swingline Lenders, respectively, have agreed to extend credit in order to enable the Mortgagor to borrow (i) on a term basis, Term Loans in an aggregate principal amount not to exceed $500,000,000 and having a scheduled maturity date of July 29, 2000, (ii) on a revolving basis, Revolving Loans, at any time and from time to time prior to July 29, 2000, in an aggregate principal amount at any time outstanding not in excess of the difference between $350,000,000 and the sum of (A) the aggregate principal amount of the Swingline Loans outstanding at such time and (B) the LC/BA Exposure at such time and (iii) on a revolving basis, at any time and from time to time prior to July 29, 2000, Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $30,000,000 and (b) the Fronting Banks to issue Letters of Credit and originate Bankers' Acceptance in an aggregate face amount at any time outstanding not in excess of $155,000,000 and having a scheduled maturity date of July 29, 2000. C. On the Restatement Date, the Mortgagor will (a) use the proceeds of (i) all Term Borrowings and (ii) Revolving Credit Borrowings not in excess of $50,000,000 solely to continue or convert all term loans outstanding under the 1993 Credit Agreement and (b) use the proceeds of any additional Revolving Credit Borrowings solely to continue or convert all revolving loans outstanding under the 1993 Credit Agreement. The proceeds of Revolving Credit Borrowings following the Restatement Date will be used for the general corporate purposes of the Mortgagor and the Subsidiaries. The proceeds of the Swingline Loans will also be used for the general corporate purposes of the Mortgagor and the Subsidiaries, Letters of Credit and Bankers' Acceptances will be used to support obligations of the Mortgagor and the Subsidiaries incurred in the ordinary course of business of the Mortgagor and the Subsidiaries. D. The obligations of the Lenders to make Loans, of the Swingline Lenders to make Swingline Loans and of the Fronting Banks to issue Letters of Credit and to originate Bankers' Acceptances, are conditioned upon, among other things, the execution and delivery by the Grantor of this Deed of Trust, in the form hereof, to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and the Swingline Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit or Bankers' Acceptance, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of the Borrower to the Secured Parties under the Credit Agreement, this Deed of Trust and the other Loan Documents, to which the Borrower is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement, this Deed of Trust and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being referred to, collectively, as the "Obligations"). E. Pursuant to the requirements of the Credit Agreement, the Grantor is entering into this Deed of Trust to grant to the Beneficiary a lien against and create a security interest in the Trust Property (as defined herein) to secure the performance and payment by the Grantor of the Obligations. The Credit Agreement also requires the granting by Grantor of mortgages (the "Other Mortgages") that create security interests in certain Mortgaged Properties other than the Trust Property to secure the performance by the Grantor of the Obligations. Granting Clauses NOW THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the (a) due and punctual payment and performance of the Obligations by the Grantor, (b) the due and punctual payment by the Grantor of all taxes and insurance premiums relating to the Trust Property and (c) all disbursements made by Beneficiary for the payment of taxes, or insurance premiums, all fees, expenses or advances in connection with or relating to the Trust Property, and interest on such disbursements and other amounts not timely paid in accordance with the terms of the Credit Agreement, this Deed of Trust and the Loan Documents, Grantor hereby grants, bargains, sells, transfers, sets over, assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over unto Trustee, IN TRUST FOREVER, with power of sale, with mortgage covenants, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired; provided, however, that the maximum amount secured by this Deed of Trust in the State of Texas upon recordation or upon any contingency which may be secured hereby at any time hereafter is $850,000,000; (1) the fee estate in the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if any, relating thereto, and also together with all of the other easements, rights, privileges, interests, permits, hereditaments and appurtenances thereunto belonging or in anywise appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Grantor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the "Premises"); (2) all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all legal fixtures of every kind and type affixed to all or any portion of the Premises or attached to or forming part of all or any portion of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the "Improvements"); (3) all apparatus, movable appliances, building materials, equipment, fittings, furnishings, furniture, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, now or at any time hereafter owned by the Grantor and placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Improvements or the Premises, including all of Grantor's books and records relating thereto and including all pumps, tanks, goods, machinery, tools, equipment, lifts (including fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, entertainment, communications, computers, recreational, window or structural, maintenance, truck or car repair and all other equipment of every kind), restaurant, bar and all other indoor or outdoor furniture (including tables, chairs, booths, serving stands, planters, desks, sofas, racks, shelves, lockers and cabinets), bar equipment, glasses, cutlery, uniforms, linens, memorabilia and other decorative items, furnishings, appliances, supplies, inventory, rugs, carpets and other floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and other lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), computer systems, cash registers and inventory control systems, and all other apparatus, equipment, furniture, furnishings, and articles used in connection with the use or operation of the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this paragraph (3), including Grantor's interest as lessee under any lease of personal property to the extent such lease does not prohibit such grant, being hereinafter called the "Personal Property"); (4) all general intangibles now owned or hereafter acquired by the Grantor and relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (the "Permits, Plans and Warranties"); (5) Grantor's interest in and rights under all leases or licenses (under which Grantor is landlord or licensor) and subleases (under which Grantor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, "Leases"), and all agreements or contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Grantor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ("Rents"); (6) all of Grantor's right, title and interest in and to all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims, including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards which may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets ("Proceeds"), together with any and all moneys now or hereafter on deposit for the payment of real estate taxes or assessments levied against the Trust Property, unearned premiums on policies of fire and other insurance maintained by the Grantor covering any interest in the Trust Property or required by the Credit Agreement; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Personal Property, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Grantor or constructed, assembled or placed by the Grantor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, deed of trust, conveyance, assignment or other act by the Grantor, all of which shall become subject to the lien of this Deed of Trust as fully and completely, and with the same effect, as though now owned by the Grantor and specifically described herein. TO HAVE AND TO HOLD the Trust Property and the rights and privileges hereby mortgaged or intended to be, unto Trustee, its successors and assigns for the uses and purposes herein set forth, for the benefit of the Beneficiary, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancellation as provided in Section 3.05. IN TRUST NEVERTHELESS, upon the terms and trust herein set forth for the benefit and security of the Beneficiary. ARTICLE I Representations, Warranties and Covenants of Grantor Grantor agrees, covenants, represents and/or warrants as follows: SECTION 1.01. Title. (a) Grantor has good and marketable title to a fee estate in the Land and Improvements subject to no lien, charge or encumbrance except for, and this Deed of Trust is and will remain a valid and enforceable first and prior lien on the Premises, Improvements and the Rents subject only to, in each case, Liens permitted by Section 7.02 of the Credit Agreement and the exceptions and encumbrances referred to in Schedule A annexed hereto. (b) Grantor has good and marketable title to all the Personal Property subject to no lien, charge or encumbrance other than this Deed of Trust and those allowed under Section 7.02 of the Credit Agreement. The Personal Property is not and will not become the subject matter of any lease or other arrangement that is not allowed under Section 7.02 of the Credit Agreement, whereby the ownership of any Personal Property will be held by any person or entity other than Grantor; except as expressly permitted by Section 7.05 of the Credit Agreement, none of the Personal Property will be removed from the Premises or the Improvements unless the same is no longer needed for the continued operation of the Premises and the Improvements as currently operated (or as then operated, to the extent that any change from the current manner of operation was permitted by the Credit Agreement) or is replaced by other Personal Property of substantially equal or greater utility and value; and, except as expressly permitted by Section 7.05 of the Credit Agreement, Grantor will not create or cause to be created (other than those allowed under Section 7.02 of the Credit Agreement) any security interest covering any of the Personal Property that Grantor owns other than the security interest in the Personal Property created in favor of Beneficiary by this Deed of Trust or any other agreement collateral hereto. (c) All easement agreements, covenant or restrictive agreements, supplemental agreements and any other instruments hereinabove referred to and mortgaged hereby are and will remain valid, subsisting and in full force and effect, unless the failure to remain valid, subsisting and in full force and effect, individually or in the aggregate, would not have a material adverse effect on the Trust Property, and Grantor is not in default thereunder and has fully performed the material terms thereof required to be performed through the date hereof, and has no knowledge of any default thereunder or failure to fully perform the terms thereof by any other party, nor of the occurrence of any event which after notice or the passage of time or both will constitute a default thereunder, unless the default thereunder by Grantor or by any other party, individually or in the aggregate, would not have a material adverse effect on the Trust Property. (d) Grantor has good and lawful right and full power and authority to mortgage or grant a security interest in the Trust Property. Grantor will forever warrant and defend its title to the Trust Property, the rights of Beneficiary therein under this Deed of Trust and the validity and priority of the lien of this Deed of Trust thereon against the claims of all persons and parties except those having rights under Permitted Encumbrances to the extent of those rights and those having rights under any exception or matter permitted by Section 7.02 of the Credit Agreement. (e) This Deed of Trust, when duly recorded in the appropriate public records and when financing statements are duly filed in the appropriate public records, will create a valid, perfected and enforceable lien upon and security interest in all the Trust Property and there will be no defenses or offsets to this Deed of Trust or to any of the Obligations secured hereby, (i) except as the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity. SECTION 1.02. Credit Agreement; Certain Amounts. (a) This Deed of Trust is given pursuant to the Credit Agreement. Each and every term and provision of the Credit Agreement, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Deed of Trust. (b) If any remedy or right of Trustee or Beneficiary pursuant hereto is acted upon by Trustee or Beneficiary or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which Trustee or Beneficiary is made a party and is obliged to defend or uphold or enforce this Deed of Trust or the rights of Trustee or Beneficiary hereunder or the terms of any Lease, or if a condemnation proceeding is instituted affecting the Trust Property, Grantor will pay all sums, including reasonable attorneys' fees and disbursements, incurred by Trustee or Beneficiary related to the exercise of any remedy or right of Trustee or Beneficiary pursuant hereto or for the expense of any such action or proceeding together with all statutory or other costs, disbursements and allowances, interest thereon from the date of demand for payment thereof at the Default Rate, and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Trust Property prior to any right, title to, interest in or claim upon the Trust Property attaching or accruing subsequent to the recording of this Deed of Trust and shall be secured by this Deed of Trust to the extent permitted by law. (c) Any payment of amounts due under this Deed of Trust not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Rate, and such interest at the Default Rate shall be immediately due upon demand by Trustee or Beneficiary. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except as may be permitted by Section 6.03 of the Credit Agreement, Grantor will pay and discharge from time to time when the same shall become due and payable, and before any interest or penalty accrues thereon or attaches thereto, all taxes of every kind and nature, all general and special assessments, levies, permits, inspection and license fees, all water and sewer rents, all vault charges, and all other public charges, and all service charges, common area charges, private maintenance charges, utility charges and all other private charges, whether of a like or different nature, imposed upon or assessed against the Trust Property or any part thereof or upon the Rents from the Trust Property or arising in respect of the occupancy, use or possession thereof. At Beneficiary's option, Beneficiary may require Grantor to contract with a tax service firm to provide to Beneficiary on or about the same times each year, receipts evidencing the payment of all such taxes, assessments, levies, fees and other public charges imposed upon or assessed against the Trust Property or may provide such information to Beneficiary from internal sources. (b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Deed of Trust or debts secured by mortgages (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Beneficiary, either directly or indirectly, on this Deed of Trust, the Notes or any of the Loan Documents or to require an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event Grantor shall (i) agree to enter into such further instruments, including but not limited to new notes to be issued in exchange for the Notes theretofore issued, as may be reasonably necessary or desirable to obligate Grantor to make any applicable additional payments, and (ii) Grantor shall make such additional payments under the Notes. If Grantor is not permitted by law to do that which is required by the preceding sentence, Grantor shall be required to do so to the extent there are unencumbered assets of Grantor to substitute collateral for the Trust Property which is of equivalent value upon notice from Beneficiary promptly after such determination is reached. (c) At any time that an Event of Default shall occur hereunder, or if required by any law applicable to Grantor or to Beneficiary, Beneficiary shall have the right to direct Grantor to make an initial deposit on account of real estate taxes and assessments, insurance premiums and common area charges, levied against or payable in respect of the Trust Property in advance and thereafter semi-annually, each such deposit to be equal to one-half of any such annual charges reasonably estimated by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. SECTION 1.04. Payment of Closing Costs. Grantor shall pay all reasonable costs in connection with, relating to or arising out of the preparation, execution and recording of this Deed of Trust, including title company premiums and charges for a customary loan policy with such endorsements as may be reasonably requested by Beneficiary, inspection costs, survey costs, recording fees and taxes, attorneys', engineers', appraisers' and consultants' fees and disbursements and all other similar expenses of every kind. SECTION 1.05. Alterations and Waste; Plans. (a) No Improvements will be materially altered or demolished or removed in whole or in part by Grantor except as provided by Section 1.05(c) hereof. Grantor will not commit any waste on the Trust Property or make any alteration to, or change in the use of, the Trust Property which will diminish the fair market value thereof or materially increase any ordinary fire or other hazard arising out of construction or operation, but in no event shall any such alteration or change be contrary to the terms of any insurance policy required to be kept pursuant to Section 1.06. Grantor will maintain and operate, the Improvements and Personal Property in good repair, working order and condition, reasonable wear and tear excepted. (b) Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property currently in possession of Grantor either at the Trust Property or in a particular office at the headquarters of Grantor to which Beneficiary shall have access upon reasonable advance notice. (c) Grantor shall in connection with any lease or sublease permitted by Section 7.05(j) of the Credit Agreement have the right to alter the Trust Property for purposes of performing reasonable improvements in connection with such lease or sublease. SECTION 1.06. Insurance. Grantor will (a) Keep the Trust Property (including Improvements and Personal Property (each as defined in the Deed of Trust)) insured at all times by financially sound and reputable insurers against loss by fire, casualty and such other hazards as may be afforded by an "all risk" policy or a fire policy covering "special" causes of loss, including building ordinance law endorsements; cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Collateral Agent, which endorsement shall provide that, from and after the Restatement Date, the insurance carrier subject to the provisions of Sections 1.07 and 1.08 hereof, shall pay all proceeds otherwise payable to the Grantor under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Grantor, the Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Collateral Agent may reasonably require from time to time to protect its interest; provided, however, that if additional coverage is required, Grantor will obtain such coverage only if such coverage is (i) customarily maintained by others in the same or similar business in the geographic region of the Trust Property, and (ii) available at commercially reasonable rates (if available to Grantor); deliver, original or certified copies of all such policies to the Collateral Agent confirming that the terms of such policy are in compliance with the provisions of this Section 1.06 hereof; cause each such policy to provide that it shall not be canceled, modified or not renewed for any reason upon not less than 30 days' prior written notice thereof by insurer to the Collateral Agent; deliver to the Collateral Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent), together with evidence reasonably satisfactory to the Collateral Agent of timely payment of the premium therefor promptly after making such payment; (b) If at any time the area in which the Premises (as defined in the Deed of Trust) are located is designated a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency, obtain flood insurance in such total amount as the Collateral Agent may from time to time reasonably require, and otherwise comply with the National Flood Insurance Program as set forth in said Flood Disaster Protection Act of 1973, as it may be amended from time to time. (c) With respect to any Trust Property, carry and maintain comprehensive general liability insurance including the "broad form endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $5,000,000, naming the Collateral Agent as an additional insured, on forms reasonably satisfactory to the Collateral Agent. (d) Notify the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 1.06 is taken out by the Grantor; and promptly deliver to the Collateral Agent a duplicate original copy of such policy or policies. SECTION 1.07. Casualty; Restoration of Casualty Damage. Notwithstanding any other provisions of this Deed of Trust or the other Loan Documents, the Collateral Agent is authorized, at its option, to collect and receive, all insurance Proceeds, damages, claims and rights of action and the right thereto under any insurance policies with respect to a casualty relating to any portion of the Trust Property; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the insurance carrier to pay such proceeds directly to the Grantor. Grantor agrees to notify the Collateral Agent, in writing, in reasonable detail of any casualty to the Trust Property, promptly after the Grantor obtains notice of any casualty to all or any portion of the Trust Property. SECTION 1.08. Condemnation/Eminent Domain. Grantor will notify the Collateral Agent immediately upon obtaining notice of the institution, or the proposed, contemplated or threatened institution, of any action or proceeding for the taking of the Trust Property, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner (a "Condemnation"). The Collateral Agent is authorized, at its option, to collect and receive, all Proceeds of any such Condemnation; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the governmental authority to pay such proceeds directly to the Grantor. SECTION 1.09. Assignment of Leases and Rents. (a) Grantor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the performance by Grantor of the Obligations. Grantor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any other Lease or their respective Rents to anyone other than Beneficiary. (b) (i) Without Beneficiary's prior written consent, Grantor will not (A) modify, amend, terminate or consent to the cancellation or surrender of any lease if such modification, amendment, termination or consent would, in the reasonable judgment of the Beneficiary, be adverse in any material respect to the Lenders, the value of the Trust Property or the lien created by this Deed of Trust or (B) consent to an assignment of a tenant's interest in any Lease or to a subletting thereof covering a material portion of the Trust Property unless such assignment or sublease conforms with Section 7.05 of the Credit Agreement. (ii) If requested by Grantor, Beneficiary shall execute and deliver to Grantor's tenant a non-disturbance attornment and recognition agreement in form and substance satisfactory to Beneficiary. (c) Subject to paragraph 1.09(d) below, Grantor has assigned and transferred to Beneficiary all of Grantor's right, title and interest in and to the Rents now or hereafter arising from Leases heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to paragraph 1.09(d) below, an absolute transfer and assignment of all Rents and all Leases to Beneficiary and not merely to grant a security interest therein. Subject to paragraph 1.09(d) below, Beneficiary may in Grantor's name and stead (with or without first taking possession of any of the Trust Property personally or by receiver as provided herein) operate the Trust Property and rent, lease or let all or any portion of any of the Trust Property to any party or parties at such rental and upon such terms as Beneficiary shall, in its sole discretion, determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease. (d) Until an Event of Default occurs or after an Event of Default has occurred but is no longer continuing, Beneficiary will not exercise any of its rights under paragraph 1.09(c) above, and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening of any Event of Default (but only while such Event of Default continues), Beneficiary may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Upon the happening of an Event of Default, Grantor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Beneficiary to any such tenant or any of such tenant's successors in interest, and thereafter to pay Rents to Beneficiary without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Grantor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Beneficiary. Each tenant or any of such tenant's successors in interest from whom Beneficiary or any officer, agent, attorney or employee of Beneficiary shall have collected any Rents, shall be authorized to pay Rents to Grantor only after such tenant or any of such tenant's successors in interest shall have received written notice from Beneficiary that the Event of Default is no longer continuing, which notice Beneficiary shall be obligated to give if Beneficiary determines in its reasonable discretion that such Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Beneficiary to such tenant or any of such tenant's successors in interest. (e) Beneficiary will not become a mortgagee in possession so long as it does not enter or take actual possession of the Trust Property. In addition, Beneficiary shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenants, or others, for any dangerous or defective conditions of any of the Trust Property, for negligence in the management, upkeep, repair or control of any of the Trust Property or any other act or omission by any other person. (f) Grantor shall furnish to Beneficiary, within 30 days after a request by Beneficiary to do so, a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder. SECTION 1.10. Restrictions on Transfers and Encumbrances. Except as permitted hereby or by the Credit Agreement, Grantor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charges or any form of encumbrance upon any interest in or any part of the Trust Property, or be divested of its title to the Trust Property or any interest therein in any manner or way,, whether voluntarily or involuntarily (other than resulting from a taking), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof; provided, however, that Grantor may in the ordinary course of business within reasonable commercial standards, enter into easement or covenant agreements which relate to and/or benefit the operation of the Trust Property or which do not materially or adversely affect the use and operation of the same (except for customary utility easements which service the Trust Property). SECTION 1.11. Security Agreement. This Deed of Trust is both a mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a "Security Agreement" within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located. Grantor has hereby granted unto Beneficiary a security interest in and to all the Trust Property described in this Deed of Trust that is not real property, and simultaneously with the recording of this Deed of Trust, Grantor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located to perfect the security interest granted by this Deed of Trust in all the Trust Property that is not real property. Grantor hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent, for Grantor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Beneficiary shall have all rights with respect to the part of the Trust Property that is the subject of a security interest afforded by the uniform commercial code as adopted in the state wherein the Premises are located in addition to, but not in limitation of, the other rights afforded Trustee and Beneficiary hereunder. SECTION 1.12. Filing and Recording. Grantor will cause this Deed of Trust, any other security instrument creating a security interest in or evidencing the lien hereof upon the Trust Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the security interest of Trustee and Beneficiary in, the Trust Property. Grantor will pay all filing, registration or recording fees, and all expenses incidental to the execution and acknowledgment of this Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Personal Property, and any instrument of further assurance and all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery and recording of this Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Personal Property or any instrument of further assurance. SECTION 1.13. Further Assurances. Upon demand by Beneficiary, Grantor will, at the cost of Grantor and without expense to Beneficiary, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Beneficiary shall from time to time reasonably require for the better assuring, conveying, assigning, transferring and confirming unto Beneficiary the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Grantor may be or may hereafter become bound to convey or assign to Beneficiary, or for carrying out the intention or facilitating the performance of the terms of this Deed of Trust, or for filing, registering or recording this Deed of Trust, and on demand, Grantor will also execute and deliver and hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent for Grantor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably requested by Beneficiary to evidence more effectively the lien hereof upon the Personal Property and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.14. Additions to Trust Property. All right, title and interest of Grantor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Trust Property hereafter acquired by or released to Grantor or constructed, assembled or placed by Grantor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by Grantor, shall become subject to the lien and security interest of this Deed of Trust as fully and completely and with the same effect as though now owned by Grantor and specifically described in the grant of the Trust Property above, but at any and all times Grantor will execute and deliver to Beneficiary any and all such further assurances, mortgages, conveyances or assignments thereof as Beneficiary may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Deed of Trust. SECTION 1.15. No Claims Against Trustee or Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Trustee or Beneficiary, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Trust Property or any part thereof, nor as giving Grantor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Trustee or Beneficiary in respect thereof. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. It shall be an Event of Default under this Deed of Trust if any Event of Default (as therein defined) shall exist pursuant to (a) the Credit Agreement or (b) any other Mortgage. Notwithstanding the provisions of Article VIII, Section (e) of the Credit Agreement, if Grantor shall default in the observance or performance of any covenant, condition or agreement expressly set forth in this Deed of Trust and the subject matter of any such covenant, condition or agreement is not otherwise set forth in the Credit Agreement or any other Loan Document, and Grantor's default in its observance or performance of such covenant, condition or agreement (a) is not susceptible of cure by the payment of money or (b) could not, if left uncured, have a material adverse effect on the Trust Property, then in such case an Event of Default shall not occur until such default shall continue unremedied for a period of 30 days after written notice thereof from Beneficiary; provided, however, that in the case of any such default described in clauses (a) or (b) above, which cannot with the exercise by the Grantor of due diligence be cured within such 30-day period, the period within which such default may be cured may be extended for up to an additional 90 days, so long as Grantor shall have promptly commenced to cure the same during its initial 30-day cure period and thereafter continuously prosecutes the curing thereof with diligence. SECTION 2.02. Demand for Payment. If an Event of Default as set forth herein shall occur and be continuing, then, upon written demand of Beneficiary, Grantor will pay to Beneficiary upon demand all amounts due hereunder and such further amounts as shall be incurred to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Trustee or Beneficiary. In case Grantor shall fail forthwith to pay such amounts or any amounts due under any other Section of this Deed of Trust upon Beneficiary's demand, Trustee or Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity as advised by counsel for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Grantor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable. SECTION 2.03. Rights to Take Possession, Operate and Apply Revenues. (a) If an Event of Default shall occur and be continuing, Grantor shall, upon demand of Beneficiary, forthwith surrender to Beneficiary actual possession of the Trust Property and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Trust Property without the appointment of a receiver or an application therefor, exclude Grantor and its agents and employees wholly therefrom, and have access (with Grantor) to the books, papers and accounts of Grantor. (b) If Grantor shall for any reason fail to surrender or deliver the Trust Property or any part thereof after such demand by Beneficiary, Beneficiary may obtain a judgment or decree conferring upon Beneficiary the right to immediate possession or requiring Grantor to deliver immediate possession of the Trust Property to Beneficiary, to the entry of which judgment or decree Grantor hereby specifically consents. Grantor will pay to Beneficiary, upon demand, all expenses of obtaining such judgment or decree, including compensation to Beneficiary's attorneys and agents with interest thereon at the Default Rate; and all such expenses and compensation shall, until paid, be secured by this Deed of Trust. (c) Upon every such entry or taking of possession, Beneficiary may hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary, proper and reasonable maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Trust Property insured, (iv) manage and operate the Trust Property and exercise all the rights and powers of Grantor to the same extent as Grantor could in its own name or otherwise with respect to the same, or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Beneficiary, all as may from time to time be directed or determined by Beneficiary to be in its best interest and Grantor hereby appoints Beneficiary as its true and lawful attorney-in-fact and agent, for Grantor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Beneficiary may collect and receive all the Rents, issues, profits and revenues from the Trust Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Trust Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Beneficiary may at its option pay, (v) other proper charges upon the Trust Property or any part thereof and (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received first to the payment of the Beneficiary for the payment in full of Indebtedness and satisfaction of the Obligations, and second, if there is any surplus, to Grantor, subject to the entitlement of others thereto under applicable law. (d) Whenever, before any sale of the Trust Property under Section 2.06 hereof, all Obligations which are then due shall have been paid and all Events of Default fully cured, Beneficiary will surrender possession of the Trust Property back to Grantor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing. SECTION 2.04. Right to Cure Grantor's Failure to Perform. Prior to the occurrence of an Event of Default upon five business days' written notice to Grantor (except in the case of an emergency), or after the occurrence of an Event of Default at any time and without notice, should Grantor fail in the payment, performance or observance of any term, covenant or condition required by this Deed of Trust or the Credit Agreement (with respect to the Trust Property), Beneficiary may pay, perform or observe the same, and all payments made or costs or expenses incurred by Beneficiary in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Rate. Beneficiary shall make reasonable judgment as to the necessity for any such actions and of the amounts to be paid. Subject to the notice provisions of the first sentence of this paragraph 2.04, Beneficiary is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to Grantor, to any person in possession holding under Grantor or to any other person. SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be continuing, Beneficiary, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver to take possession of and to operate the Trust Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Trust Property is located. Grantor will pay to Beneficiary upon demand all reasonable amounts of expenses, including receiver's fees, attorney's fees and disbursements, costs and agent's compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Deed of Trust and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Rate. SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, Beneficiary may elect to sell the Trust Property or any part of the Trust Property by exercise of the power of foreclosure or of sale granted to Beneficiary by applicable law or this Deed of Trust. In such case, Trustee or Beneficiary may commence a civil action to foreclose this Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Obligation. Trustee or Beneficiary or an officer appointed by a judgment of foreclosure to sell the Trust Property, may sell all or such parts of the Trust Property as may be chosen by Beneficiary at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Beneficiary shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Trustee or Beneficiary or an officer appointed by a judgment of foreclosure to sell the Trust Property may postpone any foreclosure or other sale of all or any portion of the Trust Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Trustee or Beneficiary or an officer appointed to sell the Trust Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including Grantor or Beneficiary or any designee or affiliate thereof, may purchase at such sale. (b) The Trust Property may be sold subject to unpaid taxes and Permitted Encumbrances, and after deducting all costs, fees and expenses of Beneficiary, including costs of evidence of title in connection with the sale, Trustee or Beneficiary or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08 hereof. (c) Any foreclosure or other sale of less than the whole of the Trust Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure provided for herein; and subsequent sales may be made hereunder until the obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted providing for any appraisement before sale of any portion of the Trust Property, (ii) the benefit of all laws now existing or that may be hereafter enacted in any way extending the time for the enforcement or the collection of amounts due under any of the Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (iii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, or sale of the Trust Property as separate tracts, units or estates or as a single parcel in the event of foreclosure, and (iv) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Obligations and marshalling in the event of foreclosure of this Deed of Trust. (e) If an Event of Default shall occur and be continuing, Beneficiary may instead of, or in addition to, exercising the rights described in paragraph 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the terms of the Loan Documents or the performance of any term, covenant, condition or agreement of this Deed of Trust or any other right, or (ii) to pursue any other remedy available to it, all as Beneficiary shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be continuing, Beneficiary may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the uniform commercial code of the State wherein the Premises are located, including, to the extent not prohibited by applicable law, the following: (i) Either personally or by means of a court- appointed receiver, to take possession of all or any of the Personal Property and exclude therefrom Grantor and all others claiming under Grantor, and thereafter to hold, store, use, operate, manage, maintain and control, make repairs, replacements, alterations, additions and improvements to and exercise all rights and powers of Grantor with respect to the Personal Property or any part thereof. (ii) To make such payments and do such acts as Beneficiary may deem necessary to protect its security interest in the Personal Property, including paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior or superior to the security interest granted hereunder, and, in exercising any such powers or authority, paying all expenses incurred in connection therewith. (iii) To assemble the Personal Property or any portion thereof at a place designated by Beneficiary and reasonably convenient to both parties, to demand prompt delivery of the Personal Property to Beneficiary or an agent or representative designated by it, and to enter upon any or all of the Premises or Improvements to exercise Beneficiary's rights hereunder. (iv) To sell or otherwise dispose of or purchase the Personal Property at public sale, with or without having the Personal Property at the place of sale, upon such terms and in such manner as Beneficiary may determine, after Beneficiary shall have given Grantor at least ten days' prior written notice of the time and place of any public sale or other intended disposition of the Personal Property by mailing a copy to Grantor at the address set forth in Section 3.02. (b) In connection with a sale of the Trust Property or any Personal Property and the application of the proceeds of sale as provided in Section 2.08 of this Deed of Trust, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Obligations, plus all other charges, payments and costs due under this Deed of Trust, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any of the Trust Property, Beneficiary shall receive the proceeds of sale, no purchaser shall be required to see to the application of the proceeds and Beneficiary shall apply the proceeds of the sale together with any Rents that may have been collected and any other sums which then may be held by Beneficiary under this Deed of Trust as follows: First: to the payment of the costs and expenses of such sale, including compensation to Beneficiary's attorneys and agents, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Beneficiary under this Deed of Trust, together with interest at the Default Rate on all advances made by Beneficiary, including all taxes or assessments (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of removing any Permitted Encumbrance (except any Permitted Encumbrance subject to which the Trust Property was sold); Second: to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement or BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; Third: to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and Fourth: to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall promptly make application of any such proceeds, moneys or balances in accordance with this Deed of Trust. Upon any sale of the Trust Property by Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Trustee or Beneficiary or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Trust Property so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Trustee or Beneficiary or such officer or be answerable in any way for the misapplication thereof. SECTION 2.09. Grantor as Tenant Holding Over. If Grantor remains in possession of any of the Trust Property after any foreclosure sale by Beneficiary, at Beneficiary's election Grantor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over. SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. (a) Grantor will not object to any sale of the Trust Property in its entirety pursuant to Section 2.06, and for itself and all who may claim under it, Grantor waives, to the extent that it lawfully may, all right to have the Trust Property marshalled or to have the Trust Property sold as separate estates, parcels, tracts or units in the event of any foreclosure of this Deed of Trust. (b) To the full extent permitted by the law of the state wherein the Trust Property is located or other applicable law, neither Grantor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead-exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust, the absolute sale of the Trust Property or the final and absolute putting of the purchasers into possession thereof immediately after any sale; and Grantor, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully do so, the benefit of all such laws and any and all right to have the assets covered by the security interest created hereby marshalled upon any foreclosure of this Deed of Trust. SECTION 2.11. Discontinuance of Proceedings. In case Trustee or Beneficiary shall proceed to enforce any right, power or remedy under this Deed of Trust by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Trustee or Beneficiary, then and in every such case Grantor, Trustee and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Trustee and Beneficiary shall continue as if no such proceeding had been taken. SECTION 2.12. Suits to Protect the Trust Property. Trustee and/or Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in the Trust Property and in the Rents arising therefrom and (c) at its sole cost and expense, to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Trustee or Beneficiary hereunder provided there is no adverse impact on Grantor and its interest in the Trust Property. SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Grantor, Beneficiary shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Beneficiary allowed in such proceedings for the obligations secured by this Deed of Trust at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or which may become due and payable hereunder after such date. SECTION 2.14. Possession by Beneficiary. Notwithstanding the appointment of any receiver, liquidator or trustee of Grantor, any of its property or the Trust Property, Beneficiary shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Trust Property now or hereafter granted under this Deed of Trust to Beneficiary in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by Trustee or Beneficiary to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to Trustee or Beneficiary may be exercised from time to time and as often as may be deemed expedient by Trustee or Beneficiary. No consent or waiver by Beneficiary to or of any breach or default by Grantor in the performance of the Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or any other obligations by Grantor hereunder. No failure on the part of Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Beneficiary of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Grantor. (b) Even if Beneficiary (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Loan Documents, (iv) releases a part of the Trust Property from this Deed of Trust, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Loan Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Beneficiary's lien on the Trust Property hereunder; no such act or omission shall preclude Beneficiary from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise provided in an instrument executed by Trustee and Beneficiary, shall this Deed of Trust be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Trust Property, Beneficiary is hereby authorized and empowered to deal with any vendee or transferee with reference to the Trust Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Trustee or Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Deed of Trust shall for any reason be held to be invalid, illegal or unenforceable in any respect, such validity, illegality or unenforceability shall, at the option of Beneficiary, not affect any other provision of this Deed of Trust, and this Deed of Trust shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 3.02. Notices. All notices to be sent and all documents to be delivered hereunder shall be in writing, shall be delivered by hand or overnight courier service, mailed or sent by telex, graphic scanning or other telegraphic communications equipment of the sending party and shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telex, telecopy or other telegraphic communications equipment of the sender, or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in Section 10.01 of the Credit Agreement or in accordance with the latest unrevoked direction from such party given in accordance with said Section 10.01, except that all notices to the Trustee shall be delivered, sent or mailed (properly addressed) to the Trustee at Stutzman & Bromberg, 2323 Bryan, Dallas, Texas 75201. SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Grantor and the successors and assigns of Beneficiary. SECTION 3.04. Counterparts. This Deed of Trust may be executed in any number of counterparts and all such counterparts shall together constitute but one and the same mortgage. SECTION 3.05. Satisfaction and Cancellation. (a) The conveyance to Beneficiary of the Trust Property as security, created and consummated by this Deed of Trust, shall be null and void when all the Obligations have been indefeasibly paid in full in accordance with the terms of the Loan Documents and the Lenders and the Swingline Lenders have no further commitment to lend under the Credit Agreement, no Letters of Credit or Bankers' Acceptances are outstanding and the Fronting Banks have no further obligation to issue Letters of Credit or to originate Bankers' Acceptances under the Credit Agreement. (b) The lien of this conveyance shall be released from the Trust Property pursuant to and in accordance with the operative provisions of Section 7.05 of the Credit Agreement. (c) In connection with any termination or release pursuant to paragraph (a) or (b), to the extent applicable, the Mortgage shall be marked "satisfied" by the Beneficiary and/or Trustee, and this Deed of Trust may be canceled of record at the request and at the expense of the Grantor. Beneficiary and Trustee shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by paragraph (a) or (b) and Grantor will pay all costs and expenses, including attorneys' fees and disbursements, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.06. Definitions. As used in this Deed of Trust, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act which Trustee or Beneficiary is permitted to perform hereunder may be performed at any time and from time to time by Trustee or Beneficiary or any person or entity designated by Trustee or Beneficiary. Any act which is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property. Each appointment of Trustee or Beneficiary as attorney-in-fact for Grantor under the Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, Beneficiary has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. SECTION 3.07. Multisite Real Estate Transaction. Grantor acknowledges that this Deed of Trust is one of a number of Other Mortgages and Security Documents which secure the Obligations. Grantor agrees that the lien of this Deed of Trust shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Trustee or Beneficiary and, without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by Trustee or Beneficiary of any security for or guarantees of any of the Obligations hereby secured, or by any failure, neglect or omission on the part of Trustee or Beneficiary to realize upon or protect any Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Security Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Security Documents or of any guarantee thereof, and Trustee or Beneficiary may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Security Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Trustee's or Beneficiary's rights and remedies under any or all of the Other Mortgages and other Security Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Deed of Trust and any exercise of the rights or remedies of Trustee or Beneficiary hereunder shall not impair the lien of any of the Other Mortgages and other Security Documents or any of Trustee's or Beneficiary's rights and remedies thereunder. The undersigned specifically consents and agrees that Trustee or Beneficiary may exercise its rights and remedies hereunder and under the Other Mortgages and other Security Documents separately or concurrently and in any order that it may deem appropriate and the undersigned waives any rights of subrogation. ARTICLE IV Particular Provisions This Deed of Trust is subject to the following provisions relating to the particular laws of the state wherein the Premises are located: SECTION 4.01. Applicable Law; Certain Particular Provisions. This Deed of Trust shall be governed by and construed in accordance with the internal law of the State of New York; provided, however, that the provisions of this Deed of Trust relating to the creation, perfection and enforcement of the lien and security interest created by this Deed of Trust in respect of the Trust Property and the exercise of each remedy provided hereby, including the power of foreclosure or power of sale procedures set forth in this Deed of Trust, shall be governed by and construed in accordance with the internal law of the state where the Trust Property is located, and Grantor and Beneficiary will submit to jurisdiction and the laying of venue for any suit on this Deed of Trust in such state. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Deed of Trust and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control. SECTION 4.02. Trustee's Powers and Liabilities. (a) Trustee, by acceptance hereof, covenants faithfully to perform and fulfill the trusts herein created, being liable, however, only for gross negligence or wilful misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by it in accordance with the terms hereof. All authorities, powers and discretions given in this Deed of Trust to Trustee and/or Beneficiary may be exercised by either, without the other, with the same effect as if exercised jointly. (b) Trustee may resign at any time upon giving 30 days' notice in writing to Grantor and to Beneficiary. (c) Beneficiary may remove Trustee at any time or from time to time and select a successor trustee. In the event of the death, removal, resignation, refusal to act, inability to act or absence of Trustee from the state in which the premises are located, or in its sole discretion for any reason whatsoever, Beneficiary may, upon notice to the Grantor and without specifying the reason therefor and without applying to any court, select and appoint a successor trustee, and all powers, rights, duties and authority of the former Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall not be required to give bond for the faithful performance of his duties unless required by Beneficiary. Such substitute trustee shall be appointed by written instrument duly recorded in the county where the Land is located. Grantor hereby ratifies and confirms any and all acts which the herein named Trustee, or his successor or successors in this trust, shall do lawfully by virtue hereof. Grantor hereby agrees, on behalf of itself and its heirs, executors, administrators and assigns, that the recitals contained in any deed or deeds executed in due form by any Trustee or substitute trustee, acting under the provisions of this instrument, shall be prima facie evidence of the facts recited, and that it shall not be necessary to prove in any court, otherwise than by such recitals, the existence of the facts essential to authorize the execution and delivery of such deed or deeds and the passing of title thereby. (d) Trustee shall not be required to see that this Deed of Trust is recorded, nor be liable for its validity or its priority as a first deed of trust, or otherwise, nor shall Trustee be answerable or responsible for performance or observance of the covenants and agreements imposed upon Grantor or Beneficiary by this Deed of Trust or any other agreement. Trustee, as well as Beneficiary, shall have authority in their respective discretion to employ agents and attorneys in the execution of this trust and to protect the interest of the Beneficiary hereunder, and to the extent permitted by law they shall be compensated and all expenses relating to the employment of such agents and/or attorneys, including expenses of litigations, shall be paid out of the proceeds of the sale of the Trust Property conveyed hereby should a sale be had, but if no such sale be had, all sums so paid out shall be recoverable to the extent permitted by law by all remedies at law or in equity. (e) At any time, or from time to time, without liability therefor and with 10 days' prior written notice to Grantor, upon written request of Beneficiary and without affecting the effect of this Deed of Trust upon the remainder of the Trust Property, Trustee may (i) reconvey any part of the Trust Property, (ii) consent in writing to the making of any map or plat thereof, so long as Grantor has consented thereto, (iii) join in granting any easement thereon, so long as Grantor has consented thereto, or (iv) join in any extension agreement or any agreement subordinating the lien or charge hereof. IN WITNESS WHEREOF, this Deed of Trust has been duly authorized and has been executed and delivered to Trustee and Beneficiary by Grantor on the date first written above. ECKERD CORPORATION, a Delaware corporation, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President [ACKNOWLEDGMENT FORM] THE STATE OF NEW YORK SECTION COUNTY OF NEW YORK SECTION This instrument has been acknowledged before me on this 3rd day of August, 1994, by Martin W. Gladysz, a vice president of Eckerd Corporation, a Delaware corporation, on behalf of such corporation. My Commission expires: /s/ Deborah M. Voytovich May 1, 1995 Notary Public in and for the State of New York Deborah M. Voytovich Printed Name of Notary APPENDIX A to Deed of Trust, Security Agreement and Assignment of Leases and Rents TEXAS OVERRIDE PROVISIONS This Appendix A (this "Appendix A") has been attached to and shall be deemed incorporated into that certain Deed of Trust, Security Agreement and Assignment of Leases and Rents (the "Deed of Trust") dated as of June 14, 1993, as amended and restated as of August 3, 1994, by Eckerd Corporation, formerly known as Jack Eckerd Corporation, a Delaware corporation, (the "Grantor") to the trustee named therein (the "Trustee") for the benefit of Chemical Bank, as Collateral Agent for the Secured Parties (in such capacity the "Beneficiary"). As set forth in Section 4.01 of the Deed of Trust, in the event of any conflict between the terms and provisions contained in the body of the Deed of Trust and the terms and provisions set forth in this Appendix A, the terms and provisions set forth in this Appendix A shall govern and control. All references in this Appendix A to Articles and Section shall, unless otherwise provided, refer to Articles and Sections of this Appendix A and all references to "this Deed of Trust" or similar language shall refer to the Deed of Trust, as supplemented and, if applicable, overridden by this Appendix A. ARTICLE I Future Advances and Interest Limitation SECTION 1.01. Future Advances. In addition to securing the full, prompt and complete payment when due of the Obligations, this Deed of Trust shall also secure any and all other, further or future loans, advances, readvances, reborrowings and borrowings made to or at the request of the Grantor from or by any one on all of the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and/or the Collateral Agent and all other debts, obligations and liabilities of every kind and character of the Grantor now or hereafter existing in favor of any one or all of the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and/or the Collateral Agent (including, without limitation, all indebtedness incurred or arising pursuant to the Credit Agreement and/or any Loan Document) whether such debts, obligations or liabilities be direct or indirect, primary or secondary, joint or several, fixed or contingent, and whether originally payable to any of such parties or to a third party, and subsequently acquired by any of such parties, and whether such debts, obligations and liabilities are evidenced by note, open account, overdraft, endorsement, surety agreement or otherwise, it being presently contemplated by the Grantor and such other parties that the Grantor may and will hereafter become indebted to the Beneficiary, the Lenders, the Swingline Lenders, the Fronting Banks, the Managing Agents, the Administrative Agent, the Documentation Agent and the Collateral Agent in other, further and future sum or sums. SECTION 1.02. Limitation on Interest. All agreements between the Grantor and the Beneficiary, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity of the indebtedness secured hereby, or otherwise, shall the amount paid or agreed to be paid to the Beneficiary for the use, forbearance or detention of the indebtedness secured hereby or for the performance or payment of any covenant or obligation contained herein or in any other instrument evidencing, securing or pertaining to the indebtedness secured hereby, exceed the maximum rate permitted by applicable law. If from any circumstances whatsoever fulfillment of any provision hereof or of any such other document, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance the Beneficiary hereof shall ever receive anything of value deemed interest by applicable law which would exceed the maximum rate, an amount equal to any excessive interest shall be applied to the reduction of the principal amount owing under the Obligations or on account of any other principal indebtedness of the Grantor to the Beneficiary, in the inverse order of maturity, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Obligations and such other indebtedness, such excess shall be refunded by the Beneficiary to the Grantor. In determining if from any such specific circumstance the Beneficiary shall have received anything of value deemed interest by applicable law which would exceed the maximum rate, the Grantor and the Beneficiary shall, to the maximum extent permissible under applicable law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread all sums paid or agreed to be paid throughout the full term of such indebtedness until payment in full so that the rate of interest on account of such indebtedness is uniform throughout the term thereof; provided, however, that if such indebtedness is paid and performed in full prior to the end of the full contemplated term thereof, and the Beneficiary shall have received anything of value deemed interest by applicable law which would exceed the maximum rate for the actual period of such indebtedness, the Beneficiary shall apply such amounts as hereinabove provided, and, in such event, the Beneficiary shall not be subject to any penalty for contracting for, charging or receiving interest in excess of the maximum rate. The terms and provisions of this Section 1.02 shall control and supersede every other provision of all agreements between the Grantor and the Beneficiary. ARTICLE II Non-Judicial Foreclosure and Certain Waivers SECTION 2.01. Foreclosure and Sale. (a) If an Event of Default shall occur, each of Trustee and his successor or substitute is authorized and empowered and it shall be his special duty at the request of the Beneficiary to sell or offer for sale the Trust Property in such portions, order and parcels as the Beneficiary may determine, with or without having first taken possession of same, to the highest bidder for cash at public auction or upon such other terms and conditions as the Beneficiary, in its sole and absolute discretion, may hereafter elect. Such sale shall be made at the courthouse door of the county in which the Trust Property (or that portion thereof to be sold) is situated (whether the parts or parcels thereof, if any, located in different counties are contiguous or not, and without the necessity of having any personal property hereby mortgaged present at such sale) on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m. after advertising the time, place and terms of sale and that portion of the Trust Property to be sold by posting or causing to be posted written or printed notice thereof at least 21 days preceding the date of said sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Trust Property may be situated, which notice may be posted by the Trustee acting, or by any person acting for him, and filing a copy of such notice with the clerk of the county in which the sale is to be made, and the holder of the indebtedness has, at least 21 days preceding the date of sale, served written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the indebtedness secured by this Deed of Trust according to the records of the Beneficiary by the deposit of such notice, enclosed in a postpaid wrapper, properly addressed to such debtor at debtor's most recent address as shown by the records of the holder of the indebtedness, in a post office or official depository under the care and custody of the United States Postal Service. In the event any of the foregoing are not sufficient to satisfy or are in excess of the requirements of the applicable laws of the State of Texas or of the United States whenever such is to be commenced or conducted, this Article shall be deemed to incorporate any additional laws of the State of Texas or of the United States, and to be amended by deletion of any requirements in excess thereof. (b) Notwithstanding anything herein to the contrary, the Beneficiary may, at its option, accomplish all or any of the aforesaid in such manner as may from time to time be permitted or required by the provisions of the Property Code of the State of Texas (the "Property Code") relating to the sale of real estate or by Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor (as said article and chapter now exist or may be hereinafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same. Nothing contained in this Section 2.01 shall be construed to limit in any way the Trustee's right to sell the Trust Property by private sale under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same. At any such sale: (i) whether made under the power herein contained, the Property Code, the Texas Business and Commerce Code or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for the Trustee to have physically present, or to have constructive possession of, the Trust Property (the Grantor shall deliver to the Trustee any portion of the Trust Property not actually or constructively possessed by the Trustee immediately upon demand by the Trustee) and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale; (ii) each instrument of conveyance executed by the Trustee shall contain a general warranty of title, binding upon the Grantor and its successors; (iii) each and every recital contained in any instrument of conveyance made by the Trustee shall be conclusive evidence of the truth and accuracy of the matters recited therein, including, without limitation, non- payment of the indebtedness, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor to the Trustee hereunder; (iv) any and all prerequisites to the validity thereof shall be presumed to have been performed; (v) the receipt of the Trustee or of such other party or officer making the sale shall be sufficient to discharge to the purchaser or purchasers for his or their purchase money, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or non- application thereof; (vi) to the fullest extent permitted by law, the Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar, both at law and in equity, against the Grantor and against all other persons claiming or to claim the property sold or to any part thereof by, through or under the Grantor; and (vii) to the extent and under such circumstances as are permitted by law, the Beneficiary may be a purchaser at any such sale. SECTION 2.02. Separate Sales. The Trustee may sell all or any portion of the Trust Property together or in lots or parcels and in such manner and order as the Trustee, in its sole discretion, may elect. The sale or sales by the Trustee of less than the whole of the Trust Property shall not exhaust the power of sale herein granted, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Trust Property shall be sold; and if the proceeds of such sale or sales of less than the whole of the Trust Property shall be less than the aggregate of the indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Trust Property just as though no sale or sales had been made; provided, however, that the Grantor shall never have any right to require the sale or sales of less than the whole of the Trust Property, but the Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Trust Property. As among the various counties in which items of the Trust Property may be situated, sales in such counties may be conducted in any order that the Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient. If default is made hereunder, the holder of the indebtedness or any part thereof on which the payment is delinquent shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provision of this paragraph. Any number of sales may be made hereunder without exhausting the right of sale for any unmatured part of the indebtedness secured hereby. SECTION 2.03. Release of and Resort to Collateral. Any part of the Trust Property may be released by the Beneficiary without affecting, subordinating or releasing the lien, security interest and assignment hereof against the remainder. The lien, security interest and other rights granted hereby shall not affect or be affected by any other security taken for the same indebtedness or any part thereof. The taking of additional security, or the rearrangement, extension, modification, reinstatement or renewal of the indebtedness, or any part thereof, shall not release or impair the lien, security interest and other rights granted hereby or affect the liability of any endorser, guarantor or surety, or improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, modification, renewal or extension of the indebtedness secured hereby, or any part thereof, shall be and remain a first and prior lien on all of the Trust Property not expressly released until the indebtedness is completely paid. SECTION 2.04. Waiver of Redemption, Notice and Marshalling of Assets. To the fullest extent permitted by law, the Grantor hereby irrevocably and unconditionally waives and releases: (a) all benefits that might accrue to the Grantor, by any present or future laws exempting the Trust Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of acceleration, notices of intent to accelerate, notices of demand, notices of intent to demand, notices of any Event of Default and notices of the Beneficiary's or the Trustee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, except to the extent, if at all, expressly otherwise provided in the Credit Agreement; (c) any right to appraisal or marshalling of assets or a sale in inverse order of alienation; (d) the exemption of homestead; (e) the administration of estates of decedents, or other matter whatever to defeat, reduce or affect the right of the Beneficiary under the terms of this Deed of Trust, to sell the Trust Property for the collection of the indebtedness secured hereby (without any prior or different resort for collection) or the right of the Beneficiary, under the terms of this Deed of Trust, to the payment of the indebtedness out of the proceeds of sale of the Trust Property in preference of every other person and claimant whatever (only reasonable expenses of such sale being first deducted); and (f) any right or remedy which it may have or be able to assert by reason of the provisions of Chapter 34 of the Business and Commerce Code of the State of Texas, as currently in effect or hereafter amended, and any other, further or future laws, rules and/or judicial doctrines pertaining to the rights and remedies of sureties. ARTICLE III The Trustee's Duties and Liability SECTION 3.01. No Liability. The Trustee shall not be liable for any error of judgment or act done by the Trustee, or be otherwise responsible or accountable under any circumstances whatsoever, except if the result of the Trustee's gross negligence or willful misconduct. The Trustee shall not be personally liable in case of entry by him or anyone acting by virtue of the powers herein granted him upon the Trust Property for debts contracted or liability or damages or damages incurred in the management or operation of the Trust Property. The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder or believed by him to be genuine. The Trustee shall be entitled to reimbursement for actual expenses incurred by him in the performance of his duties hereunder and to reasonable compensation for such of his services hereunder as shall be rendered. The Grantor will, from time to time, reimburse the Trustee for and save and hold him harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of his duties. SECTION 3.02. Retention of Monies. All monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law) and the Trustee shall be under no liability for interest on any monies received by him hereunder. SECTION 3.03. Successor Trustees. The Trustee may resign by giving of notice of such resignation in writing to the Beneficiary. If the Trustee shall die, resign or become disqualified from acting in the execution of this trust or shall fail or refuse to exercise the same when requested by the Beneficiary or if for any or no reason and without cause the Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, the Beneficiary shall, without any formality or notice to the Grantor or any other person, have full power to appoint a substitute trustee and, if the Beneficiary so elects, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the aforenamed Trustee. SECTION 3.04. Succession Instruments. Any new Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but, nevertheless, upon the written request of the Beneficiary or his successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and monies held by the Trustee to the successor trustee so appointed in its or his place. SECTION 3.05. Performance of Duties by Agents. The Trustee may authorize one or more parties to act on his behalf to perform the ministerial functions required of him hereunder, including, without limitation, the transmittal and posting of any notices. ARTICLE IV Fixture Filing and Assignment of Rents SECTION 4.01. Fixture Filing. Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a Financing Statement filed as a fixture filing from the date of its filing for record covering and including any and all fixtures of every kind and type affixed to all or any portion of the Premises or forming part of all or any portion of the Improvements. The name and address of the Grantor, as Debtor, and the Beneficiary (where information concerning the security interest granted hereby may be obtained), as Secured Party, are as set forth on page 1 of this Deed of Trust. The above described goods are or are to become fixtures related to the Premises and the Improvements of which the Grantor is the record title owner. This Deed of Trust shall also be effective as a financing statement covering minerals or the like (including oil and gas) and accounts subject to Section 9.103(e) of the Texas Business and Commerce Code, as amended. A carbon, photographic or other reproduction of this Deed of Trust or any financing statement relating to this Deed of Trust shall be sufficient as a financing statement. SECTION 4.02. Assignment of Rents. The Grantor acknowledges and agrees that the assignment set forth in Section 1.09(c) of the body of this Deed of Trust shall be upon the following additional terms: (a) until receipt from the Beneficiary of written notice each tenant may pay any and all Rents and other sums set forth above directly to the Grantor, but after written notice, the Grantor covenants to hold any and all such sums in trust for the use and benefit of the Beneficiary; (b) upon receipt from the Beneficiary of a written notice, each tenant is hereby authorized and directed, without the need for the prior consent, approval or joinder by the Grantor or any other person, to pay directly to the Beneficiary any and all of such Rents and other sums thereafter accruing; (c) the Beneficiary shall not be liable for its failure to exercise diligence in the collection of any and all of such Rents and other sums; (d) the assignment set forth herein shall terminate upon the release of this instrument, but no tenant shall be required to accept notice of any such termination until a copy of any such release, as executed by the Beneficiary, has been delivered to such tenant; (e) in no event shall the rights set forth in this assignment effect or be construed so as to effect a pro tanto reduction of the indebtedness secured hereby except to the extent, if at all, that the Beneficiary actually receives, after the occurrence of a default and the Beneficiary's election to pursue its rights under this Section, Rents and other sums directly from any tenant of all or any portion of the Trust Property and applies same, in the Beneficiary's discretion, to such indebtedness; and (f) the Beneficiary need not institute, prosecute or resort to any legal, equitable or other action, nor deliver any notice or demand, nor take any affirmative action whatsoever after the occurrence of a default in order to enforce and obtain the benefits of the provisions set forth herein. Notwithstanding anything to the contrary contained herein or otherwise, the Grantor and the Beneficiary intend, clearly and without ambiguity, that the assignment set forth herein shall be deemed and otherwise construed for all purposes to be an absolute, unconditional and presently effective assignment of the Rents and the provisions of clause (a) and clause (b) above are intended solely for the benefit of each tenant and shall never inure to the benefit of the Grantor or any person claiming by, through or under the Grantor. ARTICLE V Miscellaneous SECTION 5.01. Releases. Upon payment in full of the Obligations and all other indebtedness secured hereby, the Beneficiary shall, at the Grantor's expense, cause the lien created by this Deed of Trust to be released by an instrument in form and substance reasonably satisfactory to the Grantor and the Beneficiary. SECTION 5.02. Subrogation. If any or all of the proceeds of the indebtedness secured hereby have been used to extinguish, extend or renew any indebtedness heretofore existing against all or any portion of the Trust Property or to satisfy any indebtedness or obligation secured by a lien or encumbrance of any kind (including liens securing the payment of any taxes), such proceeds have been advanced by the Beneficiary at the Grantor's request and, to the extent of such funds so used, the indebtedness and obligations in this Deed of Trust shall be subrogated to and extend to all of the rights, claims, liens, titles and interests heretofore existing against the Trust Property (or such portion thereof) to secure the indebtedness or obligation so extinguished, paid, extended or renewed, and the former rights, claims, liens, titles and interests, if any, shall not be waived but rather shall be continued in full force and effect and in favor of the Beneficiary and shall be merged with the lien and security interest created herein as cumulative security for the repayment of the indebtedness and satisfaction of the Obligations. SECTION 5.03. No Partnership. That notwithstanding anything to the contrary contained herein or otherwise (a) the relationship between the Grantor and the Beneficiary hereunder and otherwise shall be deemed, construed and treated by the Grantor and the Beneficiary for all purposes to be solely that of debtor/creditor; (b) the various consent, approval and other rights afforded to the Beneficiary under this Deed of Trust have been granted and designed solely to protect the value of the Trust Property and to assure the Grantor's payment of the indebtedness and all of such rights are customarily granted lenders in secured lending transactions; (c) the Grantor and the Beneficiary hereby expressly disclaim any sharing of liabilities, losses, costs or expenses with respect to the ownership or operation of all or any portion of the Trust Property, or otherwise; and (d) the terms contained herein are not intended by the Grantor and the Beneficiary and shall not for any purpose be deemed, construed or treated by the Grantor and the Beneficiary so as (i) to create a partnership or joint venture between the Beneficiary and the Grantor or between the Beneficiary and any other party, or (ii) to cause the Beneficiary to be or become liable in any way for the debts and obligations of the Grantor (including, without limitation, any losses attributable to the Grantor's operation of the Trust Property) or any other party. SECTION 5.04. Incorporation by Reference. The terms, covenants and provisions of the Credit Agreement and the other Loan Documents have been incorporated into this Deed of Trust by this reference. All references to the "Beneficiary" shall be deemed to include Chemical Bank and any successor, further or substitute entity appointed now or at any time hereafter as the collateral agent hereunder. All references to the "Lenders", the "Swingline Lenders" the "Fronting Banks", the "Managing Agents", the "Administrative Agent" and the "Documentation Agent" shall include all persons and entities currently acting as such and their respective successors and assigns. All persons from time to time having an interest in all or any portion of the Trust Property are hereby placed on notice of all of the terms, covenants and provisions of the instruments incorporated herein and that copies of same may be obtained, subject to such confidentiality restrictions as may be reasonably acceptable to both the Beneficiary and the Grantor, by those having an appropriate interest in the Trust Property or any portion thereof upon written request to the Beneficiary at the address set forth on page 1 of this Deed of Trust. Any such request shall include the name and address of the requesting party and also contain a brief explanation of the nature and reason for such request. SECTION 5.05. Section 26.02 Notice. IN ACCORDANCE WITH SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, THIS DEED OF TRUST AND THE OTHER DOCUMENTS EVIDENCING, SECURING OR PERTAINING TO ALL OR ANY PORTION OF THE OBLIGATIONS REPRESENT THE FINAL AGREEMENT BETWEEN THE GRANTOR AND THE BENEFICIARY AS TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PARTIES. MONTGOMERY COUNTY, TEXAS EXHIBIT A BEING 26.00 acres of land, more or less, being out of the James McCambridge Survey, Abstract No. 390, Montgomery County, Texas, and being more particularly described by metes and bounds as follows, to-wit: A tract of land situated in the State of Texas, County of Montgomery, containing 26.00 acres of land out of the James McCambridge Survey, A-390, Montgomery County, Texas, and being out of Tract 2, (Called 139.814 acres of land) as described in that certain Deed of Trust, dated November 4, 1974, to W. C. McClain, Trustee, recorded in Volume 314, Page 56 of the Deed of Trust Records, Montgomery County, Texas, and being more particularly described by metes and bounds as follows: All control is referred to the Texas Plane Coordinate System, Lambert Projection, South Central Zone. BEGINNING at a concrete monument with brass cap, being the Southwest corner of this tract and being at its intersection with the Westerly boundary of the aforementioned Tract 2 (Called 139.814 acres of land), and being common with the East right-of-way boundary of Interstate Highway No. 45, said Point of Beginning having a Texas Plane Coordinate value of X-3,119,220.39; Y-882,949.68, and being referenced from the Southeast corner of the aforementioned James McCambridge Survey, A-390, common with the Northeast corner of the George Taylor Survey, A-555, at its intersection with the Westerly boundary of the Richard Vince Survey, A-583, marked by a 5/8' steel reinforcing rod, and being N 62 deg. 18, 37, W, 2,459.59 feet to said Point of Beginning, and being also referenced from a concrete monument with brass cap stamped *NW-11' set for control of The Woodlands Development Corporation Property by Cadastral Surveying and Mapping Corporation and having a Texas Plane Coordinate value of X-3,119,166.69; Y-880,096.41 and being N 01 deg. 04' 41' E, 2,853-78 feet to said Point of Beginning; THENCE along the Westerly boundary of this tract, common with the Easterly boundary of said Interstate Highway No. 45, as follows: N 06 deg. 24' 58' W, 666 . 30 feet to a concrete monument with brass cap and being a point of curvature (P.C.) AND Along an arc (To the Right) having a central angle of 00 deg. 21' 40' (Right), based on a radius of 11,399.54 feet, having an arc length of 71.85 feet and having a chord call of N 06 deg. 14' 09' W, 71.84 feet to a point on curve and a concrete monument with brass cap for corner, being the Northwest corner of this tract; THENCE, severing the aforementioned Tract 2 (Called 139.814 acres of land), N 87 deg. 21' 47' E, 1,526.57 feet to a concrete monument with brass cap for corner, being the Northeast corner of this tract, and being 10.00 feet parallel to the Westerly right-of-way of the Missouri Pacific Railroad 200 foot right-of-way boundary. THENCE S 13 deg. 57' 29, E, 580.64 feet along the Easterly boundary of this tract, being parallel to and 10.00 feet West of the aforementioned Missouri Pacific Railroad 200 foot right-of-way, to a concrete monument with brass cap, and being a point of curvature (P.C.), and being also the Easternmost Southeast corner of this tract, and being also on the North right-of-way of a proposed road; THENCE, severing said Tract 2 (Called 139.814 acres of land), as follows: Along an arc (To the Left) and around the North right-of-way of said proposed road, having a central angle of 32 deg. 32' 19' (Left), based on a radius of 541.87 feet, having an arc length of 307.73 feet, and having a chord call of S 53 deg. 56' 49, W, 303.61 feet to a point on curve (P.O.C.) and concrete monument with brass cap for corner, being the Southernmost Southeast corner of this tract AND S 87 deg. 21' 47' W, 1,338.70 feet to said Point of Beginning Containing 26.00 acres of land. EX-10.31 16 AMENDMENT, CONSENT AND WAIVER dated as October 31, 1994 (this "Amendment"), to (a) the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Credit Agreement"), among Eckerd Corporation, a Delaware corporation (the "Borrower"); the financial institutions party to the Credit Agreement (the "Lenders"); Chemical Bank and NationsBank of Florida, N.A., as managing agents for the Lenders (the "Managing Agents") and as swingline lenders (the "Swingline Lenders"); Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and the Fronting Banks (such term and each other capitalized term used without definition in this Amendment having the meanings assigned thereto in the Credit Agreement); and NationsBank, as documentation agent (the "Documentation Agent") for the Lenders, the Swingline Lenders and the Fronting Banks; (b) the Guarantee Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Guarantee Agreement"), among each subsidiary of the Borrower party thereto (collectively, the "Guarantors") and Chemical, as collateral agent for the Secured Parties (the "Collateral Agent"); and (c) the Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Borrower, the Guarantors and the Collateral Agent. WHEREAS, the Borrower intends to consummate the sale of Insta-Care Holdings, Inc., a Florida corporation ("IC Holdings"), as permitted by the Credit Agreement (such sale, the "IC Holdings Sale") and, in connection therewith, the Borrower has requested that the Required Lenders agree to (a) waive the provisions of the Credit Agreement to the extent necessary to provide that if, upon consummation of the IC Holdings Sale, the Borrower applies to the prepayment of outstanding Revolving Credit Borrowings the portion of the Net Proceeds from the IC Holdings Sale that the Borrower is permitted under the Credit Agreement to apply to the redemption or repurchase of 11-1/8% Subordinated Debentures, the Borrower may subsequently use the proceeds of Revolving Credit Borrowings, in an amount not in excess of the amount of Net Proceeds from the IC Holdings Sale so applied to prepay outstanding Revolving Credit Borrowings, to redeem or repurchase 11-1/8% Subordinated Debentures, (b) amend the Guarantee Agreement to release, upon the consummation of the IC Holdings Sale, the guarantee of each Subsidiary of IC Holdings under the Guarantee Agreement and (c) amend the Indemnity, Contribution and Subrogation Agreement to release, upon the consummation of the IC Holdings Sale, IC Holdings and its Subsidiaries from all their respective obligations under the Indemnity, Contribution and Subrogation Agreement; WHEREAS, the Borrower intends, on or prior to August 1, 1995, to make a public offering of convertible subordinated indebtedness (the "Convertible Subordinated Debentures") the proceeds of which will be used by the Borrower to redeem or repurchase 11-1/8% Subordinated Debentures and, in connection therewith, the Borrower has requested that the Required Lenders agree to (a) waive the provisions of the Credit Agreement to the extent necessary to permit the Borrower to make such offering and (b) waive the provisions of the Credit Agreement to the extent necessary to provide that if, upon consummation of such offering, the Borrower applies to the prepayment of outstanding Revolving Credit Borrowings all or a portion of the Net Proceeds from such offering, the Borrower may subsequently use the proceeds of Revolving Credit Borrowings, in an amount not in excess of the amount of Net Proceeds from such offering so applied to prepay outstanding Revolving Credit Borrowings, to redeem or repurchase 11-1/8% Subordinated Debentures; and WHEREAS, the Required Lenders are willing, on the terms, subject to the conditions and to the extent set forth below, to grant such waivers and to effect such amendments. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the Borrower, each of the Guarantors and the Required Lenders hereby agree, on the terms and subject to the conditions set forth herein, as follows: SECTION 1. Amendment of the Credit Agreement. (a) The Borrower and the Required Lenders hereby amend Article I of the Credit Agreement by deleting the definition of the term "IC Holdings Sale Balance" in its entirety and substituting therefor the following material: "IC Holdings Sale Balance" shall mean (a) 100% of the Net Proceeds from the IC Holdings Sale minus (b) the aggregate amount of such Net Proceeds that has been applied by the Borrower to (i) redeem or repurchase 11-1/8% Subordinated Debentures pursuant to Section 7.09(a)(iii)(A) or (ii) prepay outstanding Revolving Credit Borrowings pursuant to Section 2.13(c). (b) The Borrower and the Required Lenders hereby amend Section 2.13(c) of the Credit Agreement by deleting such Section in its entirety and substituting therefor the following material: (c) In the event that the IC Holdings Sale occurs, the Borrower shall, within five Business Days following the occurrence of the IC Holdings Sale, (i) provide written notice to each Lender of the aggregate amount of the Net Proceeds from the IC Holdings Sale that has been or will be applied by the Borrower to redeem or repurchase 11-1/8% Subordinated Debentures pursuant to Section 7.09(a)(iii)(A), (ii) apply to the prepayment of outstanding Revolving Credit Borrowings the portion of such amount that will be so applied to the redemption or repurchase of 11-1/8% Subordinated Debentures after the date of such written notice and (iii) apply to the repayment of outstanding Loans and Swingline Loans, in accordance with Section 2.13(e), an amount equal to 100% of the IC Holdings Sale Balance. (c) The Required Lenders and the Borrower hereby amend Section 7.09(a) of the Credit Agreement by inserting, following the words "equal to" on the ninth line of such Section, the phrase "or less than". (d) The Required Lenders and the Borrower hereby amend Section 7.09(b) of the Credit Agreement by inserting, following the word "Debentures" on the second line of such Section, the phrase "(or any Subordinated Debt Refinancing Indebtedness)". (e) The Required Lenders and the Borrower hereby amend Section 7.10 of the Credit Agreement by deleting the phrase "and (k) the Investor Stock Subscription Agreements" on the seventh line of such Section and substituting therefor the phrase ", (k) the Investor Stock Subscription Agreements, (l) any Subordinated Debt Refinancing Indebtedness and (m) the indenture relating to any Subordinated Debt Refinancing Indebtedness". SECTION 2. Amendment of the Guarantee Agreement. (a) The Guarantors and the Collateral Agent hereby amend Section 12(b) of the Guarantee Agreement by deleting such Section in its entirety and substituting therefor the following material: (b) Upon the sale of all or substantially all of the assets or all of the capital stock of any Guarantor (or the sale of all of the capital stock of any corporation that owns all of the capital stock of any Guarantor) in a manner that is permitted by the Credit Agreement, the guarantees of such Guarantor made hereunder shall automatically terminate. (b) The Required Lenders hereby consent to the amendment of the Guarantee Agreement provided for in the immediately preceding paragraph. SECTION 3. Amendment of the Indemnity, Subrogation and Contribution Agreement. (a) The Borrower, the Guarantors and the Collateral Agent hereby amend Section 4 of the Indemnity, Subrogation and Contribution Agreement by (i) adding, immediately after the word "Termination." on the first line of such Section, the term "(a)" and (ii) adding, immediately following Section 4 of the Indemnity, Subrogation and Contribution Agreement, the following material: (b) Upon the sale of all or substantially all of the assets or all of the capital stock of any Guarantor (or the sale of all of the capital stock of any corporation that owns all of the capital stock of any Guarantor) in a manner that is permitted by the Credit Agreement, such Guarantor's obligations hereunder shall automatically terminate. (b) The Required Lenders hereby consent to the amendment of the Indemnity, Subrogation and Contribution Agreement provided for in the immediately preceding paragraph. SECTION 4. Waivers. (a) The Required Lenders hereby waive the provisions of Sections 7.01(j)(i), 7.01(j)(iii) and 7.01(j)(vi) of the Credit Agreement to the extent, but only to the extent, necessary to permit the Borrower to issue the Convertible Subordinated Debentures and to use an amount equal to or less than the Net Proceeds of the issuance of the Convertible Subordinated Debentures to redeem 11-1/8% Subordinated Debentures; provided, however, that (i) no material terms applicable to the Convertible Subordinated Debentures (including the subordination provisions thereof) shall be more favorable to the holders of the Convertible Subordinated Debentures than the terms that are applicable to the holders of the 9-1/4% Senior Subordinated Notes and (ii) the closing of the issuance of the Convertible Subordinated Debentures shall occur on or prior to August 1, 1995. The Borrower and the Required Lenders hereby agree that (i) the Convertible Subordinated Debentures shall for all purposes constitute Subordinated Debt Refinancing Indebtedness and be deemed to be Indebtedness permitted under Section 7.01(j) and (ii) the issuance of the Convertible Subordinated Debentures shall not constitute for any purpose either an Equity Issuance or a Prepayment Event. (b) The Required Lenders hereby waive the provisions of Sections 6.08 and 7.09 of the Credit Agreement to the extent, but only to the extent, necessary to (i) permit the Borrower, following the consummation of the IC Holdings Sale and the prepayment of outstanding Revolving Credit Borrowings pursuant to Section 2.13(c), to use the proceeds of Revolving Credit Borrowings, in an aggregate amount not in excess of the amount of such prepayment of Revolving Credit Borrowings, to redeem or repurchase 11-1/8% Subordinated Debentures pursuant to Section 7.09(a)(iii)(A) and (ii) permit the Borrower, following the application to the prepayment of outstanding Revolving Credit Borrowings of all or a portion of the Net Proceeds of the offering of the Convertible Subordinated Debentures, to use the proceeds of Revolving Credit Borrowings, in an aggregate amount not in excess of the amount of such prepayment of Revolving Credit Borrowings, to redeem or repurchase 11-1/8% Subordinated Debentures. SECTION 5. Release of Security Interests. Simultaneously with the consummation of the IC Holdings Sale, the Collateral Agent shall execute and deliver to the Borrower, at the Borrower's expense, all Uniform Commercial Code termination statements and similar documents that the Borrower shall reasonably request in order to evidence the termination of the Security Interest in (a) the capital stock of IC Holdings and its Subsidiaries and (b) the assets of IC Holdings and its Subsidiaries. Any execution and delivery of such termination statements or similar documents shall be without recourse to or warranty by the Collateral Agent. SECTION 6. Representations and Warranties. The Borrower and each of the Guarantors represent and warrant to each of the Lenders that: (a) The execution, delivery and performance by the Borrower and each of the Guarantors of this Amendment (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of any law, statute, rule or regulation, other than any law, statute, rule or regulation, the violation of which will not result in a Material Adverse Effect, or of the certificate or articles of incorporation or other constitutive documents or By-laws of the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any material indenture, agreement or other instrument to which the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (iii) result in the creation or imposition of any Lien (other than any Lien created under the Security Documents) upon any property or assets of the Borrower or any Subsidiary. (b) This Amendment has been duly executed and delivered by the Borrower and each of the Guarantors and constitutes a legal, valid and binding obligation of the Borrower and each of the Guarantors, enforceable against the Borrower and each of the Guarantors in accordance with its terms (a) except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) subject to general principals of equity. SECTION 7. Loan Documents. This Amendment and each certificate and instrument delivered by any party in connection herewith shall be a Loan Document for all purposes. SECTION 8. Effectiveness. This Amendment shall become effective as of the date hereof when the Administrative Agent shall have received copies hereof that, when taken together, bear the signatures of the Borrower, each of the Guarantors and the Required Lenders. SECTION 9. Notices. All notices hereunder shall be given in accordance with the provisions of Section 10.01 of the Credit Agreement. SECTION 10. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 11. No Novation. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of any party under the Credit Agreement or any other Loan Document, nor alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement, the Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement specifically referred to herein. SECTION 12. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. SECTION 13. Headings. Section headings used herein are for convenience of reference only, are not part of this Amendment and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. IN WITNESS WHEREOF, the Borrower, each of the Guarantors and the Required Lenders have caused this Amendment to be duly executed by their duly authorized officers, all as of the date and year first above written. ECKERD CORPORATION, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: VP Treasurer Lenders: CHEMICAL BANK, individually and as Administrative Agent, Managing Agent, Swingline Lender and Collateral Agent, by /s/ Hans von Nolde Name: Hans von Nolde Title: Vice President NATIONSBANK OF FLORIDA, N.A., individually and as Managing Agent, Swingline Lender and Documentation Agent, by /s/ Joseph J. Troy Name: Joseph J. Troy Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, by /s/ Margaret H. Harper Name: Margaret H. Harper Title: Vice President THE FIRST NATIONAL BANK OF BOSTON, by /s/ William C. Purinton Name: William C. Purinton Title: Vice President WELLS FARGO BANK, N.A., by /s/ Peter W. Clark Name: Peter W. Clark Title: Assistant Vice President NATIONAL WESTMINSTER BANK USA, by /s/ W. Wakefield Smith Name: W. Wakefield Smith Title: Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH, by /s/ John J. Sullivan Name: Title: BANQUE PARIBAS, BANQUE PARIBAS, by by /s/ Ann C. Pifer /s/ Richard G. Burrows Name: Ann C. Pifer Name: Richard G. Burrows Title: Assistant Vice Title: Vice President President THE NIPPON CREDIT BANK, LTD., by /s/ Lori A. Ravit Name: Lori A. Ravit Title: Assistant Vice President GENERAL ELECTRIC CAPITAL CORPORATION, by /s/ Elaine L. Moore Name: Elaine L. Moore Title: Senior Vice President SOCIETE GENERALE, by /s/ John J. Wiener Name: John J. Wiener Title: Vice President UNION BANK OF SWITZERLAND, UNION BANK OF SWITZERLAND, NEW YORK BRANCH, NEW YORK BRANCH, by by Name: Name: Title: Title: MELLON BANK, N.A., by /s/ Lisa M. Pellow Name: Lisa M. Pellow Title: Vice President UNION BANK OF FINLAND LTD. GRAND CAYMAN BRANCH, by /s/ Eric I. Mann Name: Eric I. Mann Title: Vice President by /s/ John F. Kehnle Name: John F. Kehnle Title: Vice President NATIONAL CITY BANK, by /s/ Brian G. Karrip Name: Brian G. Karrip Title: Vice President FIRST INTERSTATE BANK OF TEXAS N.A., by /s/ Frank W. Schageman Name: Frank W. Schageman Title: Assistant Vice President VAN KAMPEN MERRITT, PRIME RATE INCOME TRUST, by /s/ [illegible] Name: Title: THE BANK OF TOKYO, by Name: Title: THE FUJI BANK, LIMITED, by /s/ Katsunori Nozawa Name: Katsunori Nozawa Title: Vice President & Manager CREDIT LYONNAIS CAYMAN ISLAND BRANCH, by /s/ Frederick Haddad Name: Frederick Haddad Title: Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH, by /s/ H. Frederick Haddad Name: Frederick Haddad Title: Senior Vice President SHAWMUT NATIONAL BANK OF CONNECTICUT, N.A., by Name: Title: ABN-AMRO BANK, N.V., by Name: Title: by Name: Title: BANK OF SCOTLAND, by /s/ Catherine M. Oriffrey Name: Catherine M. Oriffrey Title: Vice President BANKERS TRUST COMPANY, by /s/ Mary Jo Jolly Name: Mary Jo Jolly Title: Assistant Vice President HIBERNIA NATIONAL BANK, by /s/ Troy S. Williamson Name: Troy S. Williamson Title: Assistant Vice President MCI CAPITAL INC., by /s/ Bruce N. Komuro Name: Bruce N. Komuro Title: Executive Vice President FLEET BANK OF MASSACHUSETTS, N.A., by /s/ Thomas J. Bullard Name: Thomas J. Bullard Title: Vice President THE SAKURA BANK, LIMITED, by /s/ Hiroyasu Imanishi Name: Hiroyasu Imanishi Title: VP and Senior Manager NATIONAL CANADA FINANCE CORP., by /s/ Michael S. Bloomenfeld Name: Michael S. Bloomenfeld Title: Vice President GIROCREDIT BANK, by /s/ Dhuane G. Stephens Name: Dhuane G. Stephens Title: Vice President by /s/ John P. Redding Name: John P. Redding Title: Vice President RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V., by /s/ Christopher E. Jansen Name: Christoper E. Jansen Title: Managing Director CHANCELLOR SENIOR SECURED MANAGEMENT, INC., as Portfolio Advisor STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA 2), by /s/ Christopher E. Jansen Name: Christopher E. Jansen Title: Managing Director CHANCELLOR SENIOR SECURED MANAGEMENT, INC., as Portfolio Advisor PROSPECT STREET SENIOR PORTFOLIO, L.P., by PROSPECT STREET SENIOR LOAN CORP., as Managing General Partner, by Name: Title: PEARL STREET, L.P., by Name: Title: COMPAGNIE FINANCIeRE DE CIC ET DE L'UNION EUROPeENNE, by /s/ Marcus Edward Name: Marcus Edward Title: Vice President by /s/ Sean Mounier Name: Sean Mounier Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION, by /s/ Patricia Loret de Mola Name: Patricia Loret de Mola Title: Senior Vice President UNITED STATES NATIONAL BANK OF OREGON, by /s/ Jeffrey W. Jones Name: Jeffrey W. Jones Title: Senior Vice President THE YASUDA TRUST & BANKING COMPANY, LIMITED, NEW YORK BRANCH, by /s/ Neil T. Chau Name: Neil T. Chau Title: First Vice President BANK OF IRELAND, GRAND CAYMAN BRANCH, by Name: Title: BANK POLSKA, by Name: Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR, by /s/ Iain A. Whyte Name: Iain A. Whyte Title: Assistant Vice President BANQUE FRANCAISE DU COMMERCE EXTERIEUR, by /s/ Mark A. Harrington Name: Mark A. Harrington Title: Vice President or Reg. Manager FIRST AMERICAN NATIONAL BANK, by /s/ Russell S. Goyes Name: Russell S. Goyes Title: MITSUBISHI BANK, LTD., by Name: Title: STRATA FUNDING LIMITED, by /s/ Christopher E. Jansen Name: Christopher E. Jansen Title: Managing Director CHANCELLOR SENIOR SECURED MANAGEMENT INC., as Financial Manager VIA BANQUE, by /s/ F. Fonduri Name: F. Fonduri Title: DGA by /s/ J.L. Simon Name: J.L. Simon Title: DGA Guarantors: CLORWOOD DISTRIBUTORS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer ECKERD CONSUMER PRODUCTS, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer ECKERD FLEET, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer ECKERD HOLDINGS II, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer ECKERD'S WESTBANK, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer ECKERD TOBACCO COMPANY, INC., by /s/ James M. Santo Name: James M. Santo Title: President E.I.T., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer INSTA-CARE HOLDINGS, INC., by /s/ James M. Santo Name: James M. Santo Title: Vice President INSTA-CARE PHARMACY SERVICES CORPORATION, by /s/ James M. Santo Name: James M. Santo Title: Vice President P.C.V., INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer PHARMACY DYNAMICS GROUP, INC., by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President - Treasurer EX-10.32 17 PREPARED BY AND RETURN TO: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Attention: Gary R. Eisenman, Esq. AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS Dated as of August 3, 1994 between ECKERD CORPORATION Mortgagor, and CHEMICAL BANK Mortgagee THIS MORTGAGE AMENDS AND RESTATES THAT CERTAIN MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS AND LEASES DATED JUNE 14, 1993. PROPER DOCUMENTARY STAMP AND INTANGIBLE TAXES WERE PAID IN CONNECTION WITH THE ORIGINAL 1993 TRANSACTION AS EVIDENCED BY THE CLERK ON THAT CERTAIN DOCUMENT RECORDED AT O.R. BOOK 8307, PAGE 1036 OF THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA. THIS MORTGAGE CONTAINS A LIMITATION ON THE AMOUNT OF INDEBTEDNESS SECURED HEREUNDER EQUAL TO $14,886,630. AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENTAND ASSIGNMENT OF LEASES AND RENTS THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of August 3, 1994 (which amends and restates that certain mortgage dated as of June 14, 1993(this "Mortgage"), by ECKERD CORPORATION, formerly known as Jack Eckerd Corporation, a Delaware corporation, having an office at 8333 Bryan Dairy Road, Largo, Florida 34647 (the "Mortgagor"), to CHEMICAL BANK, a New York banking corporation ("Chemical"), having an office at 270 Park Avenue, New York, New York 10017, as Collateral Agent for the Secured Parties (as defined herein)(in such capacity, the "Mortgagee"). WITNESSETH THAT: A. The Mortgagor as the Borrower (such term and each other capitalized term used herein but not defined herein shall have the meaning given to such term in the Credit Agreement (as defined herein)), has entered into an amended and restated credit agreement dated as of the date hereof of the credit agreement dated as of June 14, 1993 (the "1993 Agreement"), (such amended and restated credit agreement, as amended or modified from time to time, the "Credit Agreement"), with the financial institutions party thereto, as lenders (the "Lenders"), Chemical and NationsBank of Florida, N.A., a national banking association ("NationsBank"), as managing agents and swingline lenders (in such latter capacity, each a "Swingline Lender") and Chemical, as administrative agent (in such capacity, the "Administrative Agent"). B. Pursuant to the Credit Agreement the Lenders have agreed to extend credit in order to enable the Mortgagor to borrow on a term basis, Term Loans in an aggregate principal amount not to exceed $500,000,000. C. On the Restatement Date, Term Borrowings shall be used solely to continue or convert all term loans outstanding under the 1993 Credit Agreement. D. The obligations of the Lenders under the Credit Agreement are conditioned upon, among other things, the execution and delivery by the Mortgagor of this Mortgage, in the form hereof, to secure (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Term Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of the Borrower to the Secured Parties under the Credit Agreement, this Mortgage and the other Loan Documents, to which the Borrower is or is to be a party, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement, this Mortgage and the other Loan Documents and (c) unless otherwise agreed upon in writing by the applicable Lender, all obligations of the Borrower, monetary or otherwise, under each Rate Protection Agreement entered into with any Lender, whether pursuant to Section 6.11 of the Credit Agreement or otherwise (all the obligations referred to in this clause (c) and in the preceding clauses (a) and (b) being referred to, collectively, as the "Obligations"). E. Pursuant to the requirements of the Credit Agreement, the Mortgagor is entering into this Mortgage to create a security interest in the Mortgaged Property (as defined herein) to secure the performance and payment by the Mortgagor of the Obligations. The Credit Agreement also requires the granting by Mortgagor of mortgages (the "Other Mortgages") that create security interests in certain Mortgaged Properties other than the Mortgaged Property to secure the performance by the Mortgagor of the Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the (a) due and punctual payment and performance of the Obligations by the Mortgagor, (b) the due and punctual payment by the Mortgagor of all taxes and insurance premiums relating to the Mortgaged Property and (c) all disbursements made by Mortgagee for the payment of taxes or insurance premiums, all fees, expenses or advances in connection with or relating to the Mortgaged Property, and interest on such disbursements and other amounts with respect to the Term Loans not timely paid in accordance with the terms of the Credit Agreement, this Mortgage and the Loan Documents, Mortgagor hereby assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over unto Mortgagee, with mortgage covenants, all the following described property (the "Mortgaged Property") whether now owned or held or hereafter acquired; provided, however, that the maximum amount secured by this Mortgage in the State of Florida upon recordation or upon any contingency which may be secured hereby at any time hereafter is $14,886,630: (1) all of the Mortgagor's right, title and interest in all the fee estate in the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if any, relating thereto, and also together with all of the other easements, rights, privileges, interests, permits, hereditaments and appurtenances thereunto belonging or in anywise appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Mortgagor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the "Premises"); (2) all of the Mortgagor's right, title and interest in all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all legal fixtures of every kind and type affixed to the Premises or attached to or forming part of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the "Improvements"); (3) all of Mortgagor's right, title and interest in all apparatus, movable appliances, building materials, equipment, fittings, furnishings, furniture, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, now or at any time hereafter owned by Mortgagor and placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Improvements or the Premises, including all of Mortgagor's books and records relating thereto and including all pumps, tanks, goods, machinery, tools, equipment, lifts (including fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, entertainment, communications, computers, recreational, window or structural, maintenance, truck or car repair and all other equipment of every kind), restaurant, bar and all other indoor or outdoor furniture (including tables, chairs, booths, serving stands, planters, desks, sofas, racks, shelves, lockers and cabinets), bar equipment, glasses, cutlery, uniforms, linens, memorabilia and other decorative items, furnishings, appliances, supplies, inventory, rugs, carpets and other floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and other lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), computer systems, cash registers and inventory control systems, and all other apparatus, equipment, furniture, furnishings and articles used in connection with the use or operation of the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this paragraph (3), including Mortgagor's interest as lessee under any lease of personal property to the extent such lease does not prohibit such grant, being hereinafter called the "Personal Property"); (4) all of Mortgagor's right, title and interest in all general intangibles now owned or hereafter acquired by Mortgagor relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (the "Permits, Plans and Warranties"); (5) Mortgagor's interest in and rights under all leases or licenses (under which Mortgagor is landlord or licensor) and subleases (under which Mortgagor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, "Leases"), and all agreements of contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Mortgagor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ("Rents"); (6) all of Mortgagor's right, title and interest in and to all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Mortgaged Property into cash or liquidated claims, including Proceeds of insurance maintained by the Mortgagor and condemnation awards, any awards which may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets ("Proceeds"), together with any and all moneys now or hereafter on deposit for the payment of real estate taxes or assessments levied against the Mortgaged Property, unearned premiums on policies of fire and other insurance maintained by the Mortgagor covering any interest in the Mortgaged Property or required by the Credit Agreement; and (7) all right, title and interest of the Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Personal Property, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, deed of trust, conveyance, assignment or other act by the Mortgagor, all of which shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now owned by the Mortgagor and specifically described herein. TO HAVE AND TO HOLD by Mortgagee and its successors and assigns forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancellation as provided in Section 3.05. ARTICLE I Representations, Warranties and Covenants of Mortgagor Mortgagor agrees, covenants, represents and/or warrants as follows: SECTION 1.01. Title. (a) Mortgagor has good and marketable title to a fee estate in the Land and Improvements subject to no lien, charge or encumbrance except for, and this Mortgage is and will remain a valid and enforceable first and prior lien on the Premises, Improvements and the Rents subject only to, in each case, Liens permitted by Section 7.02 of the Credit Agreement and the exceptions and encumbrances referred to in Schedule A annexed hereto (collectively, the "Permitted Encumbrances"). (b) Mortgagor has good and marketable title to all the Personal Property subject to no lien, charge or encumbrance other than this Mortgage and those allowed under Section 7.02 of the Credit Agreement. The Personal Property is not and will not become the subject matter of any lease or other arrangement that is not allowed under Section 7.02 of the Credit Agreement, whereby the ownership of any Personal Property will be held by any person or entity other than Mortgagor; except as expressly permitted by Section 7.05 of the Credit Agreement, none of the Personal Property will be removed from the Premises or the Improvements unless the same is no longer needed for the continued operation of the Premises and the Improvements as currently operated (or as then operated, to the extent that any change from the current manner of operation was permitted by the Credit Agreement) or is replaced by other Personal Property of substantially equal or greater utility and value; and, except as expressly permitted by Section 7.05 of the Credit Agreement, Mortgagor will not create or cause to be created (other than those allowed under Section 7.02 of the Credit Agreement) any security interest covering any of the Personal Property that Mortgagor owns other than the security interest in the Personal Property created in favor of Mortgagee by this Mortgage or any other agreement collateral hereto. (c) All easement agreements, covenant or restrictive agreements, supplemental agreements and any other instruments hereinabove referred to and mortgaged hereby are and will remain valid, subsisting and in full force and effect, unless the failure to remain valid, subsisting and in full force and effect, individually or in the aggregate, would not have a material adverse effect on the Mortgaged Property, and Mortgagor is not in default thereunder and has fully performed the material terms thereof required to be performed through the date hereof, and has no knowledge of any default thereunder or failure to fully perform the terms thereof by any other party, nor of the occurrence of any event which after notice or the passage of time or both will constitute a default thereunder, unless the default thereunder by Mortgagor or by any other party, individually or in the aggregate, would not have a material adverse effect on the Mortgaged Property. (d) Mortgagor has good and lawful right and full power and authority to mortgage or grant a security interest in the Mortgaged Property. Mortgagor will forever warrant and defend its title to the Mortgaged Property, the rights of Mortgagee therein under this Mortgage and the validity and priority of the lien of this Mortgage thereon against the claims of all persons and parties except those having rights under Permitted Encumbrances to the extent of those rights and those having rights under any exception or matter permitted by Section 7.02 of the Credit Agreement. (e) This Mortgage, when duly recorded in the appropriate public records and when financing statements are duly filed in the appropriate public records, will create a valid, perfected and enforceable lien upon and security interest in all the Mortgaged Property and there will be no defenses or offsets to this Mortgage or to any of the Obligations secured hereby, (i) except as the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally and (ii) subject to general principles of equity. SECTION 1.02. Credit Agreement; Certain Amounts. (a) This Mortgage is given pursuant to the Credit Agreement. Each and every term and provision of the Credit Agreement, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Mortgage. (b) If any remedy or right of Mortgagee pursuant hereto is acted upon by Mortgagee or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which Mortgagee is made a party and is obliged to defend or uphold or enforce this Mortgage or the rights of Mortgagee hereunder or the terms of any Lease, or if a condemnation proceeding is instituted affecting the Mortgaged Property, Mortgagor will pay all sums, including reasonable attorneys' fees and disbursements, incurred by Mortgagee related to the exercise of any remedy or right of Mortgagee pursuant hereto or for the expense of any such action or proceeding together with all statutory or other costs, disbursements and allowances, interest thereon from the date of demand for payment thereof at the Default Rate, and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Mortgaged Property prior to any right, title to, interest in or claim upon the Mortgaged Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by law. (c) Any payment of amounts due under this Mortgage not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Rate, and such interest at the Default Rate shall be immediately due upon demand by Mortgagee. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except as may be permitted by Section 6.03 of the Credit Agreement, Mortgagor will pay and discharge from time to time when the same shall become due and payable, and before any interest or penalty accrues thereon or attaches thereto, all taxes of every kind and nature, all general and special assessments, levies, permits, inspection and license fees, all water and sewer rents, all vault charges, and all other public charges, and all service charges, common area charges, private maintenance charges, utility charges and all other private charges, whether of a like or different nature, imposed upon or assessed against the Mortgaged Property or any part thereof or upon the Rents from the Mortgaged Property or arising in respect of the occupancy, use or possession thereof. At Mortgagee's option, Mortgagee may require Mortgagor to contract with a tax service firm to provide to Mortgagee on or about the same times each year, receipts evidencing the payment of all such taxes, assessments, levies, fees and other public charges imposed upon or assessed against the Mortgaged Property or may provide such information to Mortgagee from internal sources. (b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Mortgage or debts secured by mortgages (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Mortgagee, either directly or indirectly, on this Mortgage, the Notes or any of the Loan Documents or to require an amount of taxes to be withheld or deducted therefrom, Mortgagor will promptly notify Mortgagee of such event. In such event Mortgagor shall (i) agree to enter into such further instruments, including but not limited to new notes to be issued in exchange for the Notes theretofore issued, as may be reasonably necessary or desirable to obligate Mortgagor to make any applicable additional payments, and (ii) Mortgagor shall make such additional payments under the Notes. If Mortgagor is not permitted by law to do that which is required by the preceding sentence, Mortgagor shall be required to do so to the extent there are unencumbered assets of Mortgagor to substitute collateral for the Mortgaged Property which is of equivalent value upon notice from Mortgagee promptly after such determination is reached. (c) At any time that an Event of Default shall occur hereunder, or if required by any law applicable to Mortgagor or to Mortgagee, Mortgagee shall have the right to direct Mortgagor to make an initial deposit on account of real estate taxes and assessments, insurance premiums and common area charges, levied against or payable in respect of the Mortgaged Property in advance and thereafter semiannually, each such deposit to be equal to one-half of any such annual charges reasonably estimated by Mortgagee in order to accumulate with Mortgagee sufficient funds to pay such taxes, assessments, insurance premiums and charges. SECTION 1.04. Payment of Closing Costs. Mortgagor shall pay all reasonable costs in connection with, relating to or arising out of the preparation, execution and recording of this Mortgage, including title company premiums and charges for a customary loan policy with such endorsements as may be reasonably requested by Mortgagee, inspection costs, survey costs, recording fees and taxes, attorneys', engineers', appraisers' and consultants' fees and disbursements and all other similar expenses of every kind. SECTION 1.05. Alterations and Waste; Plans. (a) No Improvements will be materially altered or demolished or removed in whole or in part by Mortgagor except as provided by Section 1.05(c) hereof. Mortgagor will not commit any waste on the Mortgaged Property or make any alteration to, or change in the use of, the Mortgaged Property which will diminish the fair market value thereof or materially increase any ordinary fire or other hazard arising out of construction or operation, but in no event shall any such alteration or change be contrary to the terms of any insurance policy required to be kept pursuant to Section 1.06. Mortgagor will maintain and operate, the Improvements and Personal Property in good repair, working order and condition, reasonable wear and tear excepted. (b) Mortgagor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Mortgaged Property currently in possession of Mortgagor either at the Mortgaged Property or in a particular office at the headquarters of Mortgagor to which Mortgagee shall have access upon reasonable advance notice. (c) Mortgagor shall in connection with any lease or sublease permitted by Section 7.05(j) of the Credit Agreement have the right to alter the Mortgaged Property for purposes of performing reasonable improvements in connection with such lease or sublease. SECTION 1.06. Insurance. Mortgagor will (a) keep the Mortgaged Property (including improvements and Personal Property (each as defined in the Mortgage)) insured at all times by financially sound and reputable insurers against loss by fire, casualty and such other hazards as may be afforded by an "all risk" policy or a fire policy covering "special" causes of loss, including building ordinance law endorsements; cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Collateral Agent, which endorsement shall provide that, from and after the Restatement Date, the insurance carrier subject to the provisions of Sections 1.07 and 1.08 hereof, shall pay all proceeds otherwise payable to the Mortgagor under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Mortgagor, the Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Collateral Agent may reasonably require from time to time to protect its interest; provided, however, that if additional coverage is required, Mortgagor will obtain such coverage only if such coverage is (i) customarily maintained by others in the same or similar business in the geographic region of the Mortgaged Property, and (ii) available at commercially reasonable rates (if available to Mortgagor); deliver, original or certified copies of all such policies to the Collateral Agent confirming that the terms of such policy are in compliance with the provisions of this Section 1.06; cause each such policy to provide that it shall not be canceled, modified or not renewed for any reason upon not less than 30 days' prior written notice thereof by insurer to the Collateral Agent; deliver to the Collateral Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent), together with evidence reasonably satisfactory to the Collateral Agent of timely payment of the premium therefor promptly after making such payment. (b) If at any time the area in which the Premises (as defined in the Mortgage) are located is designated a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency, obtain flood insurance in such total amount as the Collateral Agent may from time to time reasonably require, and otherwise comply with the National Flood Insurance Program as set forth in said Flood Disaster Protection Act of 1973, as it may be amended from time to time. (c) With respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $5,000,000, naming the Collateral Agent as an additional insured, on forms reasonably satisfactory to the Collateral Agent. (d) Notify the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 1.06 is taken out by the Mortgagor; and promptly deliver to the Collateral Agent a duplicate original copy of such policy or policies. SECTION 1.07. Casualty; Restoration of Casualty Damage. Notwithstanding any other provisions of this Mortgage or the other Loan Documents, the Collateral Agent is authorized, at its option, to collect and receive, all insurance Proceeds, damages, claims and rights of action and the right thereto under any insurance policies with respect to a casualty relating to any portion of the Mortgaged Property; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the insurance carrier to pay such proceeds directly to the Mortgagor. Mortgagor agrees to notify the Collateral Agent, in writing, in reasonable detail of any casualty to the Mortgaged Property, promptly after the Mortgagor obtains notice of any casualty to all or any portion of the Mortgaged Property. SECTION 1.08. Condemnation/Eminent Domain. Mortgagor will notify the Collateral Agent immediately upon obtaining notice of the institution, or the proposed, contemplated or threatened institution, of any action or proceeding for the taking of the Mortgaged Property, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner (a "Condemnation"). The Collateral Agent is authorized, at its option, to collect and receive, all Proceeds of any such Condemnation; provided, however, that if the Collateral Agent shall determine, in its sole and reasonable discretion, that (a) no Prepayment Event has occurred and (b) if no Event of Default has occurred, then in such event, the Collateral Agent shall direct the governmental authority to pay such proceeds directly to the Mortgagor. SECTION 1.09. Assignment of Leases and Rents. (a) Mortgagor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the performance by Mortgagor of the obligations. Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any other Lease or their respective Rents to anyone other than Mortgagee. (b) (i) Without Mortgagee's prior written consent, Mortgagor will not (A) modify, amend, terminate or consent to the cancellation or surrender of any lease if such modification, amendment, termination or consent would, in the reasonable judgment of the Mortgagee, be adverse in any material respect to the Lenders, the value of the Mortgaged Property or the lien created by this Mortgage or (B) consent to an assignment of a tenant's interest in any Lease or to a subletting thereof covering a material portion of the Mortgaged Property unless such assignment or sublease conforms with Section 7.05 of the Credit Agreement. (ii) If requested by Mortgagor, Mortgagee shall execute and deliver to Mortgagor's tenant a nondisturbance attornment and recognition agreement in form and substance satisfactory to Mortgagee. (c) Subject to Section 1.09(d) below, Mortgagor has assigned and transferred to Mortgagee all of Mortgagor's right, title and interest in and to the Rents now or hereafter arising from Leases heretofore or hereafter made or agreed to by Mortgagor, it being intended that this assignment establish, subject to Section 1.09(d) below, an absolute transfer and assignment of all Rents and all Leases to Mortgagee and not merely to grant a security interest therein. Subject to Section 1.09(d) below, Mortgagee may in Mortgagor's name and stead (with or without first taking possession of any of the Mortgaged Property personally or by receiver as provided herein) operate the Mortgaged Property and rent, lease or let all or any portion of any of the Mortgaged Property to any party or parties at such rental and upon such terms as Mortgagee shall, in its sole discretion, determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease. (d) Until an Event of Default occurs or after an Event of Default has occurred but is no longer continuing, Mortgagee will not exercise any of its rights under Section 1.09(c) above, and Mortgagor shall receive and collect the Rents accruing under any Lease; but after the happening of any Event of Default (but only while such Event of Default continues), Mortgagee may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Upon the happening of an Event of Default, Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Mortgagee to any such tenant or any of such tenant's successors in interest, and thereafter to pay Rents to Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Mortgagee. Each tenant or any of such tenant's successors in interest from whom Mortgagee or any officer, agent, attorney or employee of Mortgagee shall have collected any Rents, shall be authorized to pay Rents to Mortgagor only after such tenant or any of such tenant's successors in interest shall have received written notice from Mortgagee that the Event of Default is no longer continuing, which notice Mortgagee shall be obligated to give if Mortgagee determines in its reasonable discretion such Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Mortgagee to such tenant or any of such tenant's successors in interest. (e) Mortgagee will not become a mortgagee in possession so long as it does not enter or take actual possession of the Mortgaged Property. In addition, Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenants, or others, for any dangerous or defective conditions of any of the Mortgaged Property, for negligence in the management, upkeep, repair or control of any of the Mortgaged Property or any other act or omission by any other person. (f) Mortgagor shall furnish to Mortgagee, within 30 days after a request by Mortgagee to do so, a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder. SECTION 1.10. Restrictions on Transfers and Encumbrances. Except as permitted hereby or by the Credit Agreement, Mortgagor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charges or any form of encumbrance upon any interest in or any part of the Mortgaged Property, or be divested of its title to the Mortgaged Property or any interest therein in any manner or way, whether voluntarily or involuntarily (other than resulting from a taking), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof; provided, however, that Mortgagor may in the ordinary course of business within reasonable commercial standards, enter into easement or covenant agreements which relate to and/or benefit the operation of the Mortgaged Property or which do not materially or adversely affect the use and operation of the same (except for customary utility easements which service the Mortgaged Property). SECTION 1.11. Security Agreement. This Mortgage is both a mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a "Security Agreement" within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located. Mortgagor has hereby granted unto Mortgagee a security interest in and to all the Mortgaged Property described in this Mortgage that is not real property, and simultaneously with the recording of this Mortgage, Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located to perfect the security interest granted by this Mortgage in all the Mortgaged Property that is not real property. Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Mortgagee shall have all rights with respect to the part of the Mortgaged Property that is the subject of a security interest afforded by the uniform commercial code as adopted in the state wherein the Premises are located in addition to, but not in limitation of, the other rights afforded Mortgagee hereunder. SECTION 1.12. Filing and Recording. Mortgagor will cause this Mortgage, any other security instrument creating a security interest in or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the security interest of Mortgagee in, the Mortgaged Property. Mortgagor will pay all filing, registration or recording fees, and all expenses incidental to the execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Personal Property, and any instrument of further assurance and all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery and recording of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Personal Property or any instrument of further assurance. SECTION 1.13. Further Assurances. Upon demand by Mortgagee, Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Mortgagee shall from time to time reasonably require for the better assuring, conveying, assigning, transferring and confirming unto Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or for filing, registering or recording this Mortgage, and on demand, Mortgagor will also execute and deliver and hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent for Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably requested by Mortgagee to evidence more effectively the lien hereof upon the Personal Property and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.14. Additions to Mortgaged Property. All right, title and interest of Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Mortgaged Property hereafter acquired by or released to Mortgagor or constructed, assembled or placed by Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by Mortgagor, shall become subject to the lien and security interest of this Mortgage as fully and completely and with the same effect as though now owned by Mortgagor and specifically described in the grant of the Mortgaged Property above, but at any and all times Mortgagor will execute and deliver to Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Mortgage. SECTION 1.15. No Claims Against Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, nor as giving Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Mortgagee in respect thereof. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. It shall be an Event of Default under this Mortgage if any Event of Default (as therein defined) shall exist pursuant to (a) the Credit Agreement or (b) any Other Mortgage. Notwithstanding the provisions of Article VIII, Section (e), of the Credit Agreement, if Mortgagor shall default in the observance or performance of any covenant, condition or agreement expressly set forth in this Mortgage and the subject matter of any such covenant, condition or agreement is not otherwise set forth in the Credit Agreement or any other Loan Document, and Mortgagor's default in its observance or performance of such covenant, condition or agreement (a) is not susceptible of cure by the payment of money or (b) could not, if left uncured, have a material adverse effect on the Mortgaged Property, then in such case an Event of Default shall not occur until such default shall continue unremedied for a period of 30 days after written notice thereof from Mortgagee; provided, however, that, in the case of any such default described in clause (a) or (b) above, which cannot with the exercise by the Mortgagor of due diligence be cured within such 30-day period, the period within which such default may be cured may be extended for up to an additional 90 days, so long as Mortgagor shall have promptly commenced to cure the same during its initial 30-day cure period and thereafter continuously prosecutes the curing thereof with diligence. SECTION 2.02. Demand for Payment. If an Event of Default as set forth herein shall occur and be continuing, then, upon written demand of Mortgagee, Mortgagor will pay to Mortgagee upon demand all amounts due hereunder and such further amounts as shall be incurred to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Mortgagee. In case Mortgagor shall fail forthwith to pay such amounts or any amounts due under any other Section of this Mortgage upon Mortgagee's demand, Mortgagee shall be entitled and empowered to institute an action or proceedings at law or in equity as advised by counsel for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable. SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues. (a) If an Event of Default shall occur and be continuing, Mortgagor shall, upon demand of Mortgagee, forthwith surrender to Mortgagee actual possession of the Mortgaged Property and, if and to the extent permitted by law, Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Mortgaged Property without the appointment of a receiver or an application therefor, exclude Mortgagor and its agents and employees wholly therefrom, and have access (with Mortgagor) to the books, papers and accounts of Mortgagor. (b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after such demand by Mortgagee, Mortgagee may obtain a judgment or decree conferring upon Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifically consents. Mortgagor will pay to Mortgagee, upon demand, all expenses of obtaining such judgment or decree, including compensation to Mortgagee's attorneys and agents with interest thereon at the Default Rate; and all such expenses and compensation shall, until paid, be secured by this Mortgage. (c) Upon every such entry or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property, conduct the business thereof and, from time to time, (i) make all necessary, proper and reasonable maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Mortgaged Property insured, (iv) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor to the same extent as Mortgagor could in its own name or otherwise with respect to the same or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Mortgagee, all as may from time to time be directed or determined by Mortgagee to be in its best interest and Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Mortgaged Property, including those past-due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Mortgaged Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Mortgagee may at its option pay, (v) other proper charges upon the Mortgaged Property or any part thereof and (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so received first to the payment of the Mortgagee for the payment in full of Indebtedness and satisfaction of the Obligations, and second, if there is any surplus, to Mortgagor, subject to the entitlement of others thereto under applicable law. (d) Whenever, before any sale of the Mortgaged Property under Section 2.06, all Obligations which are then due shall have been paid and all Events of Default fully cured, Mortgagee will surrender possession of the Mortgaged Property back to Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing. SECTION 2.04. Right To Cure Mortgagor's Failure To Perform. Prior to the occurrence of an Event of Default upon five business days' written notice to Mortgagor (except in the case of an emergency), or after the occurrence of an Event of Default at any time and without notice, should Mortgagor fail in the payment, performance or observance of any term, covenant or condition required by this Mortgage or the Credit Agreement (with respect to the Mortgaged Property), Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by Mortgagee in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Default Rate. Mortgagee shall make reasonable judgment as to the necessity for any such actions and of the amounts to be paid. Subject to the notice provisions of the first sentence of this Section 2.04, Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation so to perform or observe and without thereby becoming liable to Mortgagor, to any person in possession holding under Mortgagor or to any other person. SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be continuing, Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver to take possession of and to operate the Mortgaged Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Mortgaged Property is located. Mortgagor will pay to Mortgagee upon demand all reasonable amounts of expenses, including receiver's fees, attorney's fees and disbursements, costs and agent's compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Mortgage and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Default Rate. SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, Mortgagee may elect to sell the Mortgaged Property or any part of the Mortgaged Property by exercise of the power of foreclosure or of sale granted to Mortgagee by applicable law or this Mortgage. In such case, Mortgagee may commence a civil action to foreclose this Mortgage, or it may proceed and sell the Mortgaged Property to satisfy any obligation. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property may sell all or such parts of the Mortgaged Property as may be chosen by Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property may postpone any foreclosure or other sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Mortgagee or an officer appointed to sell the Mortgaged Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including Mortgagor or Mortgagee or any designee or affiliate thereof, may purchase at such sale. (b) The Mortgaged Property may be sold subject to unpaid taxes and Permitted Encumbrances, and after deducting all costs, fees and expenses of Mortgagee, including costs of evidence of title in connection with the sale, Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08 hereof. (c) Any foreclosure or other sale of less than the whole of the Mortgaged Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure provided for herein; and subsequent sales may be made hereunder until the Obligations have been satisfied, or the entirety of the Mortgaged Property has been sold. (d) Mortgagor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted providing for any appraisement before sale of any portion of the Mortgaged Property, (ii) the benefit of all laws now existing or that may be hereafter enacted in any way extending the time for the enforcement or the collection of amounts due under any of the Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Mortgagee, (iii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, or sale of the Mortgaged Property as separate tracts, units or estates or as a single parcel in the event of foreclosure and (iv) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Obligations and marshalling in the event of foreclosure of this Mortgage. (e) If an Event of Default shall occur and be continuing, Mortgagee may instead of, or in addition to, exercising the rights described in Section 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the terms of the Loan Documents or the performance of any term, covenant, condition or agreement of this Mortgage or any other right or (ii) to pursue any other remedy available to it, all as Mortgagee shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be continuing, Mortgagee may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the uniform commercial code of the State wherein the Premises are located, including, to the extent not prohibited by applicable law, the following: (i) Either personally or by means of a court- appointed receiver, to take possession of all or any of the Personal Property and exclude therefrom Mortgagor and all others claiming under Mortgagor, and thereafter to hold, store, use, operate, manage, maintain and control, make repairs, replacements, alterations, additions and improvements to and exercise all rights and powers of Mortgagor with respect to the Personal Property or any part thereof. (ii) To make such payments and do such acts as Mortgagee may deem necessary to protect its security interest in the Personal Property including paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior or superior to the security interest granted hereunder, and, in exercising any such powers or authority, paying all expenses incurred in connection therewith. (iii) To assemble the Personal Property or any portion thereof at a place designated by Mortgagee and reasonably convenient to both parties, to demand prompt delivery of the Personal Property to Mortgagee or an agent or representative designated by it, and to enter upon any or all of the Premises or Improvements to exercise Mortgagee's rights hereunder. (iv) To sell or otherwise dispose of or purchase the Personal Property at public sale, with or without having the Personal Property at the place of sale, upon such terms and in such manner as Mortgagee may determine, after Mortgagee shall have given Mortgagor at least 10 days' prior written notice of the time and place of any public sale or other intended disposition of the Personal Property by mailing a copy to Mortgagor at the address set forth in Section 3.02. (b) In connection with a sale of the Mortgaged Property or any Personal Property and the application of the proceeds of sale as provided in Section 2.08 of this Mortgage, Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Obligations, plus all other charges, payments and costs due under this Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any of the Mortgaged Property, Mortgagee shall receive the proceeds of sale, no purchaser shall be required to see to the application of the proceeds and Mortgagee shall apply the proceeds of the sale together with any Rents that may have been collected and any other sums which then may be held by Mortgagee under this Mortgage as follows: First: to the payment of the costs and expenses of such sale, including compensation to Mortgagee's attorneys and agents, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Mortgagee under this Mortgage, together with interest at the Default Rate on all advances made by Mortgagee, including all taxes or assessments (except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold) and the cost of removing any Permitted Encumbrance (except any Permitted Encumbrance subject to which the Mortgaged Property was sold); Second: to the payment in full of the Obligations owed to the Lenders, the Swingline Lenders and the Fronting Banks in respect of the Loans and the Swingline Loans made by them and outstanding and the amounts owing in respect of any LC Disbursement of BA Disbursement or under any Rate Protection Agreement entered into with any Lender pursuant to Section 6.11 of the Credit Agreement, pro rata as among the Lenders, the Swingline Lenders and the Fronting Banks in accordance with the amount of such Obligations owed to them; Third: to the payment and discharge in full of the Obligations (other than those referred to above) pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and Fourth: to the Mortgagor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Mortgagee shall promptly make application of any such proceeds, moneys or balances in accordance with this Mortgage. Upon any sale of the Mortgaged Property by Mortgagee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Mortgagee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Mortgaged Property so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Mortgagee or such officer or be answerable in any way for the misapplication thereof. SECTION 2.09. Mortgagor as Tenant Holding Over. If Mortgagor remains in possession of any of the Mortgaged Property after any foreclosure sale by Mortgagee, at Mortgagee's election Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over. SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. (a) Mortgagor will not object to any sale of the Mortgaged Property in its entirety pursuant to Section 2.06 and for itself and all who may claim under it, Mortgagor waives, to the extent that it lawfully may, all right to have the Mortgaged Property marshalled or to have the Mortgaged Property sold as separate estates, parcels, tracts or units in the event of any foreclosure of this Mortgage. (b) To the full extent permitted by the law of the state wherein the Mortgaged Property is located or other applicable law, neither Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead-exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Mortgage, the absolute sale of the Mortgaged Property or the final and absolute putting of the purchasers into possession thereof immediately after any sale; and Mortgagor, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully do so, the benefit of all such laws and any and all right to have the assets covered by the security interest created hereby marshalled upon any foreclosure of this Mortgage. SECTION 2.11. Discontinuance of Proceedings. In case Mortgagee shall proceed to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken. SECTION 2.12. Suits To Protect the Mortgaged Property. Mortgagee shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property and in the Rents arising therefrom and (c) at its sole cost and expense, to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Mortgagee hereunder; provided there is no adverse impact on Mortgagor and its interest in the Mortgaged Property. SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Mortgagor, Mortgagee shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Mortgagee allowed in such proceedings for the Obligations secured by this Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or which may become due and payable hereunder after such date. SECTION 2.14. Possession by Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of Mortgagor, any of its property or the Mortgaged Property, Mortgagee shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Mortgaged Property now or hereafter granted under this Mortgage to Mortgagee in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by Mortgagee to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Mortgage to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. No consent or waiver by Mortgagee to or of any breach or default by Mortgagor in the performance of the Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or any other Obligations by Mortgagor hereunder. No failure on the part of Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Mortgagor. (b) Even if Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Loan Documents, (iv) releases a part of the Mortgaged Property from this Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Loan Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Mortgagee's lien on the Mortgaged Property hereunder; no such act or omission shall preclude Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise provided in an instrument executed by Mortgagee, shall this Mortgage be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Mortgaged Property, Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Mortgaged Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Mortgagee by this Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Mortgage shall for any reason be held to be invalid, illegal or unenforceable in any respect, such validity, illegality or unenforceability shall, at the option of Mortgagee, not affect any other provision of this Mortgage, and this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 3.02. Notices. All notices to be sent and all documents to be delivered hereunder shall be in writing, shall be delivered by hand or overnight courier service, mailed or sent by telex, graphic scanning or other telegraphic communications equipment of the sending party and shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telex, telecopy or other telegraphic communications equipment of the sender, or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in Section 10.01 of the Credit Agreement or in accordance with the latest unrevoked direction from such party given in accordance with said Section 10.01. SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Mortgagor and the successors and assigns of Mortgagee. SECTION 3.04. Counterparts. This Mortgage may be executed in any number of counterparts and all such counterparts shall together constitute but one and the same mortgage. SECTION 3.05. Satisfaction and Cancellation. (a) The conveyance to Mortgagee of the Mortgaged Property as security, created and consummated by this Mortgage, shall be null and void when all the Obligations have been indefeasibly paid in full in accordance with the terms of the Loan Documents. (b) The lien of this conveyance shall be released from the Mortgaged Property pursuant to and in accordance with the operative provisions of Section 7.05 of the Credit Agreement. (c) In connection with any termination or release pursuant to paragraph (a) or (b), to the extent applicable, the Mortgage shall be marked "satisfied" by the Mortgagee, and this Mortgage may be canceled of record at the request and at the expense of the Mortgagor. Mortgagee shall execute any documents reasonably requested by Mortgagor to accomplish the foregoing or to accomplish any release contemplated by paragraph (a) or (b) and Mortgagor will pay all costs and expenses, including attorneys' fees and disbursements, incurred by Mortgagee in connection with the preparation and execution of such documents. SECTION 3.06. Definitions. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" shall mean "the Mortgaged Property or any part thereof or interest therein". Any act which Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Any act which is prohibited to Mortgagor hereunder is also prohibited to all lessees of any of the Mortgaged Property. Each appointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. SECTION 3.07. Multisite Real Estate Transaction. Mortgagor acknowledges that this Mortgage is one of a number of Other Mortgages and Security Documents which secure the Obligations. Mortgagor agrees that the lien of this Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Mortgagee and, without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Obligations hereby secured, or by any failure, neglect or omission on the part of Mortgagee to realize upon or protect any Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Security Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Security Documents or of any guarantee thereof, and Mortgagee may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Security Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Mortgagee's rights and remedies under any or all of the Other Mortgages and other Security Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Mortgage and any exercise of the rights or remedies of Mortgagee hereunder shall not impair the lien of any of the Other Mortgages and other Security Documents or any of Mortgagee's rights and remedies thereunder. The undersigned specifically consents and agrees that Mortgagee may exercise its rights and remedies hereunder and under the Other Mortgages and other Security Documents separately or concurrently and in any order that it may deem appropriate and the undersigned waives any rights of subrogation. ARTICLE IV Particular Provisions This Mortgage is subject to the following provisions relating to the particular laws of the state wherein the Premises are located: SECTION 4.01. Applicable Law; Certain Particular Provisions. This Mortgage shall be governed by and construed in accordance with the internal law of the State of New York; provided, however, that the provisions of this Mortgage relating to the creation, perfection and enforcement of the lien and security interest created by this Mortgage in respect of the Mortgaged Property and the exercise of each remedy provided hereby, including the power of foreclosure or power of sale procedures set forth in this Mortgage, shall be governed by and construed in accordance with the internal law of the state where the Mortgaged Property is located, and Mortgagor and Mortgagee will submit to jurisdiction and the laying of venue for any suit on this Mortgage in such state. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Mortgage and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control. IN WITNESS WHEREOF, this Mortgage has been duly authorized and has been executed and delivered to Mortgagee by Mortgagor on the date first written above. ECKERD CORPORATION, a Delaware corporation, by /s/ Martin W. Gladysz Name: Martin W. Gladysz Title: Vice President [Corporate Seal] WITNESSES /s/ Mark C. Brooks Name: Mark C. Brooks /s/ Randall L. Nixon Name: Randall L. Nixon THE STATE OF NEW YORK COUNTY OF NEW YORK The foregoing instrument was acknowledged before me this 2nd day of August 1994, by Martin W. Gladysz as Vice President of ECKERD CORPORATION, a Delaware corporation, on behalf of the corporation. He is [ ] personally known to be or [x] produced Florida Dr. Lic. as identification (check one). /s/ Deborah M. Voytovich Name: Deborah M. Voytovich NOTARY PUBLIC My commission number: 4950596 APPENDIX A to Mortgage, Security Agreement and Assignment of Leases and Rents FLORIDA OVERRIDE PROVISIONS This Appendix A (this "Appendix A") has been attached to and shall be deemed incorporated into that certain Mortgage, Security Agreement and Assignment of Leases and Rents (the "Mortgage") dated as of June 14, 1993, as amended and restated as of August 3, 1994, by Eckerd Corporation, formerly known as Jack Eckerd Corporation, a Delaware corporation (the "Mortgagor"), to Chemical Bank, as Collateral Agent for the secured Parties (in such capacity the "Mortgagee"). As set forth in Section 4.01 of the Mortgage, in the event of any conflict between the terms and provisions contained in the body of the Mortgage and the terms and provisions set forth in this Appendix A, the terms and provisions set forth in this Appendix A shall govern and control. All references in this Appendix A to Articles and Sections shall, unless otherwise provided, refer to Articles and Sections of this Appendix A, and all references to "this Mortgage" or similar language shall refer to the Mortgage, as supplemented, and, if applicable, overridden by this Appendix A. ARTICLE I Section 1.01. Future Advances. This Mortgage is also intended to be and is a lien and mortgage to secure not only the existing indebtedness secured by the Mortgage, but also and all future advances, whether such advances are obligatory or made at the option of the Lenders under the Loan Documents with respect to the Term Loans, or otherwise, as are made within twenty (20) years from the date of this Mortgage, to the same extent as if such future advances were made on the date of the execution of this Mortgage, although there may be no advance made at the time of the execution of this Mortgage and although there may be no indebtedness secured by the Mortgage outstanding at the time the advances are made. This Mortgage, as to third persons without actual notice thereof, shall be valid as to all indebtedness and future advances secured by the Mortgage from the time the Mortgage is filed for record as provided by law. The total amount of indebtedness that may be so secured may decrease or increase from time to time, but the total unpaid balance so secured at any one time shall not exceed Fourteen Million, Eight Hundred Eighty-six Thousand, Six Hundred Thirty and 00/100 Dollars ($14,886,630.00) plus interest thereon. Any increase in the principal balance of the indebtedness secured by the Mortgage as a result of a disbursement made for the payment of taxes, levies, or insurance, and to the extent provided by law, other sums advanced in accordance herewith to protect the security of this Mortgage, or as a result of negative amortization or deferred interest, shall be secured by this Mortgage even though the resulting increase causes the total indebtedness secured by the Mortgage to exceed Fourteen Million, Eight Hundred Eighty-Six Thousand, Six Hundred Thirty and 00/100 Dollars ($14,886,630.00). Notwithstanding the foregoing, the Mortgagee and the Lenders under the Loan Documents shall have such additional protections provided by Section 697.04, Florida Statutes (1992), as amended. EX-12.2 18 Exhibit 12.2 ECKERD CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Year Ended January 28, 1995 Earnings before income taxes and extraordinary item $ 87,084 Add: Portion of rents representative of the interest factor(*) 37,282 Interest expense 93,735 Income as adjusted $218,101 Fixed charges: Interest expense 93,735 Portion of rents representative of interest factor 37,282 Total fixed charges $131,017 Ratio of earnings to fixed charges 1.66 (*) The portion of rents representative of the interest factor is calculated as 33-1/3% of minimum rentals. EX-13 19 Five Year Financial Operating Summary (Dollars in thousands, except per share amounts and drug stores) Fiscal years ended January 28, January 29, January 30, February 1, and February 2, respectively (1) (2) 1995 1994 1993 1992 1991 Summary of Operations Data: Sales and other operating revenue $4,549,031(3) 4,190,539 3,887,027 3,739,852 3,456,134 Cost of sales, including store occupancy, warehousing and delivery expense 3,444,141 3,175,375 2,896,479 2,738,545 2,527,544 Operating and administrative expenses 924,071(3) 857,980 855,165 854,209 817,263 Earnings before interest expense 180,819 157,184 135,383 147,098 111,327 Net interest expense 93,735 113,215 137,404 143,194 147,309 Earnings (loss) before income taxes and extraordinary items 87,084 43,969 (2,021) 3,904 (35,982) Income tax expense 8,753(3) 2,556 2,864 2,927 - Earnings (loss) before extraordinary items 78,331 41,413 (4,885) 977 (35,982) Extraordinary item-early retirement of debt and preferred stock, net of tax benefit (30,523) (44,354) - - - Extraordinary item-tax effect of utilization of net operating loss carryforward - - 762 1,680 - Net earnings (loss) for the year 47,808 (2,941) (4,123) 2,657 (35,982) Preferred stock dividends - 4,924 10,815 10,823 10,866 Net earnings (loss) available to common shares $ 47,808 (7,865) (14,938) (8,166) (46,848) Earnings (loss) before extraordinary items per common share $ 2.41 1.24 (.59) (.38) (1.97) Net earnings (loss) per common share $ 1.47 (.27) (.56) (.32) (1.97) Dividends per common share $ - - - - - Weighted average common shares outstanding 32,432 29,393 26,574 25,677 23,793 Balance Sheet Data: Working capital $ 280,289 306,588 367,027 328,617 347,775 Total assets 1,342,347 1,420,137 1,418,922 1,412,249 1,443,167 Long-term debt (4) 787,013 954,891 1,048,222 1,023,106 1,084,088 Preferred stock - - 75,000 75,000 75,000 Stockholders' deficit (122,742) (179,022) (243,291) (228,353) (220,187) Drug Store Data: Stores open at end of year 1,735 1,718 1,696 1,675 1,673 Comparable sales growth 8.2% 6.1 3.1 5.7 6.9
Notes: (1) Years ended the Saturday nearest January 31. All fiscal years include 52 weeks of operations. (2) Fiscal years prior to January 29, 1994 have been restated to reflect the reclassification of previously issued Class A and Class B common stock into Common Stock, to reflect a 2-for-3 reverse stock split and the exchange of EDS Holdings Inc. common stock and merger into the Company. (3) Sales and other operating revenue includes $54,125 and income tax expense includes $4,655 from the gain on the sale of Insta-Care Pharmacy Services and operating and administrative expenses includes $48,988 charge for future drug store closings. (4) Includes current installments and Convertible Debentures. Management's Discussion and Analysis of Results of Operations and Financial Condition Condensed Consolidated Statements of Operations (In thousands) Fiscal years ended January 28 and January 29, respectively 1995 1994 As Reported As Adjusted (1) As Reported As Adjusted (2) Sales and other operating revenue $4,549,031 4,494,906 4,190,539 4,108,683 Cost of sales 3,444,141 3,444,141 3,175,375 3,123,899 Operating and administrative expenses 924,071 875,083 857,980 829,654 Earnings before interest expense 180,819 175,682 157,184 155,130 Interest expense 93,735 93,735 113,215 113,215 Income tax expense 8,753 4,098 2,556 2,556 Earnings before extraordinary item 78,331 77,849 41,413 39,359 Extraordinary items (30,523) (30,523) (44,354) (44,354) Net earnings (loss) for the year $ 47,808 47,326 (2,941) (4,995)
(1) Excludes $54,125 from sales and other operating revenue and $4,655 from income taxes for the gain on the sale of Insta-Care and $48,988 from operating and administrative expenses for the charge for future store closings. (2) Excludes Vision Group operations for the full fiscal year and Insta-Care operations from November 16, 1993 through January 29, 1994. Results of Operations Fiscal Year 1994 compared with Fiscal Year 1993 The preceding as adjusted condensed consolidated statements of operations and the following management's discussion and analysis exclude the following items: The fiscal 1993 results exclude the Company's Vision Group operations, its retail optical business, which was sold effective January 30, 1994 and the Company's Insta-Care Holdings, Inc.'s ("Insta-Care") operations, its institutional pharmacy services business, from November 16, 1993 through January 29, 1994, since it was sold effective November 15, 1994. The fiscal 1994 sales and other operating revenue exclude a pretax gain of $54.1 million (before income taxes of $4.6 million) from the sale of Insta-Care. The fiscal 1994 operating and administrative expenses exclude a reserve of $49.0 million for future store closings. The Company's sales and other operating revenue for fiscal 1994 were $4.495 billion, a 9.4% increase over fiscal 1993. Sales benefited from significant increases in drug store prescription sales and increases in front end sales. For fiscal 1994, prescription sales were $2.237 billion, a 15.2% increase over fiscal 1993. In addition, drug store front end sales increased to $2.160 billion, a 4.2% increase over fiscal 1993. Comparable drug store sales (stores open for one year or more) increased 8.2% during fiscal 1994 compared to a 6.1% increase in fiscal 1993. The increase in comparable drug store sales was primarily attributable to the increase in sales of prescription drugs. Comparable drug store sales growth was also positively affected by increased sales of non-prescription categories such as health, toiletries, convenience food and photofinishing items resulting from increased marketing emphasis and shelf space for these categories. Prescription sales as a percentage of drug store sales was 50.8% for fiscal 1994 compared with 48.3% for fiscal 1993. The growth in prescription sales was primarily the result of increased third-party prescription sales and the Company's competitive cash pricing strategy. These sales were strong despite a lower incidence of cough and cold/flu virus during the first and fourth quarters of fiscal 1994 compared to fiscal 1993. Third-party prescription sales represented 64.6% and 58.0% of the Company's prescription sales in fiscal 1994 and 1993, respectively. The Company expects prescription sales to third-party payors, in terms of both dollar volume and as a percentage of total prescription sales, to continue to increase in fiscal 1995 and the foreseeable future. Third-party payors typically negotiate lower prescription prices than those on non third-party prescriptions, resulting in decreasing gross profit margins on the Company's prescription sales. However, third-party sales contracts have resulted in increased volume of prescription sales and gross profit dollars. Cost of sales and related expenses in fiscal 1994 were $3.444 billion, a 10.2% increase over fiscal 1993. As a percentage of sales, cost of sales and related expenses were 76.6% and 76.0% for fiscal 1994 and 1993, respectively. The increase in cost of sales and related expenses as a percentage of sales resulted primarily from the continued increase in third-party prescription sales with typically lower gross profit margins than non third-party prescription sales. The LIFO charge was $10.8 million in fiscal 1994 compared to $8.5 million in fiscal 1993. Operating and administrative expenses in fiscal 1994 were $875.1 million, a 5.5% increase over fiscal 1993. As a percentage of sales, operating and administrative expenses were reduced to 19.5% for fiscal 1994 from 20.2% for fiscal 1993. The decrease in operating and administrative expenses in fiscal 1994 as a percentage of sales resulted primarily from the economies of scale related to the higher sales, and cost controls which helped produce lower costs as a percentage of sales in such expense categories as payroll, insurance and supplies. Additionally, non-cash tax deductible amortization of intangibles included in operating and administrative expenses for fiscal 1994 and 1993 were $31.9 million and $35.4 million, respectively, a decrease of 9.9%. In the fourth quarter of fiscal 1994, the Company decided to accelerate the closing of approximately 90 geograhically dispersed, under-performing stores over the next twelve to eighteen months, and established a $49.0 million reserve for future store closings. These closings are in addition to the small number of stores the Company closes in the normal course of business. The $49.0 million reserve includes approximately $27.0 million for lease settlements and obligations, approximately $4.0 million for severance and other expenses directly related to the store closings, and approximately $18.0 million for the write-off of impaired assets which include inventory liquidation and the write-off of intangible and fixed assets. Earnings before interest expense and income taxes in fiscal 1994 were $175.7 million a 13.3% increase over fiscal 1993. The increase in earnings before interest expense and income taxes was due primarily to the increase in gross profit dollars as a result of higher sales and other operating revenue and the decrease in operating and administrative expenses as a percentage of sales in fiscal 1994 compared to fiscal 1993. Total interest expense was $93.7 million in fiscal 1994, a decrease of 17.2% from fiscal 1993. The decrease was due primarily to the lower cost of debt to the Company resulting from fiscal 1993's refinancing, initial public offering of stock and 9.25% senior subordinated note issuance and the bank credit agreement revision which provided improved pricing. In addition, the decrease in interest expense was due to lower average borrowings in fiscal 1994, due primarily to paydowns of borrowings from net proceeds from the sale of Vision Group and Insta-Care operations, partially offset by the numerous marketplace interest rate increases during fiscal 1994. Amortization of original issue discount and deferred debt expenses decreased to $5.9 million in fiscal 1994 from $7.2 million in fiscal 1993 resulting from the refinancing and early retirement of certain debt issues in fiscal 1994 and 1993. Income tax expense was $4.1 million and $2.6 million in fiscal 1994 and 1993, respectively. Income tax expense in both fiscal years represents alternative minimum tax and state income taxes for the Company, and reflects the utilization of net operating loss carryforwards. As a result of the foregoing factors, the Company had earnings on an adjusted basis before extraordinary items of $77.8 million in fiscal 1994 compared to $39.4 million in fiscal 1993, an increase of $38.4 million or 97.5%, net income of $47.3 million in fiscal 1994 compared to a net loss of $5.0 million in fiscal 1993, a $52.3 million increase. The Company had extraordinary items of $30.5 million (net of tax benefit of $1.6 million) and $44.4 million (net of tax benefit of $0.9 million) in fiscal 1994 and 1993, respectively. The extraordinary item in fiscal 1994 is primarily from the write-off of deferred costs related to the significant revision of the bank credit agreement, as well as from the early retirement of $50.0 million of the 11.125% subordinated debentures. The extraordinary item in fiscal 1993 is primarily from the write-off of deferred costs from the early retirement of a portion of the 11.125% subordinated debentures, all of the 13% subordinated debentures and the redemption of the 14.5% preferred stock. Fiscal Year 1993 compared with Fiscal Year 1992 The following fiscal 1993 comparison is based on previously reported numbers as opposed to adjusted numbers. The Company's competitive pricing and cost reduction programs were both largely reflected in fiscal 1993. The Company's sales and other operating revenue for fiscal 1993 were $4.191 billion, a 7.8% increase over fiscal 1992. The increase in sales and other operating revenue was due primarily to a $245 million increase in sales of prescription drugs. Prescription sales as a percentage of drug store sales was approximately 48.3% for fiscal 1993 as compared with approximately 45.4% for fiscal 1992. The growth in prescription sales was primarily the result of increased third-party prescription sales, the Company's competitive pricing program and a high incidence of cough and cold/flu virus during the first and fourth quarters of fiscal 1993. Third-party prescription sales represented approximately 58.0% and 49.6% of the Company's prescription sales in fiscal 1993 and 1992, respectively. Comparable drug store sales increased 6.1% during fiscal 1993 compared to a 3.1% increase in fiscal 1992. The increase in comparable drug store sales was due primarily to the increase in sales of prescription drugs resulting from sales related to new third-party prescription plan contracts, the Company's competitive pricing program, and a high incidence of cough and cold/flu virus during the first and fourth quarters of fiscal 1993. In addition, comparable drug store sales growth was positively affected by increased sales of non-prescription itemsin the health and beauty, greeting card, convenience food and photofinishing categories resulting from increased marketing emphasis and shelf space for these categories, as well as increased sales of over-the-counter drugs because of the high incidence of cough and cold/flu virus during the first and fourth quarters of fiscal 1993. Total sales growth was positively affected by the growth in comparable drug store sales, as well as the inclusion of 34 drug stores acquired during the second half of fiscal 1992 and 19 drug stores acquired in the fourth quarter of fiscal 1993. Cost of sales and related expenses in fiscal 1993 were $3.175 billion, a 9.6% increase over fiscal 1992. As a percentage of sales, cost of sales and related expenses were 75.8% and 74.5% for fiscal 1993 and 1992, respectively. The competitive pricing strategy for non third-party prescription sales and the continued increase in third-party prescription sales, which typically have lower gross profit margins than non third-party prescription sales, partially offset by a lower LIFOcharge of $8.5 million ($15.0 million in fiscal 1992), were the primary reasons for the increase in cost of sales and related expenses as a percentage of sales in fiscal 1993. Operating and administrative expenses in fiscal 1993 were $858.0 million, a 0.3% increase over fiscal 1992. As a percentage of sales, operating and administrative expenses were reduced to 20.5% in fiscal 1993 from 22.0% for fiscal 1992 as a result of the higher sales in fiscal 1993 and lower costs as a percentage of sales in such expense categories as payroll, advertising, insurance and supplies as a result of the cost reduction program initiated in the second half of fiscal 1992. The implementation of the cost reduction program eliminated operating expenses of approximately $70.0 million in fiscal 1993, and the Company estimates that $10.0 million of such savings was recognized in fiscal 1992. Non-cash, tax deductible amortization of intangibles included in operating and administrative expenses in fiscal 1993 and 1992 were $35.6 million and $39.0 million, respectively, a decrease of 8.7%. Earnings before interest expense and income taxes increased to $157.2 million in fiscal 1993, a 16.1% increase over fiscal 1992, due primarily to the increase in gross profit dollars as a result of higher sales and other operating revenue and the lower rate of increase of operating and administrative expenses compared to the rate of increase in sales and other operating revenue. Total interest expense was $113.2 million in fiscal 1993, a decrease of 17.6% from fiscal 1992. The decrease was due primarily to lower interest rates in the marketplace and lower cost of debt for the Company after the June 1993 bank refinancing (Refinancing) and the 9.25% senior subordinated note issuance (Note Issuance) and the consummation of the initial public offering (IPO) of stock on August 12, 1993. The income tax provision for fiscal 1993 and 1992 was $2.6 million and $2.9 million, respectively. The income tax provision for fiscal 1993 and 1992 represents alternative minimum tax and state income taxes. As a result of the foregoing factors, the Company had earnings before extraordinary items in fiscal 1993 of $41.4 million, compared with a loss of $4.9 million in fiscal 1992, a net loss in fiscal 1993 of $2.9 million compared with a net loss of $4.1 million in fiscal 1992. The Company had an extraordinary item of $44.4 million (net of an income tax benefit of $0.9 million) in fiscal 1993, which was recognized as a result of the early retirement of existing indebtedness and the redemption of the Company's 14.5% preferred stock in connection with the Refinancing, the IPO and the Note Issuance. In fiscal 1992, the Company had an extraordinary item of $0.8 million which represented the tax effect of the utilization of the Company's net operating loss carryforward. Liquidity and Capital Resources On August 3, 1994, the Company entered into a significant revision to the bank credit agreement. The revised agreement provides for a total loan facility of $850 million. Although the revision did not provide any additional proceeds to the Company, it does provide improved pricing and increased operating flexibility with respect to acquisitions, capital expenditures and lease payments. The revolving loan facility was extended a year and increased to $350 million. The previous Tranche A and B term loan facilities were reduced to $500 million and combined into a six-year amortizing term loan facility. At January 28, 1995, the Company had approximately $434.4 million outstanding under the term loan facility, $21.0 million outstanding under the revolving loan facility and had $255.9 million available for borrowing under the revolving loan facility portion of the bank credit agreement which is net of $73.1 million of letters of credit. Pursuant to the bank credit agreement, the Company is required to make scheduled payments of the outstanding principal amount of the term loan facility in unequal quarterly payments. Prepayments made pursuant to the bank credit agreement are applied pro rata among the remaining scheduled term loan principal payments. The bank credit agreement matures in July 2000. On January 28, 1995 the Company had working capital of $280.3 million and a current ratio of 1.5 to 1 compared to $306.6 million and 1.5 to 1 at January 29, 1994. Although the Company's net earnings were $47.8 million for fiscal 1994, compared to a net loss of $2.9 million for fiscal 1993, cash flow provided by operating activities declined $50.9 million to $119.0 million for fiscal 1994 compared with $169.9 million for fiscal 1993. This decline was principally attributable to higher than normal cash payments to merchandise vendors in fiscal 1994, resulting in the reduction of accounts payable from an abnormally high balance at January 29, 1994 due primarily from the timing of vendor payment due dates. The decline was partially offset by an increase in certain accrued liabilities and a decrease in accounts receivable in fiscal 1994. Net cash from investing activities for fiscal 1994 and 1993 provided $50.6 million and used $19.0 million, respectively. Uses of cash were principally for capital expenditures of $57.2 million and $39.3 million for fiscal 1994 and 1993, respectively, for additions to the Company's drug stores and Express Photo units and improvements to existing stores, and in addition, in fiscal year 1994 for the installation of point-of-sale product scanning equipment and satellite communication equipment. In fiscal 1994, a source of cash to the Company from investing activities was provided by the sales of the Insta-Care operations and the Vision Group operations. In fiscal 1993, the sale and leaseback arrangement of photo processing equipment provided a source of approximately $35.0 million in cash to the Company. Capital improvements planned for fiscal 1995, including those to be acquired under a deferred payment arrangement and through operating leases, are expected to total approximately $119 million. Funds for the planned cash capital expenditures are expected to come from cash flow from operating activities and available borrowings, if necessary. Financing activities for fiscal 1994 used $172.8 million primarily for the reduction of bank borrowings and the early retirement of $50.0 million of the 11.125% subordinated debentures. Financing activities for fiscal 1993 used $157.4 million primarily for costs of approximately $57.0 million associated with the Refinancing and for the redemption of the Company's $75.0 million 14.5% redeemable preferred stock and payment of $4.9 million of cash dividends on such stock, and the net repayment of $106.0 million of debt. These uses of funds were offset partially by $64.6 million of net proceeds from the IPOand a $28.7 million increase in bank debit balances. The Company anticipates that the combination of amortization of intangibles and interest on debt will have a negative impact upon future earnings and, to a lesser degree, cash flow from operating activities. The Company does not believe, however, that the impact of such planned amortization and interest expense upon earnings indicates a present or future impairment of liquidity. Based upon the Company's ability to generate cash flow from operating activities, the available unused portion of the revolving loan facility under the bank credit agreement and other existing sources, the Company believes that it will have the funds necessary to meet the principal and interest payments on its debt as they become due and to operate and expand its businesses. The payment of dividends and other distributions by the Company is subject to restrictions under certain of the financing agreements to which the Company is a party, including the bank credit agreement, the 9.25% senior subordinated notes and the 11.125% subordinated debentures. The Company currently does not plan to pay dividends on its Common Stock. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share amounts) January 28, January 29, and January 30, respectively 1995 1994 1993 Sales and other operating revenue (note 1(c)) $4,549,031 4,190,539 3,887,027 Costs and expenses: Cost of sales, including store occupancy, warehousing, and delivery expense 3,444,141 3,175,375 2,896,479 Operating and administrative expenses 924,071 857,980 855,165 4,368,212 4,033,355 3,751,644 Earnings before interest expense 180,819 157,184 135,383 Interest expense: Interest expense, net 87,838 105,999 130,435 Amortization of original issue discount and deferred debt expenses 5,897 7,216 6,969 Total interest expense 93,735 113,215 137,404 Earnings (loss) before income taxes and extraordinary items 87,084 43,969 (2,021) Income tax expense (note 5) 8,753 2,556 2,864 Earnings (loss) before extraordinary items 78,331 41,413 (4,885) Extraordinary items: Early retirement of debt and preferred stock, net of tax benefit of $1,607 and $929 (note 4(a)) (30,523) (44,354) - Tax effect of utilization of net operating loss carryforward (note 5) - - 762 Net earnings (loss) for the year 47,808 (2,941) (4,123) Preferred stock dividends - 4,924 10,815 Net earnings (loss) attributable to common shares $ 47,808 (7,865) (14,938) Earnings (loss) per common share: Earnings (loss) before extraordinary items $ 2.41 1.24 (.59) Extraordinary items (.94) (1.51) .03 Net earnings (loss) $ 1.47 (.27) (.56)
See accompanying notes to consolidated financial statements. Consolidated Balance Sheets (In thousands, except share amounts) January 28 and January 29, respectively 1995 1994 Assets Current assets: Cash and short-term interest-bearing deposits plus accrued interest $ 8,898 12,110 Receivables, less allowance for doubtful receivables of $3,000 and $5,000 52,487 92,672 Merchandise inventories 771,122 765,653 Prepaid expenses and other current assets 2,366 6,232 Total current assets 834,873 876,667 Property, plant and equipment, at cost: Land 17,814 19,260 Buildings 74,002 73,404 Furniture and equipment 306,962 282,736 Transportation equipment 11,911 13,050 Leasehold improvements 131,502 127,480 542,191 515,930 Less accumulated depreciation 249,214 239,017 Net property, plant and equipment 292,977 276,913 Excess of cost over net assets acquired, less accumulated amortization of $16,715 and $15,083 27,667 31,594 Favorable lease interests, less accumulated amortization of $383,708 and $357,912 153,664 177,803 Unamortized debt expenses (note 4(a)) 10,138 38,779 Other assets 23,028 18,381 $1,342,347 1,420,137
See accompanying notes to consolidated financial statements. (In thousands, except share amounts) January 28 and January 29, respectively 1995 1994 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Bank debit balances $ 44,373 40,974 Current installments of long-term debt (note 4) 1,452 1,905 Accounts payable 287,551 363,136 Accrued interest 19,246 17,749 Accrued payroll 70,640 69,085 Other accrued expenses (note 9) 131,322 77,230 Total current liabilities 554,584 570,079 Other noncurrent liabilities (note 9) 124,944 76,094 Long-term debt, excluding current installments (note 4) 785,561 952,986 Stockholders' equity (deficit) (notes 1 and 6): Preferred stock of $.01 par value. Authorized 20,000,000 shares; none issued or outstanding - - Voting common stock of $.01 par value. Authorized 96,481,272 shares; issued 32,105,774 and 31,031,811 321 310 Nonvoting common stock of $.01 par value. Authorized 3,518,728 shares; issued 0 and 605,022 shares - 6 Capital in excess of par value 234,027 225,560 Retained deficit (357,090) (404,898) Total stockholders' equity (deficit) (122,742) (179,022) Commitments and related party transactions (notes 7 and 8) $1,342,347 1,420,137
Consolidated Statements of Stockholders' Equity (In thousands, except share amounts) Years ended January 28, 1995, January 29, 1994, and January 30, 1993 Capital Total Voting Nonvoting in stockholders' common common excess of Retained equity stock stock par value deficit (deficit) Balance at February 1, 1992 $236 6 153,500 (382,095) (228,353) Net loss for the year - - - (4,123) (4,123) 14 1/2% preferred stock cash dividends - - - (10,815) (10,815) Balance at January 30, 1993 236 6 153,500 (397,033) (243,291) Reclassification of common stock previously subject to put options 21 - 7,279 - 7,300 Common stock sold under employee stock option plan 1 - 272 - 273 Common stock sold in public stock offering, net of expenses of sale 52 - 64,509 - 64,561 Net loss for the year - - - (2,941) (2,941) 14 1/2% preferred stock cash dividends - - - (4,924) (4,924) Balance at January 29, 1994 310 6 225,560 (404,898) (179,022) Expenses for secondary public stock offering - - (953) - (953) Common stock sold under employee stock option plan 1 - 952 - 953 Contribution of common stock to profit sharing plan 1 - 895 - 896 Issuance of 303,060 shares of common stock at $25.00 per share for drug store acquisition 3 - 7,573 - 7,576 Conversion of nonvoting common stock to voting common stock 6 (6) - - - Net income for the year - - - 47,808 47,808 Balance at January 28, 1995 $321 - 234,027 (357,090) (122,742)
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows (In thousands) January 28, January 29, and January 30, respectively 1995 1994 1993 Cash flows from operating activities: Net earnings (loss) for the year $ 47,808 (2,941) (4,123) Adjustments to reconcile net earnings (loss) for the year to net cash provided by operating activities: Gain on sale of subsidiary (54,125) - - Reserve for store closing provision 48,988 - - Extraordinary charge related to early retirement of debt and preferred stock 32,130 45,283 - Depreciation and amortization 77,794 85,660 92,759 Amortization of original issue discount and deferred debt expenses 5,897 7,216 6,969 Decrease (increase) in receivables 12,047 (13,867) (633) Increase in merchandise inventories (22,621) (35,455) (19,104) Decrease (increase) in prepaid expenses and other current assets 3,048 (3,408) 1,108 Increase (decrease) in accounts payable and accrued expenses (31,978) 87,393 1,852 Net cash provided by operating activities 118,988 169,881 78,828 Cash flows from investing activities: Additions to property, plant and equipment* (57,246) (39,327) (51,389) Sale of property, plant and equipment 4,253 37,942 3,303 Net proceeds from sale of subsidiaries 114,912 - - Sale/purchase of long-term investments (net) - 1,173 1,161 Acquisition of certain drug store assets (5,253) (14,314) (30,475) Other (6,043) (4,514) 1,437 Net cash provided by (used in) investing activities 50,623 (19,040) (75,963) Cash flows from financing activities: Increase (decrease) in bank debit balances 3,399 28,743 (5,919) 14 1/2% preferred stock cash dividends - (4,924) (10,815) Additions to long-term debt 1,604 1,476 1,435 Reductions of long-term debt (2,926) (3,769) (4,730) Net additions (reductions) under prior credit agreement - (221,723) 34,913 Net additions (reductions) under current credit agreement (120,816) 576,189 - Redemption of 141/2% preferred stock - (75,000) - Common stock sold in public stock offering, net of expenses of sale - 64,561 - Issuance of 91/4% senior subordinated notes - 200,000 - Redemption of 13% and 111/8% subordinated debentures (50,000) (490,165) - Redemption of senior notes - (168,000) - Other, including redemption fees and deferred financing costs (4,084) (64,761) (7,545) Net cash provided by (used in) financing activities (172,823) (157,373) 7,339 Net increase (decrease) in cash and cash equivalents (3,212) (6,532) 10,204 Cash and short-term interest-bearing deposits plus accrued interest at beginning of year 12,110 18,642 8,438 Cash and short-term interest-bearing deposits plus accrued interest at end of year $ 8,898 12,110 18,642
See accompanying notes to consolidated financial statements. * Total capital expenditures for fiscal years 1994 and 1993 were $84,694 and $41,960, of which $27,448 and $2,633 were acquired under a deferred payment arrangement. Notes to Consolidated Financial Statements January 28, 1995, January 29, 1994, and January 30, 1993 (In thousands, except share amounts) (1) Organization of Business (a) Acquisitions and Merger. On April 30, 1986, all of the outstanding capital stock of Jack Eckerd Corporation (predecessor company) was acquired by certain affiliates of Merrill Lynch Capital Partners, Inc., affiliates of certain banks which provided a portion of the financing for the acquisition and certain members of management. The acquisition was accounted for using the purchase method of accounting. The cost of acquiring the capital stock was allocated to assets based on fair market values at April 30, 1986 as determined by American Appraisal Associates, Inc. The excess of cost over net assets acquired at May 1, 1986, as well as subsequent acquisitions, are being amortized on a straight-line basis over a period of 20 years. During 1992, 1993 and 1994, Eckerd Corporation (Company) purchased sixty-five drug stores (17 stores were closed subsequent to the acquisition) in four transactions at an aggregate cost of $51,302. The operations of such stores, which have been included in the consolidated financial statements from dates of acquisition, are not material to the Company and, accordingly, pro forma comparative operating numbers are not presented. (b) Initial and Secondary Public Offerings. On August 12, 1993, the Company completed an initial public offering (IPO) in which it issued and sold 5,175,000 shares of its Common Stock par value $.01 per share (Common Stock) for $14.00 per share. In connection with the IPO, the Company amended its Restated Certificate of Incorporation to affect, among other things: (i) the reclassification of its Class A common stock and Class B common stock into Common Stock at certain specified rates (Reclassification); (ii) a 2-for-3 reverse stock split (Stock Split); (iii) the adoption of certain provisions, such as a classified board of directors and the prohibition of stockholder action by written consent, which could make non-negotiated acquisitions of the Company more difficult; and (iv) the change of the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation." On May 2, 1994, the Company completed an underwritten secondary offering of 3,199,056 shares of its common stock for $19.00 per share. The secondary offering only included shares owned by certain institutional stockholders. The Company did not receive any of the proceeds from the sale of shares of common stock; and was required to pay certain expenses of the secondary offering. (c) Sales of Subsidiaries. On March 31, 1994, the Company closed on the sale of its Vision Group operations which were sold effective January 30, 1994 for an amount in cash and notes approximately equal to the book value of the related assets. In 1993, Vision Group sales were approximately $61,000 and earnings before interest and taxes were approximately $3,000. On November 15, 1994, the Company closed on the sale of its Insta-Care Pharmacy Services (Insta- Care) operations for a total consideration of $112,000 in cash. The net proceeds after certain closing adjustments was approximately $94,000. Insta-Care operations are included in the consolidated financial statements up to the closing date of the sale. In 1994, Insta-Care sales were approximately $89,000 and earnings before interest and income taxes were approximately $3,000. The Company recognized a gain on the sale of Insta-Care of $49,470, net of income taxes of $4,655. The gain of $54,125 before income taxes is reported in the consolidated statement of operations as part of sales and other operating revenue. (2) Summary of Significant Accounting Policies (a) Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in the consolidation. (b) Definition of Fiscal Year. The fiscal year ends on the Saturday nearest January 31. Fiscal years 1994, 1993 and 1992 ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively, and consisted of 52 weeks. (c) Merchandise Inventories. Inventories consist principally of merchandise held for resale and are based on physical inventories taken throughout the year. Inventories are stated at the lower of cost (last-in, first-out) or market. At January 28, 1995 and January 29, 1994, if the first-in, first-out method of valuing inventories had been used by the Company, inventories would have been higher than reported by approximately $76,900 and $66,100, respectively. (d) Income Taxes. Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that included the enactment. Previously, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11, which did not give recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The adoption of SFAS No. 109 had no material effect on the Company's financial position or results of operations. Prior years' financial statements were not restated. (e) Depreciation Policy and Maintenance and Repairs. Plant and equipment is depreciated principally by the straight-line method over the estimated useful lives of such assets. The principal lives used to compute depreciation are: Buildings 16-45; furniture and equipment 1-10; transportation equipment 1-8; and leasehold improvements 2-20. Maintenance and repairs are charged to expense as incurred. The Company's policy is to capitalize expenditures for renewals and betterments and to reduce the asset accounts and the related allowance for depreciation for the cost and accumulated depreciation of items replaced, retired or fully depreciated. (f) Favorable Lease Interests. Favorable lease interests represent the present value of the excess of current market rents at dates of acquisition over the below market rents of leases acquired (principally store locations). Such costs are amortized by the interest method over the lives of the favorable leases averaging approximately twenty years. (g) Unamortized Debt Expenses. Unamortized debt expenses represent underwriting discounts, professional fees and other costs related to the subordinated debentures and long-term debt refinancings (see note 4) which are amortized over the life of the debt instruments. (h) Original Issue Debt Discount. Original issue debt discount is the difference between the principal amount of the subordinated debentures and their issue price to the public. Such discount, which is treated as a reduction of the principal amount of such debentures, is amortized to provide a level interest cost over the term of the debentures. (i) Advertising Costs. Net advertising costs are expensed whenincurred and were $24,050, $26,758 and $45,918 for the years ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively. (j) Reclassification. Certain amounts have been reclassified in the 1992 and 1993 financial statements to conform to the 1994 financial statement presentation. (k) Supplemental Cash Flow Information. The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. During 1992, the Company converted debentures, which were held by certain members of management, totaling $8,092 to 1,304,289 shares of Common Stock. During 1994, the Company issued $7,576 of Common Stock in connection with the acquisition of certain drug stores. Cash paid for interest was $86,821, $120,329 and $128,896 for the years ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively. Cash paid for income taxes was $7,294, $1,273 and $1,816 for the years ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively. (l) Earnings (Loss) Per Share. Primary earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each fiscal year (32,431,719 in 1994, 29,392,805 in 1993 and 26,573,902 in 1992) restated for the August 12, 1993 Reclassification and Stock Split. (3) Employees' Benefit Plans (a) Profit Sharing Plan. The Company has in effect a noncontributory profit sharing plan which covers all regular, full-time employees. The Company makes annual contributions to the Plan at the discretion of the Company's Board of Directors. All funds are held by a bank as trustee under a trust agreement. Included in operating and administrative expenses are charges accrued for contributions to the Plan of $9,712, $8,765 and $7,433 for January 28, 1995, January 29, 1994 and January 30, 1993, respectively. Plan assets at fair value, consisting of fixed income securities, the Company's stock and listed stocks, amounted to approximately $201,400 for the plan year ended December 31, 1994. (b) Pension Plans. The Company has in effect a noncontributory pension plan covering all full-time employees who qualify as to age and length of service. Benefits are computed based on the average annual compensation for the five consecutive years that produce the highest average during the final ten years of creditable service. The Company's policy is to fund the Plan in accordance with minimum Internal Revenue Service requirements. The Company accounts for pension costs in accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." The funded status of the Company's pension plan at January 28, 1995 and January 29, 1994 was: As of January 28 and January 29, respectively 1995 1994 (Projected) Accumulated benefit obligation (including vested benefits of $32,504 and $24,210 at January 1, 1994 (most recent valuation date) and at January 1, 1993, respectively) $(36,482) (36,829) Effect of anticipated future compensation levels and other events (7,110) (1,806) Projected benefit obligation for service rendered to date (43,592) (38,635) Plan assets at fair value, consisting of fixed income securities and listed stocks 34,567 34,809 Plan assets less than projected benefit obligation (9,025) (3,826) Unrecognized prior service cost (1,508) (1,281) Unrecognized net loss 11,223 7,304 Unrecognized net transition asset at January 1, 1987, which is being amortized over 13 years (2,777) (3,454) Accrued pension cost $ (2,087) (1,257) Net periodic pension costs for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 included the following (income) expense components: Years ended January 28, January 29, and January 30, respectively 1995 1994 1993 Service costs (benefits earned during the period) $ 3,552 2,818 1,300 Interest cost on projected benefit obligation 3,159 2,548 2,245 Return on assets (3,411) (3,271) (2,707) Amortization of prior service cost (204) (161) (161) Amortization of net transition asset (677) (677) (677) Amortization of net loss 461 - - Net periodic pension cost $ 2,880 1,257 - Assumptions used in determining the accumulated and projected benefit obligations were: Weighted average discount rate 8.25% 7.5% 9% Weighted average long-term rate of return on assets 9% 9% 9% Rate of compensation increases 5% 5% 5% The Company has in effect an Executive Supplemental Benefit Plan to provide additional income for its executives after their retirement as well as pre-retirement death benefits to beneficiaries of such executives. Annual benefits will generally be no greater than 25 percent of the participant's salary mid-point on the date the participant retires or separates from service with the Company. (4) Long-Term Debt Long-term debt at January 28, 1995 and January 29, 1994 was: As of January 28 and January 29, respectively 1995 1994 Term loans, due July 29, 2000 (a) $434,373 - Tranche A term loans, due July 31, 1999 (a) - 429,948 Tranche B term loans, due June 15, 2000 (a) - 141,741 Revolving credit and bankers acceptances (a) 21,000 4,500 91/4% senior subordinated notes due February 15, 2004, $200,000 face amount (b) 200,000 200,000 111/8% subordinated debentures due May 1, 2001, $95,500 and $145,500 face amount, net of original issue discount of $6,542 and $10,943 (b) (c) 88,958 134,557 Variable rate demand industrial development revenue refunding bonds, due $8,250 March 1, 2009 and $10,000 May 1, 2013 (d) 18,250 18,250 Other (principally notes secured by fixtures and equipment) 24,432 25,895 Total long-term debt 787,013 954,891 Less amounts due within one year 1,452 1,905 Amounts due after one year $785,561 952,986 The aggregate minimum annual maturities of long-term debt for the next five fiscal years are: 1995 - $30,091; 1996 - $77,187; 1997 - - $76,903; 1998 - $81,684; and 1999 - $91,231. Although the Term Loan commitment requires a repayment of $28,640 during fiscal year 1995, the Company has excess availability under the revolving credit commitment, and accordingly, has not treated the 1995 required repayment as current. a) On June 15, 1993, the Company entered into a Credit Agreement which provided for (i) a $650,000 term loan facility consisting of a six-year amortizing Tranche A term loan facility of $500,000 (Tranche A Term Loans) and a seven-year amortizing Tranche B term loan facility of $150,000 (Tranche B Term Loans); and (ii) a $300,000 six-year revolving credit facility ($30,000 of which was available as a swingline loan facility and $155,000 as a letter of credit and bankers' acceptance facility) (Revolving Loans). The Company used the proceeds of (i) Tranche A Term Loan borrowings of $500,000, (ii) Tranche B Term Loan borrowings of $150,000, and (iii) Revolving Loan borrowings of $70,000 to (a) repay in full all amounts outstanding under the prior credit agreement dated as of July 13, 1990, as amended, with Morgan Guaranty Trust Company of New York and other lenders, which consisted of a revolving credit facility and a term loan facility; (b) to prepay in full the Hancock Senior Notes and the 113/4% Senior Notes, (c) to deposit with a trustee an amount sufficient to satisfy and discharge in full all indebtedness under the Floating Rate Notes; (d) to redeem approximately $295,200 of the 13% Discount Subordinated Debentures (the remaining $50,000 was subsequently redeemed with the proceeds from the issuance of the 91/4% Senior Subordinated Notes (note 4(b)); (e) to redeem the 141/2% Preferred Stock in full; and (f) to pay fees and expenses in connection with these transactions. An extraordinary charge of $44,354 (net of tax benefit of $929) was recognized during the year ended January 29, 1994 in connection with the early repayment of debt and preferred stock from the proceeds of the Credit Agreement, IPO and the Note issuance (note 4(b)). On August 3, 1994, the Company entered into a significant revision to the Credit Agreement. The new agreement provides for a total loan facility of $850,000. The new loan facility did not provide any additional proceeds to the Company, but it does provide improved pricing and increased operating flexibility with respect to acquisitions, capital expenditures and lease payments. The Revolving Loan facility was extended a year and increased to $350,000 (with the bank swingline loan facility and letter of credit and bankers' acceptance facility) and a six-year amortizing term loan facility (Term Loan) combined the Tranche A and Tranche B Term Loan facilities and was reduced to $500,000. An extraordinary charge of $30,523 (net of tax benefit of $1,607) was recognized during the year ended January 28, 1995, principally from the write-off of unamortized debt expenses related to the significant revision of the Credit Agreement, as well as the early repayment of debt from a portion of the net proceeds from the sale of Insta-Care. The Term Loans and the Revolving Loans bear interest at various rates approximating, at the Company's option (i) Alternate Base Rate (ABR) (as defined) plus 1/2% or (ii) adjusted LIBOR plus 11/2%. The spread above ABR may decrease by 1/4 of 1% in two separate instances and the spread above LIBOR may decrease by 1/4 of 1% in three separate instances if certain ratios of funded debt to specified measures of earnings are achieved by the Company. Interest on ABR borrowings is payable quarterly. Interest on LIBOR borrowings is payable at the end of the relevant interest period (one, two, three or six month periods, except that with respect to six-month periods, interest shall be payable every three months). The Company is required to pay a commitment fee of 1/2 of 1% per annum on the undrawn amount of the revolving facilities and it may decrease by 1/8 of 1% in two separate instances if certain ratios of funded debt to specified measures of earnings are achieved by the Company. The Company is also required to pay letter of credit fees and bankers' acceptance fees. The Company has entered into interest rate cap agreements relating to the Credit Agreement. The cap agreements are for $200,000 and mature at various dates over the next three years. The cap agreements have an approximate 6% interest rate. At January 28, 1995, these agreements had a value to the Company of approximately $2,000 in excess of their carrying values. Principal of the Term Loans by fiscal year will be amortized on the following schedule: 1995 - $28,640; 1996 - $76,373; 1997 - $76,373; 1998 - $81,147; 1999 - $90,693; and 2000 - $81,147. Principal of the Term Loans will be amortized in quarterly payments and mature in full on July 29, 2000. The Company has the right to prepay any borrowings under the Credit Agreement in whole or in part at any time. The Company is required to prepay borrowings under the Credit Agreement with (i) in any fiscal year, the excess of the aggregate net proceeds of dispositions of assets of the Company and its subsidiaries over $6,000; (ii) in any fiscal year, the net proceeds of any incurrence of debt (other than indebtedness permitted under the Credit Agreement); and (iii) 50% of all of the net proceeds of any equity issuance after net proceeds have been applied to redeem or repurchase the Company's 111/8% Subordinated Debentures. Prepayments are to be applied pro rata between outstanding Term Loans, applied pro rata among scheduled payments, and, after such loans are paid in full, to the swingline loans and then the Revolving Loans. The borrowings under the Credit Agreement are secured by a pledge of all capital stock of the Company's subsidiaries, as well as substantially all personal property, including inventory and accounts receivable and certain real property (as defined), contain certain restrictive covenants which provide limitations on the Company with respect to incurring debt, the incurring of liens, making investments in excess of $7,000, payment of dividends and purchase of shares of stock of the Company, consolidations and mergers, sale of assets, and transactions with affiliates. The Credit Agreement also requires the Company to satisfy certain financial ratios. At January 28, 1995, the Company was in compliance with these covenants. (b) On November 2, 1993, the Company issued $200,000 aggregate principal amount of 91/4% Senior Subordinated Notes (Notes) due February 15, 2004. The Notes are unsecured and subordinated to all existing and future senior debt (as defined) of the Company and are redeemable at the option of the Company, in whole or in part, at any time after February 15, 1999 at various redemption prices (as defined) plus accrued interest to the date of redemption. Interest is payable semi-annually on February 15 and August 15 of each year. The Company used the net proceeds from the issuance of the Notes to redeem the remaining $50,000 of the 13% Discount Subordinated Debentures and $145,000 of the 111/8% Subordinated Debentures (note 4(c)). (c) The 111/8% Subordinated Debentures are subordinated to all existing and future senior debt (as defined) of the Company, and are redeemable at the option of the Company, in whole or in part, at anytime at 100% of their principal amount plus accrued interest to the date of redemption. During 1993, $145,000 face amount of these subordinated debentures were redeemed by the Company (note 4(b)). During 1994, $50,000 face amount of these subordinated debentures were redeemed by the Company from a portion of the net proceeds from the sale of Insta-Care. (d) The variable rate demand industrial development revenue refunding bonds currently have an interest rate which is a daily rate established by First National Bank of Chicago and is indicative of current bid-side yields of high grade tax-exempt securities. At the Company's option, and under certain conditions, the interest rate may be changed to a monthly rate or a fixed rate. The bonds are secured by the related buildings, leases and letters of credit. (5) Income Taxes Income tax expense before extraordinary items was: Years ended January 28, January 29, and January 30, respectively 1995 1994 1993 Current: Federal $5,278 2,232 2,252 State 3,475 324 612 Total $8,753 2,556 2,864 For fiscal years 1994, 1993 and 1992, the income tax expense differs from amounts computed by applying the Federal statutory rates of 35% for the years ended January 28, 1995, and January 29, 1994 and 34% for the year ended January 30, 1993 to earnings (loss) before income taxes and extraordinary items. The actual tax differs from the expected tax (benefit) as follows: Years ended January 28, January 29, and January 30, respectively 1995 1994 1993 Expected tax (benefit) $30,479 15,389 (687) State taxes, net of Federal benefit 2,259 211 404 Changes in valuation allowance through the use of loss carryforwards (29,263) (15,276) - Other 5,278 2,232 3,147 $ 8,753 2,556 2,864 "Other" consists principally of alternative minimum tax for which no future benefit has been provided. In addition to alternative minimum tax credit carryforwards, the Company has Federal income tax loss carryforwards of approximately $218,000, which are available to offset future taxable income, if any, through 2008. The Company's Federal income tax returns have been examined through April 30, 1986 and any assessments have been paid or accrued. The Federal income tax returns for the fiscal periods ended January 31, 1987 and January 30, 1988 are currently being examined. The Company believes that an adequate provision for income taxes has been made for all open years. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows: As of January 28 and January 29, respectively 1995 1994 Deferred tax assets: Reserves and other liabilities $23,880 16,104 Amortization 7,804 7,009 Other 7,613 1,309 Loss carryforwards 82,745 125,377 Credit carryforwards 8,364 5,246 Gross deferred tax assets 130,406 155,045 Less valuation allowance (94,176) (108,958) Net deferred tax assets $36,230 46,087 Deferred tax liabilities: Inventory $23,481 22,091 Fixed assets 12,749 23,996 Gross deferred tax liabilities $36,230 46,087 Upon adoption of SFAS No. 109, effective January 31, 1993, the Company determined a valuation allowance requirement in the amount of approximately $108,400. (6) Stockholders' Equity (a) Common Stock. The Company's authorized common stock consists of 100,000,000 shares of Common Stock, par value $.01 per share (of which 3,518,728 shares are Nonvoting Common Stock (Series I), par value $.01 per share). (b) Preferred Stock. The Company's authorized preferred stock consists of 20,000,000 shares. The preferred stock is issuable in series with terms as fixed by the Board of Directors. No preferred stock has been issued. (c) Stock Options. The Company has reserved 1,666,667 shares of its Common Stock for the granting of stock options and other incentive awards to officers, directors and key employees under the 1993 Stock Option and Incentive Plan of Eckerd Corporation. Options are granted at prices which are not less than the fair market value of a share of common stock on the date of grant. Commencing three years after the date of grant, all options are exercisable to the extent of 50%, with an additional 25% exercisable after each of the next two successive years. Unexercised options expire ten years after the date of grant. Options granted under prior plans were surrendered and granted under the terms of the 1993 plan. Shares under option and option prices have been adjusted to reflect the Reclassification and the Stock Split (note 1(b)). As of January 28, 1995, January 29, 1994 and January 30, 1993, 229,177, 222,668 and 363,451 shares of Common Stock were availale for grant. At January 28, 1995, options for 349,860 shares of Common Stock were exercisable at $.56 - $14.00 per share. At January 29, 1994, options for 450,393 shares of Common Stock were exercisable at $.56 - $14.00 per share. At January 30, 1993, options for 490,777 shares of Common Stock were exercisable at $.56 - $30.00 per share. A summary of changes during the years ended January 28, 1995, January 29, 1994 and January 30, 1993 is set forth below: Shares under Option option prices Outstanding February 1, 1992 672,467 $ .56- $37.50 Granted 44,392 $27.00- $31.47 Exercised (24,100) $ 5.64- $26.75 Cancelled (5,799) $ 5.16- $36.00 Outstanding January 30, 1993 686,960 $ .56- $37.50 Granted 855,915 $10.00- $14.00 Exercised (74,395) $ 5.64- $ 9.23 Cancelled (61,476) $ 5.64- $36.00 Outstanding January 29, 1994 1,407,004 $ .56- $14.00 Granted 85,500 $14.00- $29.25 Exercised (124,499) $ .56- $14.00 Cancelled (92,009) $ .56- $24.63 Outstanding January 28, 1995 1,275,996 $ .56- $29.25 Options previously granted at prices greater than $14.00 per share were modified to $14.00 per share at the date of the IPO. (7) Commitments The Company conducts the major portion of its retail operations from leased store premises under leases that will expire within the next 25 years. Such leases generally contain renewal options exercisable at the option of the Company. In addition to minimum rental payments, certain leases provide for payment of taxes, maintenance, and percentage rentals based upon sales in excess of stipulated amounts. The rental expense for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 was: Years ended January 28, January 29, and January 30, respectively 1995 1994 1993 Minimum rentals $111,845 111,072 104,536 Percentage rentals 20,971 18,369 16,938 $132,816 129,441 121,474 At January 28, 1995, minimum rental commitments for the next five fiscal years and thereafter under noncancelable leases were as follows: 1995 - $100,802; 1996 - $96,644; 1997 - $90,968; 1998 - $78,618; 1999 - $71,277; and thereafter - $444,054. These amounts include approximately 90 under-performing drug stores to be closed (note 9). In 1987, the Company entered into an operating lease agreement for 72 stores with a third-party lessor established by an affiliate of Merrill Lynch & Co. (which, through affiliated entities, controls approximately 39% of the Company's common stock). The lease agreement has certain restrictive covenants, which, upon violation by the Company, gives the lessor the right to require the lessee to purchase the leased stores at the remaining balance of the lease contract. At January 28, 1995, the balance subject to the repurchase terms is $36,910. At January 28, 1995, the Company was in compliance with these covenants. During 1994 and 1993, the Company sold certain photo processing equipment to an unrelated third party for approximately $11,900 and $35,000, respectively, and entered into five-year leases with respect to such equipment. No gain or loss was recorded in connection with these transactions. Annual lease payments of $9,785 are required over the term of the leases. During 1993, the Company and Integrated Systems Solutions Corporation (ISSC) entered into a Systems Operations Service Agreement (Service Agreement) pursuant to which ISSC will manage the Company's entire information systems operation, including the implementation of a new point-of-sale system with scanning capabilities. The Service Agreement has a ten year term and the total payments to be made by the Company are expected to be between $400,000 and $440,000 over such term, depending on the optional services utilized. A portion of these payments is being accounted for as capital expenditures. As of January 28, 1995, the Company has acquired $52,428 of equipment, of which $30,081 has been acquired under a deferred payment arrangement. (8) Transactions With Related Parties In April 1989, the Company entered into a "Master Lease" agreement with a third-party lessor established by an affiliate of Merrill Lynch & Co. (which, through affiliated entities, controls approximately 39% of the Company's common stock) whereby such lessor would finance the acquisition of store sites and the construction of buildings and acquisition of equipment. As of January 28, 1995, there were 12 stores leased under the agreement with an aggregate cost of approximately $18,400. The Company pays the Merrill Lynch affiliate a structure fee of 1% of the cost of land, buildings and equipment financed under the Master Lease plus an administration fee. The Company paid the Merrill Lynch affiliate fees aggregating $43, $44 and $45 for the years ended January 28, 1995, January 29, 1994 and January 30, 1993, respectively. In July 1989, the Company entered into a Placement Agency Agreement with an affiliate of Merrill Lynch & Co. whereby such affiliate would act as exclusive placement agent for the private placement of up to a maximum of $200,000 at any one time, of unsecured notes. The Company did not issue any of these unsecured notes during the years ended January 28, 1995 and January 29, 1994. There were no notes outstanding under this facility at January 28, 1995 and January 29, 1994. During 1993, Merrill Lynch & Co., as one of the representatives of the underwriters in the IPO, received underwriting commissions and related fees of $1,847. In addition, as sole underwriter in the issuance of the Notes, Merrill Lynch & Co. received approximately $4,000 in underwriting discounts from the Company. During 1994, Merrill Lynch & Co. acted as financial advisors to the Company in connection with the sale of Insta-Care and received a fee of $1,417 for its services. (9) Store Closing Charges In prior years, the Company's accounting policy was to record the loss related to store closings upon the closing of the store. In the current year, the Company changed its accounting policy for closed stores to record the loss at the time the decision is made to close the store, in accordance with Emerging Issues Task Force Issue No. 94-3. In the fourth quarter of 1994, the Company established a $48,988 provision for future drug store closings. In addition to the small number of stores the Company will close in the normal course of business, the Company plans to accelerate the closing of approximately 90 geographically dispersed under-performing stores over the next 12 to 18 months. The total charge of $48,988 is included in operating and administrative expenses on the consolidated statement of operations. Of the total charge, approximately $31,000 relates to lease settlements and obligations and other expenses to be incurred subsequent to the store closings. The remaining charge of approximately $18,000 is for the write-off of impaired assets which includes inventory liquidation and the write-off of intangible and fixed assets. The effect of this accounting change on prior periods is immaterial. Independent Auditors' Report The Board of Directors Eckerd Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Eckerd Corporation and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended January 28, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eckerd Corporation and subsidiaries at January 28, 1995 and January 29, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended January 28, 1995, in conformity with generally accepted accounting principles. As described in note 9, the Company changed its accounting policy in the current year related to the timing of the recognition of closed store obligations. KPMG Peat Marwick LLP Tampa, Florida March 20, 1995 Quarterly Information (Unaudited) (Dollars in thousands, except per share amounts) Fiscal 1994 Quarters Ended 04/30/94 07/30/94 10/29/94 01/28/95 Financial Information Sales and other operating revenue $1,126,806 1,057,924 1,061,704 1,302,597 Cost of sales, including store occupancy, warehousing and delivery expense 856,694 811,315 822,181 953,951 Operating and administrative expenses 217,846 215,767 215,476 274,982 Interest expense 23,901 24,491 23,410 21,933 Earnings before income taxes and extraordinary item 28,365 6,351 637 51,731 Income taxes 1,420 330 32 6,971 Earnings before extraordinary item 26,945 6,021 605 44,760 Extraordinary item-early retirement of debt, net of tax benefit - - (26,620) (3,903) Net earnings (loss) available to common shares $ 26,945 6,021 (26,015) 40,857 Earnings before extraordinary item per common share $ .84 .19 .02 1.36 Net earnings (loss) per common share $ .84 .19 (.80) 1.24 Weighted average common shares outstanding 32,224 32,246 32,422 32,835 Market Price Per Share Information High $ 24 251/4 311/2 32 Low 181/2 181/8 231/4 253/8 (Dollars in thousands, except per share amounts) Fiscal 1993 Quarters Ended 05/01/93 07/31/93 10/30/93 01/29/94 Financial Information Sales and other operating revenue $1,055,152 981,195 972,675 1,181,517 Cost of sales, including store occupancy, warehousing and delivery expense 793,329 742,672 744,906 894,468 Operating and administrative expenses 210,420 209,526 212,200 225,834 Interest expense 32,660 30,870 25,161 24,524 Earnings (loss) before income taxes and extraordinary item 18,743 (1,873) (9,592) 36,691 Income taxes 923 1,332 (455) 756 Earnings (loss) before extraordinary item 17,820 (3,205) (9,137) 35,935 Extraordinary item-early retirement of debt and preferred stock, net of tax benefit - (27,663) (2,421) (14,270) Net earnings (loss) 17,820 (30,868) (11,558) 21,665 Preferred stock dividends 2,708 2,216 - - Net earnings (loss) available to common shares $ 15,112 (33,084) (11,558) 21,665 Earnings (loss) before extraordinary item per common share $ .56 (.20) (.29) 1.12 Net earnings (loss) per common share $ .56 (1.25) (.37) .68 Weighted average common shares outstanding 26,917 26,505 31,606 32,073 Market Price Per Share Information High $ - - 18 203/4 Low - - 123/4 133/4
The Company's stock is listed on the New York Stock Exchange (Symbol: ECK) and started trading August 6, 1993. The approximate number of shareholders of record on March 31, 1995 was 937. The Company is subject to restrictive covenants under its bank credit agreement and its 91/4% senior subordinated notes which restrict the payment of dividends. The Company has not paid or declared any dividend distributions on its common stock. Earnings (loss) per common share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings per share may not equal the annual earnings (loss) per common share. All quarters reflect the reclassification of previously issued Class A and Class B common stock into Common Stock, a 2-for-3 reverse stock split and the exchange of EDS Holdings Inc. common stock and merger into the Company. The third quarter of fiscal 1994 was restated to recognize an extraordinary item of $26,620 (net of a tax benefit of $1,402) for the write-off of unamortized debt expenses related to the significant revision of the Company's bank credit agreement. EX-21.1 20 Exhibit 21.1 ECKERD CORPORATION Subsidiaries of the Company At January 28, 1995, Eckerd Corporation, incorporated in the State of Delaware, had eight wholly-owned subsidiaries, which are included in the consolidated financial statements of the Company. The names of the eight subsidiaries have been omitted because these unnamed subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. EX-23.1 21 Exhibit 23.1 The Board of Directors Eckerd Corporation and Subsidiaries Re: Registration Statement on Form S-3 (No. 33-50223) Registration Statement on Form S-8 (No. 33-49977) Registration Statement on Form S-3 (No. 33-10721) Registration Statement on Form S-8 (No. 33-50755) Registration Statement on Form S-3 (No. 33-56261) We consent to the incorporation by reference in the above referenced registration statements of Eckerd Corporation and subsidiaries of our report dated March 20, 1995, relating to the consolidated balance sheets of Eckerd Corporation and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows, and related schedules for each of the years in the three-year period ended January 28, 1995, which report appears in the January 28, 1995 Annual Report on Form 10-K405 of Eckerd Corporation and subsidiaries. KPMG Peat Marwick LLP Tampa, Florida April 27, 1995 EX-27 22
5 0000031364 ECKERD CORPORATION 1,000 YEAR JAN-28-1995 JAN-28-1995 8,898 0 55,487 3,000 771,122 834,873 542,191 249,214 1,342,347 554,584 785,561 321 0 0 (123,063) 1,342,347 4,549,031 4,549,031 3,444,141 3,444,141 916,923 7,148 93,735 87,084 8,753 78,331 0 (30,523) 0 47,808 1.47 1.47
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